Article contributed by Tin Money.
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“The function of economic forecasting is to make astrology look respectable” — John Kenneth Golbraith
Bitcoin is Digital Gold
But is it really? Best I can tell, there are two things that really get crypto investors upset when I say them out loud:
- The crypto market is zero-sum; and
- Bitcoin can zero-out.
With props to Jason P. Lowery, I am a recent Bitcoin convert. Prior to reading Mr. Lowery’s general thesis on the defence value of Bitcoin, I didn’t care too much about Bitcoin.
Oddly enough, back in 2010, I bought my first Bitcoin. I tried to mine it back then, but failed. Found a fellow on a message board that agreed to sell me some BTC. I sent a money order, some BTC arrived a few days later, and then promptly dumped 80% in value.
Assuming I just got scammed, I deleted the wallet.
Never really looked back. Was interested in Ethereum early on as well, but with the Bitcoin “scam” fresh in my memory, I didn’t bother with that either.
And before you mock me for my epic shortsightedness, I will say with 100% confidence that I never…and I mean NEVER…would have hodl’d BTC.
I know myself well enough to know that if I had kept my BTC, I would have dumped it the second it hit $10. And if by some miracle I had held to $100, same deal. I would have sold without a second thought.
There is zero chance I would have done what all those old school whales did and hodl like a maniac through all the crazy ups and downs BTC has gone through since its birth. Now those maniacs are multi-million, and multi-billionaires today.
They’re still maniacs.
Image: Imgflip
Taking profit is rational
If you’ve been investing in crypto for any length of time, undoubtedly you have ridden a wave up, only to ride it all the way back down. I certainly have. It sucks.
Contrast my Bitcoin story above with what happened to one of my law professors. He bought BTC at around $1 dollar back in the Mt. Gox days. He had roughly half his BTC stored with Mt. Gox.
Mt. Gox then “lost” a few hundred thousand BTC, including my professor’s. He was down a few thousand dollars, but he couldn’t do much about it. Fast forward a few years when BTC started making the news for hitting around $2500, and my professor started thinking.
He dug out an old computer and booted it up. Sure enough, there was an old wallet he had forgotten about. He opened it up and boom, roughly 5600 BTC just sitting there.
If I remember correctly, he said he had just “made” $14 million. And he promptly sold all of it as soon as he could. Why? Because that’s the smart thing to do.
But he could be a billionaire now you might say. True. And he could have just as easily rode all the way back to $1. Point is, there was no way of knowing which way it would go.
Anyone who says otherwise is a maniac.
Ride the wave, not the washing machine
Is BTC a good investment today? Maybe. Probably. Most likely. I will express my eternal gratitude to Benjamin Cowen for enlightening me on the folly of long-hodling alts during bear markets.
Based on Mr. Cowen’s “Not Financial Advice” advice, I dumped almost everything for stables. I was upside down on BTC, STG, GALA, and SPIRIT. And I was in fat profits on AQUA and FXS. Mr. Cowens’ thesis is: if BTC is bleeding, alt-coins will bleed harder and faster.
Solution? Don’t hold them. Wait until the market bottoms, and then buy back in. Simple really. However, it was counterintuitive to sell my losers, and REALLY hard to rein in my greed on the winners.
But I’m glad I did. Had I held any of those positions until now, I’d be rekt. Knowing what I know now, I held my winners too long. Still got out on the plus side, but could’ve done better.
It occurred to me during this time that crypto investing is like surfing. The goal with surfing is to catch a wave, ride it, and bail before you wipeout.
Image: Pixteller
There’s an equivalent investing term for doing this. It’s called momentum trading. In case you’re wondering, momentum trading is insanely risky. I don’t recommend it to anyone. Then again, long hodling alt-coins is insanely risky too.
Just ask the recently rekt Terra Lunatics.
Part of my background is in trad-fi legal research. And from that background, I know only a tiny handful of professional forex and equities traders outperform the market on any significant time horizon.
When it comes to retail traders, the vast majority who try would be far better off buying lotto tickets. They’d lose money WAY less fast that way. But crypto trading is a little different.
I don’t know the success rate for crypto traders. I’d guess it’s not great. But tracing back to the beginning of this article, crypto trading is unique for two reasons:
- Crypto investing is zero-sum; and
- Bitcoin can absolutely go to zero.
Here’s why that is relevant.
Zero sum “investing”
If you take all profits and losses since the beginning of the crypto markets and subtract them from the market, the result is zero. There’s more to cyrpto markets than simple ponzi-nomics, but certainly far less going on than equities.
