Author Topic: What do you think of adding a low% of crypto allocation  (Read 72349 times)

boarder42

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Re: What do you think of adding a low% of crypto allocation
« Reply #550 on: November 09, 2021, 05:27:04 PM »
I noticed the anti-crypto folks here constantly claim the pro-crypto folks say XYZ but in reality it's the opposite.  The post always start with something like, "I keep reading the pro-crypto folks say XYZ but..."  Why I this so common on one side and why don't they rebut the actual arguments raised?
please go re read the entire thread there are many comments that have been made by pro crypto folks about the size of crypto and how that means it will stick around.

i'm not going to go pull all the direct quotes from everyone every time someone questions when they said something b/c honestly i dont care.  crypto will not make me rich b/c i dont own any but its highly likely to make alot of people poor who are over tilted either here or in the world.

Zero pro-crypto posters have made any claims about "too big to fail" in this topic. The only prior mention was from, you guessed it, boarder42.

Several pro-crypto posters have emphasised how big the crypto market is, but only to counter ravings about it all being worthless and just like beanie babies, etc. That's not the same thing.

Sweet so we can all agree then that the size of the crypto market has absolutely no value as to whether it will succeed long term. So we can stop referring to the market cap of crypto as indication of it's success or lack there of.

LateStarter

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Re: What do you think of adding a low% of crypto allocation
« Reply #551 on: November 09, 2021, 06:10:32 PM »
I noticed the anti-crypto folks here constantly claim the pro-crypto folks say XYZ but in reality it's the opposite.  The post always start with something like, "I keep reading the pro-crypto folks say XYZ but..."  Why I this so common on one side and why don't they rebut the actual arguments raised?
please go re read the entire thread there are many comments that have been made by pro crypto folks about the size of crypto and how that means it will stick around.

i'm not going to go pull all the direct quotes from everyone every time someone questions when they said something b/c honestly i dont care.  crypto will not make me rich b/c i dont own any but its highly likely to make alot of people poor who are over tilted either here or in the world.

Zero pro-crypto posters have made any claims about "too big to fail" in this topic. The only prior mention was from, you guessed it, boarder42.

Several pro-crypto posters have emphasised how big the crypto market is, but only to counter ravings about it all being worthless and just like beanie babies, etc. That's not the same thing.

Sweet so we can all agree then that the size of the crypto market has absolutely no value as to whether it will succeed long term. So we can stop referring to the market cap of crypto as indication of it's success or lack there of.

FFS - yet another straw-man response in a discussion about persistent straw-manning ! The irony would be hilarious if it wasn't such a tedious waste of time.

boarder42

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Re: What do you think of adding a low% of crypto allocation
« Reply #552 on: November 09, 2021, 06:12:50 PM »
I noticed the anti-crypto folks here constantly claim the pro-crypto folks say XYZ but in reality it's the opposite.  The post always start with something like, "I keep reading the pro-crypto folks say XYZ but..."  Why I this so common on one side and why don't they rebut the actual arguments raised?
please go re read the entire thread there are many comments that have been made by pro crypto folks about the size of crypto and how that means it will stick around.

i'm not going to go pull all the direct quotes from everyone every time someone questions when they said something b/c honestly i dont care.  crypto will not make me rich b/c i dont own any but its highly likely to make alot of people poor who are over tilted either here or in the world.

Zero pro-crypto posters have made any claims about "too big to fail" in this topic. The only prior mention was from, you guessed it, boarder42.

Several pro-crypto posters have emphasised how big the crypto market is, but only to counter ravings about it all being worthless and just like beanie babies, etc. That's not the same thing.

Sweet so we can all agree then that the size of the crypto market has absolutely no value as to whether it will succeed long term. So we can stop referring to the market cap of crypto as indication of it's success or lack there of.

FFS - yet another straw-man response in a discussion about persistent straw-manning ! The irony would be hilarious if it wasn't such a tedious waste of time.

Kinda like joining a fire forum to talk about crypto?

aceyou

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Re: What do you think of adding a low% of crypto allocation
« Reply #553 on: November 09, 2021, 06:25:08 PM »
I noticed the anti-crypto folks here constantly claim the pro-crypto folks say XYZ but in reality it's the opposite.  The post always start with something like, "I keep reading the pro-crypto folks say XYZ but..."  Why I this so common on one side and why don't they rebut the actual arguments raised?
please go re read the entire thread there are many comments that have been made by pro crypto folks about the size of crypto and how that means it will stick around.

i'm not going to go pull all the direct quotes from everyone every time someone questions when they said something b/c honestly i dont care.  crypto will not make me rich b/c i dont own any but its highly likely to make alot of people poor who are over tilted either here or in the world.

Zero pro-crypto posters have made any claims about "too big to fail" in this topic. The only prior mention was from, you guessed it, boarder42.

