Day Dreaming

The Bogglehead FIRE world is built around a narrative: Just DCA into “safe” “low cost” index funds every month and soon enough you’ll be rich, rich I tell ya!

WallStreetBets has a narrative: The little guy can form a formidable network and through network effects beat the Hedge funds and AI at their own game.

The real estate moguls have a narrative: Buy some property, rent it out, use the proceeds to buy more and build a perpetual money machine.

Each has it nuisance in risk, profitability, and likelihood of success. Each has its ship wrecked on the rocks scenario. If you’re invested in these you should be able to quote chapter and verse the pro’s and con’s. Crypto OTOH has one narrative: “It’s funny money! It’s going to zero!” I believe this to be a false narrative. The likelihood of crypto being funny money is silly. I can sell a single BTC today and walk away with $57,525.83 dollars in cash. If BTC is funny money $100 bills are funny money. The idea it’s going to zero is also about zero. I bought some in 2015 and that BTC has ALWAYS been 400% profitable (5x my money) even after the 2018 crash. I saw a +_ 45% volatility in 2018 BUT NOT a goose egg. BTC remains volatile but not nearly as volatile as 2018. The solution to eating a ghost pepper is to eat at most a tiny bit. The solution to owning Crypto is to buy a tiny bit. The videos below, average 3 models so I’ll use the model averages To retire to the Caymans in 2030 on the average inflation adjusted income of $7322/mo, using the average model requires you own 2.14 BTC today or a 123K investment. If you go all ETH using the same average modeling process, 54 ETH or 104K investment is required. I would buy 92.25K of BTC (.75*123K) and 26K (.25*104K) of ETH (118.25K total investment) for a tangent portfolio yielding the greatest return for the least risk. The models take into account a 3% inflation rate.

I was cruising YOUTUBE and came across a couple FIRE Crypto projection narratives. Very well done and good for a Sunday evening speculation. It takes surprisingly little money to enter the projected Crypto exponential growth narrative.

I own both BTC and ETH such that for every $100 of total crypto I own, $75 is BTC and $25 is ETH. I read a study that the efficient frontier tangent portfolio of BTC:ETH is this ratio. In the past year this ratio has proven to be roughly correct oscillating between 70:30 and 80:20 but then revising back to a mean of 75:25. Here is a list of correlations:

BTC SPX VIX $USD GOLD 10Y TIP ETH XRP LiteCoin BTC Cash

1 0.10 -0.2 0.03 -0.09 -0.09 .55 .07 .75 .53

ETH BTC SPX VIX $USD GOLD 10Y TIP ETH XRP Litecoin BTC Cash

1 .55 0.18 -0.33 0.11 -0.26 -0.03 1 0.10 0.70 0.33

You can see how both BTC and ETH serve to provide added diversity to a portfolio, and to each other. (Above data taken from Hedgeye Crypto Quant newsletter 2/18/2021).

Have fun day dreaming!

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