The clever among you might recognise the huge pump in crypto through 2021 also coincided with the most massive monetary expansion in the history of the United States. Those things are related.
Crypto is a bubble market that is (currently) almost entirely reliant on loose monetary policy and the constant infusion of new money to thrive. When one (or both) dries up, crypto tanks. When one (or both) come in, crypto booms. It’s pretty simple.
There are some things to glean from this knowledge. Narratives that are attractive to unsophisticated buyers are generally more important than fundamentals. Herding, anchoring, and cultish investor behaviour is pervasive.
Personality driven “experts” wield outsize influence over technically naïve, financially illiterate investors. Fear is, by far, the dominant investor emotional state, both up and down. And overconfidence is, by far, the dominant investor psychological state.
How do I know this? Because those are the same general macro conditions and the same general investor profile for retail stock purchasers for the last 40 years. Those are the sources of the volatility, and the wave-like booms and busts in equities since 1982.
Crypto markets just do it all more swiftly, and more violently.
This is partly because crypto is a completely unregulated space that any baboon can pump their life savings into with the click of a mouse. And partly because crypto grew up after the failure of 2008, and the insane monetary expansion that followed.
Knowing why the waves happen, and when and where they’re coming from makes surfing more fun. Same is true in crypto.
Bitcoin can zero out
If, God forbid, the Russian war with Ukraine spirals into a widespread European conflict, what do you think the price of Bitcoin will be? Russian and Chinese tanks are rolling into Poland, with US and NATO forces scrambling to meet them…and Bitcoin is…$20,000? $2,000? $2?
Hard to say, right? I’m guessing it won’t be hitting a new all-time high.
If inflation stays persistently high, and the Fed keeps inflating their way out of trouble, mass Bitcoin adoption might become a thing. For the people and the nations of the world getting stung by dollar devaluation, Bitcoin might be a rope, or it might be a helicopter.
It’s not ready to do either one just yet. But it’s getting closer every day. Like I said, I am a recently converted Bitcoin enthusiast. Given the right conditions, I think Bitcoin is going to enjoy explosive adoption and growth pretty soon.
I also know it can go also to zero. The overwhelming likelihood is that it will NOT go to zero. But it most definitely can. Thus, I also know it’s okay to sell Bitcoin if it’s tanking.
I believe Benjamin Cowen’s thesis that Bitcoin will increase in value over time. I believe that with a caveat. I agree it will increase assuming there isn’t a global catastrophe in the meantime.
To put this into the surfing analogy, conditions in the ocean are pretty flat right now. But I know the sea and I’m pretty sure I’ll catch another wave, even if I have to wait a while.
That is, so long as a shark doesn’t come into the area, or a storm doesn’t break out, or an oil-tanker doesn’t start spewing oil all over the coast. In other words, the next ride isn’t a guarantee. But it’s pretty likely, so long as nothing terrible happens before I get back to the line-up.
Same is true for crypto.
Conclusion
Here’s my theory, for what it’s worth. Don’t hodl into the toilet. Sell high and buy low.
Genius, right?!
Seriously though. Don’t be tribal. Don’t marry your bags, including your BTC bags. When knives are falling, the best place to be standing is on top of a mound of cash.
I have complete confidence the Fed is going to turn the money printer back on. I don’t know how far the markets will have to tank before they do. But I do know the markets will tank until that Fed printer is running again.
That’s how bubble economies work.
Until then, I’m doing a little momentum trading here and there. It’s like riding the little waves while waiting for the big ones to come rolling in. Like I said, I don’t recommend it.
I’ve also doubled my profits from AQUA and FXS as a result. I’m running about a 70% hit rate so far. But I just got boned on an AQUA trade as I was writing this, so there’s that.
Sometimes even the little waves can eat you up. I’m just trying to have a little fun while I wait for the big BTC sets to roll in.
That’s gonna be gnarly bruh.
Here’s a quick shill for a Medium subscription. Subscribing will give you thicker, fuller hair. It will also help me buy a cup of coffee. Please and thank you.
And remember, these are just my opinions. I’m not a financial advisor, this isn’t financial advice, and always DYOR. Following any of these ideas might cause you to lose all of your money. I am 100% serious about that. I like tinkering with this stuff, but I’m on record acting like a total baboon. Invest accordingly.
Until next time, be safe, be smart and be sure to tie the camel.