Several pro-crypto posters have emphasised how big the crypto market is, but only to counter ravings about it all being worthless and just like beanie babies, etc. That's not the same thing.

Sweet so we can all agree then that the size of the crypto market has absolutely no value as to whether it will succeed long term. So we can stop referring to the market cap of crypto as indication of it's success or lack there of.

I can't think of a sector where the market cap size WOULDN'T be an indication of the current state of the sector.  If the market cap for automotives worldwide was 500 Billion, and the next year was 450B, then 400B, then 350B, I think that would be an indicator.  I think every CEO for every automotive company would be crapping their pants, and it would be talked about (for good reason) by every pundit on TV.

Is it possible that I'm missing something important in this conversation that happened earlier?  But it seems like crypto's quickly growing market cap is a REALLY good indication that it is having some success.  Whereas if coders were pouring tons of hours into projects, and no one was putting any money behind them year after year, that'd be a real indication of a problem to me.

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Re: What do you think of adding a low% of crypto allocation
« Reply #554 on: November 09, 2021, 06:54:05 PM »
What was the market cap for subprime mortgages in 2007 again?

effigy98

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Re: What do you think of adding a low% of crypto allocation
« Reply #555 on: November 09, 2021, 07:07:58 PM »
What was the market cap for subprime mortgages in 2007 again?

Probably looks something like the CAPE.

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Re: What do you think of adding a low% of crypto allocation
« Reply #556 on: November 09, 2021, 07:30:47 PM »
I noticed the anti-crypto folks here constantly claim the pro-crypto folks say XYZ but in reality it's the opposite.  The post always start with something like, "I keep reading the pro-crypto folks say XYZ but..."  Why I this so common on one side and why don't they rebut the actual arguments raised?
please go re read the entire thread there are many comments that have been made by pro crypto folks about the size of crypto and how that means it will stick around.

i'm not going to go pull all the direct quotes from everyone every time someone questions when they said something b/c honestly i dont care.  crypto will not make me rich b/c i dont own any but its highly likely to make alot of people poor who are over tilted either here or in the world.

Zero pro-crypto posters have made any claims about "too big to fail" in this topic. The only prior mention was from, you guessed it, boarder42.

Several pro-crypto posters have emphasised how big the crypto market is, but only to counter ravings about it all being worthless and just like beanie babies, etc. That's not the same thing.

Sweet so we can all agree then that the size of the crypto market has absolutely no value as to whether it will succeed long term. So we can stop referring to the market cap of crypto as indication of it's success or lack there of.

FFS - yet another straw-man response in a discussion about persistent straw-manning ! The irony would be hilarious if it wasn't such a tedious waste of time.

Kinda like joining a fire forum to talk about crypto?

Who joined a FIRE forum to talk about crypto ? Not me. I joined long ago to learn about FIRE.

I understand that crypto is not mainstream MMM and I would expect the majority here to be against putting money into crypto. I don't understand why that should mean that crypto can't be discussed in a rational / logical manner. Maybe it can't but it's quite puzzling . . .

Radagast

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Re: What do you think of adding a low% of crypto allocation
« Reply #557 on: November 09, 2021, 07:54:52 PM »
Let me start  by saying I don't see anything wrong with a 5-10% crypto allocation. Even if you start just now, and the entire crypto market goes on to lose >99% sometime in the next 20 years, it could still be useful depending on the timing, circumstances, and how you structure your rebalance bands. Now to my main point.



I like the pretty patterns
Exciting isn't it? It only has to go up like another factor of 15X before it exceeds the value of all dollar debt, and another 100X before it exceeds the value of outstanding debt in all currencies. I should buy popcorn now before it is all sold out! This is history in the making.

Congress, please don't do anything about this.

talltexan

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Re: What do you think of adding a low% of crypto allocation
« Reply #558 on: November 10, 2021, 07:55:08 AM »
If an asset were to experience a drawdown of 99%, that would be a deal-breaker for me. I tolerate the stock market despite its 50%-ish drawdowns that happened three times in my lifetime because I think I have the discipline to hold stocks through those drawdowns.

If--starting from equal weights--stocks drop 50%, and crypto drops 80%--suddenly it's a portfolio that's 84% stocks, and I couldn't imagine rebalancing to 50-50 at that point, I'd probably wonder what I was doing with so much crypto to start with.

Also, I've started posting my crypto trades over in a journal, check them out!

MustacheAndaHalf

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Re: What do you think of adding a low% of crypto allocation
« Reply #559 on: November 10, 2021, 08:29:57 AM »
If an asset were to experience a drawdown of 99%, that would be a deal-breaker for me. I tolerate the stock market despite its 50%-ish drawdowns that happened three times in my lifetime because I think I have the discipline to hold stocks through those drawdowns.

If--starting from equal weights--stocks drop 50%, and crypto drops 80%--suddenly it's a portfolio that's 84% stocks, and I couldn't imagine rebalancing to 50-50 at that point, I'd probably wonder what I was doing with so much crypto to start with.

