Every time I get into an investment the very first thing I do is figure out how to get out. Once you buy the risk you have to decide when to sell the risk. Risk is the actual thing we trade. If we buy the risk low, our next task is to try and figure out when/how to sell that risk high, or at least to sell it at a small loss.
The Bogglehead philosophy is BUY. Every month BUY. If the market goes up 100% regardless of cost BUY more risk. If the market drops 50% BUY more risk. The Bogglehead philosophy presumes a constant rightward and upward growth curve. It’s the ultimate in recency bias. The BTC game at present is asymmetric exponential growth.
People and youtube is full of blue curve mania. Will BTC go to 250K, 500K 1000K? 10,000K? Right mow BTC is running on a Bogglehead dominant philosophy. Just keep buying more and more risk and ignore reality. BTC will eventually become a red curve dominant reality. As institutions buy in they will not buy risk at any price. They will manage risk because that’s how they make money. Managing risk means some BTC actually gets sold at various points like quarterly rebalancing. At some point, a well defined well known point (when the second derivative of the red curve goes negative) the growth starts to slow. It still grows but at a slower rate. At that point the exponential growth party is over. At that point the cost of your risk goes way up.
When that point happens I don’t have a clue, but that red graph is how things will play out for BTC. Institutional adoption because they actually manage risk will force growth to be managed also which means the volatility of the asset will be dramatically reduced. It means the rate of growth drops, the asset goes from being underpriced to correctly priced and the price growth due to asymmetry vanishes.
ETH OTOH isn’t relying on asymmetric growth to create it’s value but it’s ability to do work. It’s protocol will make it into a super secure and super efficient means of transaction and therefore a low friction secure platform upon which to do business. Right now there is a bunch of friction built into transactions. Everybody is skimming points. ETH eliminates “the everybody” and so the transaction occurs between node A and Node B. The transaction is transparent and permanent and secure. Because of a high degree of reliability ETH contracts They eventually will become the basis for credit, leverage and derivative trading IMHO.
BTC’s feature is it doesn’t belong to anybody but you. It’s open source and apolitical. ETH’s feature is it will cost more to steal anything than the value in what you can secure in the theft. I’ve seen credible professionals (not swinging dick youtubers) do log regression analysis ranging from 400K to 1.2M per BTC occurring in 1 to 5 years. So if those values are correct and you have say 10 coins take 1 off the table at 400K. Take another off the table at 500K another at 600K. That leaves 7 coins and 1.5M in cash. I would continue to sell coins till I have 5 left. As the value goes up the asymmetric return goes down and the sky’s the limit becomes limited. Once half the value has been extracted, half the risk is also extracted. BTC can be used to generate interest. Right now as much as 8%. The remaining 5 would then go into generating interest. This plan or some similar variant. In the end it’s not how much money you make, it’s about how much risk you hold.
BTC is NOT an American phenomena. It is a global phenom. It’s traded 24/7. It does not respect American holidays. Lately the volatility has been occurring in the middle of the night aka in the middle of the Asian day. Americans and American financial media tends to have a very parochial understanding of “markets”. BTC doesn’t care about the QQQ’s or a bunch of anti-fa dressed up like buffalo storming the Capitol to take a bunch of selfies.
4 Replies to “What Blows Up BTC?”
Thanks for your valuable insight into crypto world. What are your thoughts on buying BTC now for someone as his/her first foray into crypto world ? If one can afford to buy 1 BTC now at 40k and say that is 1% of net worth, should one buy now or wait for pull back which may never happen ?
I’ve read that because of scarcity if you own .25 BTC you will be in the top 1% of coin holders. Buying .25 gets you on the board. I don’t know what to say about the other 3/4 of a BTC in terms of volatility. There will likely at some point be a pull back. Right now demand is so great pullbacks seem to last minutes. I got up to pee a few nights ago and the market was down several thousand. By the time I got back it had retraced 50% and by morning the “pull back” was all done so the time frame is VERY compressed. My night is Asia’s day so the downdraft likely happened in Asia. My feeling is the US stock market is going to undergo a severe correction in the later half of this year and when that happens everything goes on sale. I’m on the board so there is no rush to overpay. If I miss my chance I’m on the board and I win. If the market crashes (say BTC goes to 20K) I buy some more wait and win even bigger. Stock to flow and log regression suggests a price range between 140K and 1.2M in the next 5 years so unless there is a unknown risk I’ll start unloading some as it passes the inflection. BTC undergoes a “halving” every 4 years (or so) and the price thus far is significantly higher 6 to 18 mos following a halving. The last one was in May 2020 so we are 20% to the next one. This gives you some kind of time frame. By 2023 you want to have made the rest of your purchase.
I would also buy a few ETH. I saw a video that showed BTC v ETH growth on the Y and addresses of holders on the X and ETH had exactly the same growth per address as BTC but the time frame was skewed forward by 5 years for BTC compared to ETH. Addresses is another way of looking at node growth and node growth is predicted by Metcalf’s law (which may or may not be a thing but seems to hold as a controlling algorithm). If true ETH is modeling BTC from 5 years ago. I bought my first BTC for 275/coin 5 years ago. I bought ETH for $100 in March. If this analysis is true getting in on ground floor ETH maybe like getting in on BTC in 2015. ETH has a very different use case than BTC that in fact may turn out to be even more powerful in the long run. BTC is like gold and gold is a 10T market cap ETH is about contracts. All derivatives are contracts. The derivative market is 4 quadrillion market cap.
Thanks for detailed response. I’m leaning towards buying .25 BTC now as you suggested and wait for any opportunity to buy more. At least that way I’ll be on board. Will buy ETH as well in the ratio of 75:25 for BTC to ETH as previously recommended by you.
I have no idea where we are in the cycle so this may be a relatively high entry price but over the next 5 to 8 years multiple expansions are likely