Also, I've started posting my crypto trades over in a journal, check them out!
The Mt Gox hack caused a 99% drop in Bitcoin's value in 2011.  There was an 84% drop that ended just 3 years ago.  Is that within your comfort zone?
https://finance.yahoo.com/news/7-biggest-bitcoin-crashes-history-180038282.html

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Re: What do you think of adding a low% of crypto allocation
« Reply #560 on: November 10, 2021, 08:38:49 AM »
I noticed the anti-crypto folks here constantly claim the pro-crypto folks say XYZ but in reality it's the opposite.  The post always start with something like, "I keep reading the pro-crypto folks say XYZ but..."  Why I this so common on one side and why don't they rebut the actual arguments raised?
please go re read the entire thread there are many comments that have been made by pro crypto folks about the size of crypto and how that means it will stick around.

i'm not going to go pull all the direct quotes from everyone every time someone questions when they said something b/c honestly i dont care.  crypto will not make me rich b/c i dont own any but its highly likely to make alot of people poor who are over tilted either here or in the world.

Zero pro-crypto posters have made any claims about "too big to fail" in this topic. The only prior mention was from, you guessed it, boarder42.

Several pro-crypto posters have emphasised how big the crypto market is, but only to counter ravings about it all being worthless and just like beanie babies, etc. That's not the same thing.
Sweet so we can all agree then that the size of the crypto market has absolutely no value as to whether it will succeed long term. So we can stop referring to the market cap of crypto as indication of it's success or lack there of.
You're caught making strawman arguments, and you respond by making wild exaggerations that nobody else has made?  Someone has shown you're debating a point only you raised, and then you go ahead and make some more exaggerations that nobody else has raised.  Are you going to quote anyone accurately?

If you actually cared about quoting people accurately, you would make fewer comments like that, and like this:

what do you think of adding a low percent of blackjack bets
what do you think of adding a low percent of air jordans
what do you think of adding a low percent of teletubbies - (you guys just don't get it, its coming back and these things going to be the next shiba inu!)

talltexan

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Re: What do you think of adding a low% of crypto allocation
« Reply #561 on: November 10, 2021, 08:48:05 AM »
If an asset were to experience a drawdown of 99%, that would be a deal-breaker for me. I tolerate the stock market despite its 50%-ish drawdowns that happened three times in my lifetime because I think I have the discipline to hold stocks through those drawdowns.

If--starting from equal weights--stocks drop 50%, and crypto drops 80%--suddenly it's a portfolio that's 84% stocks, and I couldn't imagine rebalancing to 50-50 at that point, I'd probably wonder what I was doing with so much crypto to start with.

Also, I've started posting my crypto trades over in a journal, check them out!
The Mt Gox hack caused a 99% drop in Bitcoin's value in 2011.  There was an 84% drop that ended just 3 years ago.  Is that within your comfort zone?
https://finance.yahoo.com/news/7-biggest-bitcoin-crashes-history-180038282.html

Excellent question.

I was aware of the Mt. Gox hack when it happened (Back when Bitcoin was so new and exciting), but I had zero position, and I wasn't tracking the day-to-day movements.

The 2018 drawdown caught me. I only had a few hundred dollars' worth, but I sold it and took the loss in the middle of it.

I need to rethink my risk tolerance. 

dandarc

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Re: What do you think of adding a low% of crypto allocation
« Reply #562 on: November 10, 2021, 09:23:17 AM »
@MustacheAndaHalf - you yourself on the first page of this thread brought up the "total value of all BTC" and how it is larger than the market caps of Visa and Mastercard. There are no strawmen from anti-crypto, just pro-crypto forgetting what they posted.

boarder42

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Re: What do you think of adding a low% of crypto allocation
« Reply #563 on: November 10, 2021, 09:30:07 AM »
@MustacheAndaHalf - you yourself on the first page of this thread brought up the "total value of all BTC" and how it is larger than the market caps of Visa and Mastercard. There are no strawmen from anti-crypto, just pro-crypto forgetting what they posted.

He'll now argue he didn't specifically call it too big to fail. And we'll discuss the semantics of what that means for the next 15 posts.  Also what you just wrote isn't word for word what he said so please waste time putting exact quotes in from 11 pages ago.

So I'll ask this again how is the market cap relevant at all?  If you're not arguing it's so big it will stick around.

dandarc

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Re: What do you think of adding a low% of crypto allocation
« Reply #564 on: November 10, 2021, 09:35:41 AM »
On the other hand, that post was actually on-topic about an actual low % of crypto being stated, nothing like the late-comers with 50% of all their money in this stuff.

On a third hand, that sentence about BTC total value vs. Visa and Mastercard market caps illustrates a fundamental gap in understanding that has come up time and again in this thread - you don't own anything other than the BTC. It isn't ownership of a company like you would have in shares of Visa or Mastercard. Perhaps you understand the difference, but many subsequent pro-crypto posters clearly do not.

dandarc

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Re: What do you think of adding a low% of crypto allocation
« Reply #565 on: November 10, 2021, 09:41:56 AM »
@MustacheAndaHalf - you yourself on the first page of this thread brought up the "total value of all BTC" and how it is larger than the market caps of Visa and Mastercard. There are no strawmen from anti-crypto, just pro-crypto forgetting what they posted.

He'll now argue he didn't specifically call it too big to fail. And we'll discuss the semantics of what that means for the next 15 posts.  Also what you just wrote isn't word for word what he said so please waste time putting exact quotes in from 11 pages ago.

So I'll ask this again how is the market cap relevant at all?  If you're not arguing it's so big it will stick around.
Need to wrap my head around SCV. Last time I finally took your advice on something important (others were saying it too, but you were adamant about it to the point I actually listened eventually), got me on a "make an extra $500K or more path with no effort" path after I had made the largest financial mistake you can make when you own your home. Made that error twice in my case before finally relenting - I'd have done even better had I listened / fixed it earlier than I did. I think a lot of people forget just how much money you've made members of this forum. So - thanks!

boarder42

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Re: What do you think of adding a low% of crypto allocation
« Reply #566 on: November 10, 2021, 09:46:55 AM »
@MustacheAndaHalf - you yourself on the first page of this thread brought up the "total value of all BTC" and how it is larger than the market caps of Visa and Mastercard. There are no strawmen from anti-crypto, just pro-crypto forgetting what they posted.

He'll now argue he didn't specifically call it too big to fail. And we'll discuss the semantics of what that means for the next 15 posts.  Also what you just wrote isn't word for word what he said so please waste time putting exact quotes in from 11 pages ago.

So I'll ask this again how is the market cap relevant at all?  If you're not arguing it's so big it will stick around.
Need to wrap my head around SCV. Last time I finally took your advice on something important (others were saying it too, but you were adamant about it to the point I actually listened eventually), got me on a "make an extra $500K or more path with no effort" path after I had made the largest financial mistake you can make when you own your home. Made that error twice in my case before finally relenting - I'd have done even better had I listened / fixed it earlier than I did. I think a lot of people forget just how much money you've made members of this forum. So - thanks!

Glad I made it thru I'd say I've approached it less aggressively than my previous huge free money making change.  I'd start with Paul's data. That's where I started and it was just too good to not proceed. If you understand and buy into VTSAX and forget it then I think it's pretty simple to pivot an asset allocation to 8nclude more of a different market sector. I believe the jlcollins mantra that you own the whole market so why bother but the small value you hold in VTSAX is so small bc of market cap it's statically insignificant.

aceyou

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Re: What do you think of adding a low% of crypto allocation
« Reply #567 on: November 10, 2021, 09:47:42 AM »
What was the market cap for subprime mortgages in 2007 again?

Too high, and a fair point.  Market cap as a stand alone factor is an unwise way to judge something.  However, to not make market cap a consideration seems equally unwise. 

I think the correct statement would be: Don't make any one metric your complete guide for what to invest in.  Instead, look at a variety of factors to make an investment decision, one of which should be market cap. 

boarder42

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Re: What do you think of adding a low% of crypto allocation
« Reply #568 on: November 10, 2021, 09:51:53 AM »
What was the market cap for subprime mortgages in 2007 again?

Too high, and a fair point.  Market cap as a stand alone factor is an unwise way to judge something.  However, to not make market cap a consideration seems equally unwise. 

I think the correct statement would be: Don't make any one metric your complete guide for what to invest in.  Instead, look at a variety of factors to make an investment decision, one of which should be market cap.

At this given point the size can be argued to be a positive and a negative.  And due to the given history the case would be it's so big now in relation to it's long term avg why wouldn't it fall back to earth. And the positive case is what exactly. It's so big now it has to keep getting bigger? Remain just as big?
Size of this particular collectible is a risk a huge risk in its current state and the pro crypto crowd seems to apply the idea that we apply to 100 years of market returns. It goes up. It's normally at an all time high. I don't think this logic applies.

What's the actual positive argument for the size from the pro crypto crowd. Bc again you didn't answer the question. You just said it should be considered.
« Last Edit: November 10, 2021, 09:54:35 AM by boarder42 »

aceyou

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Re: What do you think of adding a low% of crypto allocation
« Reply #569 on: November 10, 2021, 10:40:50 AM »
What was the market cap for subprime mortgages in 2007 again?

Too high, and a fair point.  Market cap as a stand alone factor is an unwise way to judge something.  However, to not make market cap a consideration seems equally unwise. 

I think the correct statement would be: Don't make any one metric your complete guide for what to invest in.  Instead, look at a variety of factors to make an investment decision, one of which should be market cap.

At this given point the size can be argued to be a positive and a negative.  And due to the given history the case would be it's so big now in relation to it's long term avg why wouldn't it fall back to earth. And the positive case is what exactly. It's so big now it has to keep getting bigger? Remain just as big?
Size of this particular collectible is a risk a huge risk in its current state and the pro crypto crowd seems to apply the idea that we apply to 100 years of market returns. It goes up. It's normally at an all time high. I don't think this logic applies.

What's the actual positive argument for the size from the pro crypto crowd. Bc again you didn't answer the question. You just said it should be considered.

The positive argument would be Metcalf's Law: the value of a communications network is proportional to the square of the number of its users.  When there are more users of something, there is inherent value and stability in the increased nodes.  The increased market cap of crypto is mostly a function of all the new wallets that have entered the space. 

Again, I'm not saying that this is proof that crypto will continue going up.  I'm merely suggesting that it's not something to completely ignore, nothing more, nothing less.  I'm looking for common ground with you and others who have a different overall sentiment on crypto, and I hope this can be a point of common ground:) 

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Re: What do you think of adding a low% of crypto allocation
« Reply #570 on: November 10, 2021, 11:16:30 AM »
Too high, and a fair point.  Market cap as a stand alone factor is an unwise way to judge something.  However, to not make market cap a consideration seems equally unwise. 

I think the correct statement would be: Don't make any one metric your complete guide for what to invest in.  Instead, look at a variety of factors to make an investment decision, one of which should be market cap.

But market cap in the world of crypto means very little, if anything. I gave this example before, but I'll give it again. You can create a cryptocurrency today with a $1T market cap. How? Create a cryptocurrency. Create 1,000,000,000,000 coins. Sell one for $1 (you can even just buy it yourself). Tada, brand new $1T market cap crypto coin on the scene!

It means nothing. There is no transparency about how much leverage is in the system, there is virtually no transparency into stable coins and their backing. Naively multiplying today's price by the number of coins that've ever been mined across all cryptocurrencies is... overly simplistic. It makes for good headlines, I guess, but that's about it.

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Re: What do you think of adding a low% of crypto allocation
« Reply #571 on: November 10, 2021, 12:06:27 PM »
Too high, and a fair point.  Market cap as a stand alone factor is an unwise way to judge something.  However, to not make market cap a consideration seems equally unwise. 

I think the correct statement would be: Don't make any one metric your complete guide for what to invest in.  Instead, look at a variety of factors to make an investment decision, one of which should be market cap.

But market cap in the world of crypto means very little, if anything. I gave this example before, but I'll give it again. You can create a cryptocurrency today with a $1T market cap. How? Create a cryptocurrency. Create 1,000,000,000,000 coins. Sell one for $1 (you can even just buy it yourself). Tada, brand new $1T market cap crypto coin on the scene!

It means nothing. There is no transparency about how much leverage is in the system, there is virtually no transparency into stable coins and their backing. Naively multiplying today's price by the number of coins that've ever been mined across all cryptocurrencies is... overly simplistic. It makes for good headlines, I guess, but that's about it.

That's not how it works gastropod.  In the scenario you created, the market cap of your coin is $1.  Until someone actually buys the 999,999,999,999 other coins for $1 each, they add no value to the market cap of the stock. 

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Re: What do you think of adding a low% of crypto allocation
« Reply #572 on: November 10, 2021, 12:12:25 PM »


It means nothing. There is no transparency about how much leverage is in the system, there is virtually no transparency into stable coins and their backing.

It actually means plenty, and it works mostly like stocks do...
A stock's market cap is the number of shares x the price for each share. 
A crypto's market cap is the number of coins x the price for each coin. 

And yes, it is transparent.  Here is a listing of some of the most common coins, so you can see examples of what I mean:  https://coinmarketcap.com/

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Re: What do you think of adding a low% of crypto allocation
« Reply #573 on: November 10, 2021, 12:21:42 PM »
Too high, and a fair point.  Market cap as a stand alone factor is an unwise way to judge something.  However, to not make market cap a consideration seems equally unwise. 

I think the correct statement would be: Don't make any one metric your complete guide for what to invest in.  Instead, look at a variety of factors to make an investment decision, one of which should be market cap.

But market cap in the world of crypto means very little, if anything. I gave this example before, but I'll give it again. You can create a cryptocurrency today with a $1T market cap. How? Create a cryptocurrency. Create 1,000,000,000,000 coins. Sell one for $1 (you can even just buy it yourself). Tada, brand new $1T market cap crypto coin on the scene!

It means nothing. There is no transparency about how much leverage is in the system, there is virtually no transparency into stable coins and their backing. Naively multiplying today's price by the number of coins that've ever been mined across all cryptocurrencies is... overly simplistic. It makes for good headlines, I guess, but that's about it.

That's not how it works gastropod.  In the scenario you created, the market cap of your coin is $1.  Until someone actually buys the 999,999,999,999 other coins for $1 each, they add no value to the market cap of the stock.

Both examples are incorrect.

You could sell 999,999,999,999 for 1 cent (altogether).  Then if you sell one more coin at 1$ it magically transforms the valuation of all the coins out there to be a trillion dollars - based on the present traded price of the crypto. 

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Re: What do you think of adding a low% of crypto allocation
« Reply #574 on: November 10, 2021, 12:25:11 PM »


It means nothing. There is no transparency about how much leverage is in the system, there is virtually no transparency into stable coins and their backing.

It actually means plenty, and it works mostly like stocks do...
A stock's market cap is the number of shares x the price for each share. 
A crypto's market cap is the number of coins x the price for each coin. 

And yes, it is transparent.  Here is a listing of some of the most common coins, so you can see examples of what I mean:  https://coinmarketcap.com/

That is exactly what was said. A shitcoin can be created out of thin air. I can create 1B shitcoins and hold all of them, but put 1M out on the open market listed for a penny. Idiots chasing shitcoins trade the 1M shitcoins back and forth and bid it up to a dollar.  My 999M shitcoins are now worth $999M in market cap. Now that doesn't mean i can sell them for $999M. I need to drum up enough excitement for my new shitcoin to build demand so i can dump more shitcoin and not tank the price.

Stocks operate the exact same way. Warren Buffet may have 100B worth of Berkshire stock, but he would have to sell it slowly and demand has to be there. Berkshire has some fundamentals of earning dollars. Shitcoin's fundamentals are hopefully someone else wants your shitcoin more than you and will pay more for it. Maybe drum up some excitement about it and talk about mass adoption, store of value, a developing country no one here has ever been to is using it, and talk about how block chain will change everything and shitcoin = blockchain.

talltexan

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Re: What do you think of adding a low% of crypto allocation
« Reply #575 on: November 10, 2021, 01:10:52 PM »
@MustacheAndaHalf - you yourself on the first page of this thread brought up the "total value of all BTC" and how it is larger than the market caps of Visa and Mastercard. There are no strawmen from anti-crypto, just pro-crypto forgetting what they posted.

He'll now argue he didn't specifically call it too big to fail. And we'll discuss the semantics of what that means for the next 15 posts.  Also what you just wrote isn't word for word what he said so please waste time putting exact quotes in from 11 pages ago.

So I'll ask this again how is the market cap relevant at all?  If you're not arguing it's so big it will stick around.
Need to wrap my head around SCV. Last time I finally took your advice on something important (others were saying it too, but you were adamant about it to the point I actually listened eventually), got me on a "make an extra $500K or more path with no effort" path after I had made the largest financial mistake you can make when you own your home. Made that error twice in my case before finally relenting - I'd have done even better had I listened / fixed it earlier than I did. I think a lot of people forget just how much money you've made members of this forum. So - thanks!

Glad I made it thru I'd say I've approached it less aggressively than my previous huge free money making change.  I'd start with Paul's data. That's where I started and it was just too good to not proceed. If you understand and buy into VTSAX and forget it then I think it's pretty simple to pivot an asset allocation to 8nclude more of a different market sector. I believe the jlcollins mantra that you own the whole market so why bother but the small value you hold in VTSAX is so small bc of market cap it's statically insignificant.

@dandarc , would you like to create a separate discussion topic for those of us with Small-Cap value insights?

dandarc

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Re: What do you think of adding a low% of crypto allocation
« Reply #576 on: November 10, 2021, 01:25:49 PM »
Pretty sure B42 already did that - find it and follow it if you're inclined. Sorry for interrupting this gambling thread with actual investment talk though - I hope to see an actual strategy emerge from your journal, because there sure as hell hasn't been one articulated here in this thread.

ETA: there's actually lots of threads here over many years if you want to get deeper into it. Most recent one is MustacheAndAHalf not making any arguments one way or the other about SCV - just taking aim at B42. But there are many, many other threads on this forum about SCV.

I do think it is at least tangentially relevant here - the merits of allocating any percentage of your portfolio to crypto begs the question "what alternatives are out there". If you want to increase returns beyond the standard advice, SCV tilt is one way to do it, and it is much more proven, and frankly easier, than anything involving crypto could hope to be.
« Last Edit: November 10, 2021, 02:09:58 PM by dandarc »

the_gastropod

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Re: What do you think of adding a low% of crypto allocation
« Reply #577 on: November 10, 2021, 01:36:25 PM »
That's not how it works gastropod.  In the scenario you created, the market cap of your coin is $1.  Until someone actually buys the 999,999,999,999 other coins for $1 each, they add no value to the market cap of the stock.

Sorry, but that is precisely how it works. For instance, the 1M bitcoins Satoshi mined himself are absolutely counted towards Bitcoin's market cap. No money needs to have traded hands. You can mine 1T coins, sell 1, and the market cap will be 1T x the selling price. In practice, you'd probably sell more than just one, as Index explained. Mine 1T, sell 1M, and enjoy your sky high new net worth!

Both examples are incorrect.

You could sell 999,999,999,999 for 1 cent (altogether).  Then if you sell one more coin at 1$ it magically transforms the valuation of all the coins out there to be a trillion dollars - based on the present traded price of the crypto. 

This is not true. I think this is very important to understand. You do not have to sell all the tokens. This is significantly different from an IPO, where a set number of shares will all be up for sale (and the market cap only references the number of shares offered). With a cryptocurrency, you can mine an arbitrary number of tokens, sell an arbitrary number, and have a colossal (and, clearly, ridiculous) market cap. Shiba Inu and countless other "shitcoins" have exploited this fact, to fleece unsophisticated crypto "investors".

It actually means plenty, and it works mostly like stocks do...
A stock's market cap is the number of shares x the price for each share. 
A crypto's market cap is the number of coins x the price for each coin. 

And yes, it is transparent.  Here is a listing of some of the most common coins, so you can see examples of what I mean:  https://coinmarketcap.com/

Sorry, I probably wasn't clear enough. Market cap works similarly to stocks. But a business's market cap is a bit more realistic. There's a reason we don't refer to the market cap of the USD—it doesn't really make any sense. The market cap of a business is the market's best estimate of the value of a company. It's rather common for businesses to purchase other businesses at the full value of the market cap. Add to this fact that stocks are regulated and have a lot more actual transparency due to these regulations. Because of them, we have a much better grasp of actual trade volume, wash trading is illegal, margin is transparent, and market cap is denominated by shares in circulation—which can be readily measured.

The transparency I'm referring to isn't with respect to the market cap of these things. It's referring to: how much leverage is there? How much actual volume is there? How much is wash traded? Much of the volume is in the form of stable coins (USDT, USDC, etc.) What backs these? Publicly traded companies have accounting regulations, and banks have audits. Crypto has none. There's this widespread claim that it's all transparent, public to see on the blockchain!, but that's a rather unimportant aspect in the grand scheme of things. What's actually happening on the exchanges, between USD and these cryptocurrencies is very much a question mark.
« Last Edit: November 10, 2021, 01:59:12 PM by the_gastropod »

GuitarStv

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Re: What do you think of adding a low% of crypto allocation
« Reply #578 on: November 10, 2021, 01:58:32 PM »
Both examples are incorrect.

You could sell 999,999,999,999 for 1 cent (altogether).  Then if you sell one more coin at 1$ it magically transforms the valuation of all the coins out there to be a trillion dollars - based on the present traded price of the crypto. 

This is not true. I think this is very important to understand. You do not have to sell all the tokens. This is significantly different from an IPO, where a set number of shares will all be up for sale (and the market cap only references the number of shares offered). With a cryptocurrency, you can mine an arbitrary number of tokens, sell an arbitrary number, and have a colossal (and, clearly, ridiculous) market cap. Shiba Inu and countless other "shitcoins" have exploited this fact, to fleece unsophisticated crypto "investors".

Thinking about it further, I do believe that you're right.  The coins don't need to be sold, just mined.

dandarc

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Re: What do you think of adding a low% of crypto allocation
« Reply #579 on: November 10, 2021, 02:02:00 PM »
Both examples are incorrect.

You could sell 999,999,999,999 for 1 cent (altogether).  Then if you sell one more coin at 1$ it magically transforms the valuation of all the coins out there to be a trillion dollars - based on the present traded price of the crypto. 

This is not true. I think this is very important to understand. You do not have to sell all the tokens. This is significantly different from an IPO, where a set number of shares will all be up for sale (and the market cap only references the number of shares offered). With a cryptocurrency, you can mine an arbitrary number of tokens, sell an arbitrary number, and have a colossal (and, clearly, ridiculous) market cap. Shiba Inu and countless other "shitcoins" have exploited this fact, to fleece unsophisticated crypto "investors".

Thinking about it further, I do believe that you're right.  The coins don't need to be sold, just mined.
Kind of like the share's the founders retain after an IPO - included in market cap computations whether or not they are ever sold. Of course when we're talking about real companies, insiders with large numbers of shares have regulatory requirements to meet when they want to sell. And now we're back to crypto is a stupid investment - the lack of regulation is a bug and not a feature.
« Last Edit: November 10, 2021, 02:11:08 PM by dandarc »

Telecaster

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Re: What do you think of adding a low% of crypto allocation
« Reply #580 on: November 10, 2021, 05:17:59 PM »
What was the market cap for subprime mortgages in 2007 again?

Too high, and a fair point.  Market cap as a stand alone factor is an unwise way to judge something.  However, to not make market cap a consideration seems equally unwise. 

I think the correct statement would be: Don't make any one metric your complete guide for what to invest in.  Instead, look at a variety of factors to make an investment decision, one of which should be market cap.

I've never made an investing decision regarding a single stock based on market cap, ever.   Simply because market cap says nothing about the value of the underlying asset.  I suppose you could say market cap is related to the share price, so that plays into metrics like P/E or P/E.  But market cap by itself tells you nothing.  I don't know the market cap of any of the stocks I own, unless I happen to see it in a headline or something. 

With stocks, the share price is ultimately tied to the expectation of future profits.  With Bitcoin, the price is tied to supply and demand.  If more people want to buy it, the price will go up and vice versa.  So there's not even a tangential connection to Bitcoin price and market cap.   If we look at gold prices, there was a big run-up in the 1970s as the US went off the gold standard and people started buying gold as an inflation hedge.   The price went up 10x or something over the decade.  But as inflation cooled, so the gold market.  And if I'm not mistaken gold has never returned to its inflation-adjusted peak price. 

If anyone is interested in speculating on Bitcoin, they should ask themselves if the think more people will want to own it in the future than own it right now.  The answer may be "yes."  But keep in mind there is a finite limit on the number of people who want to own Bitcoin.   That means there is a finite limit on the price as well.   

Telecaster

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Re: What do you think of adding a low% of crypto allocation
« Reply #581 on: November 10, 2021, 05:50:10 PM »
The positive argument would be Metcalf's Law: the value of a communications network is proportional to the square of the number of its users.  When there are more users of something, there is inherent value and stability in the increased nodes.  The increased market cap of crypto is mostly a function of all the new wallets that have entered the space. 

Again, I'm not saying that this is proof that crypto will continue going up.  I'm merely suggesting that it's not something to completely ignore, nothing more, nothing less.  I'm looking for common ground with you and others who have a different overall sentiment on crypto, and I hope this can be a point of common ground:)

But are they users of crypto or owners of crypto?   I think we're kind of saying that same thing: more owners, the higher the price.  But I don't think Metcalf plays into it because most people don't use crypto for anything.   For example, this thread is about holding crypto as part of an investment portfolio.   

maizefolk

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Re: What do you think of adding a low% of crypto allocation
« Reply #582 on: November 10, 2021, 06:07:11 PM »
The Mt Gox hack caused a 99% drop in Bitcoin's value in 2011.  There was an 84% drop that ended just 3 years ago.  Is that within your comfort zone?
https://finance.yahoo.com/news/7-biggest-bitcoin-crashes-history-180038282.html

The 99% drop of the quoted price of bitcoin at MtGox lasted all of a few minutes when somebody tried to game the withdrawal limits (at the time people could withdraw maximum of $1,000 worth of bitcoin a day) by zeroing out the price with stolen bitcoin. They sold enough of someone else's coins to use up all the liquidity in the market. It turned out MtGox also had a less advertised 2,000 bitcoin/day withdrawal limit so this was only a modest success for the person trying to abscond with their ill gotten gains. Way more than you ever wanted to know about the June of 2011 MtGox flash crash: https://blog.bitmex.com/the-june-2011-flash-crash-to-0-01/

In any case, I don't think it's relevant when asking people about their comfort zones because it was over before almost anyone had time to see the low price and react.

The much scarier bit from a bitcoin-as-an-investment perspective than a short term flast crash was that afterwards MtGox was shut for several weeks which essentially ended USD:BTC price discovery until they reopened. Since 2014, there is no single exchange that has the power to end price discovery between US dollars and bitcoin the way MtGox did a decade ago.

Radagast

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Re: What do you think of adding a low% of crypto allocation
« Reply #583 on: November 10, 2021, 06:26:31 PM »
If an asset were to experience a drawdown of 99%, that would be a deal-breaker for me. I tolerate the stock market despite its 50%-ish drawdowns that happened three times in my lifetime because I think I have the discipline to hold stocks through those drawdowns.

If--starting from equal weights--stocks drop 50%, and crypto drops 80%--suddenly it's a portfolio that's 84% stocks, and I couldn't imagine rebalancing to 50-50 at that point, I'd probably wonder what I was doing with so much crypto to start with.

Also, I've started posting my crypto trades over in a journal, check them out!
The Mt Gox hack caused a 99% drop in Bitcoin's value in 2011.  There was an 84% drop that ended just 3 years ago.  Is that within your comfort zone?
https://finance.yahoo.com/news/7-biggest-bitcoin-crashes-history-180038282.html

The 99% drop of the quoted price of bitcoin at MtGox lasted all of a few minutes when somebody tried to game the withdrawal limits (at the time people could withdraw maximum of $1,000 worth of bitcoin a day) by zeroing out the price with stolen bitcoin. They sold enough of someone else's coins to use up all the liquidity in the market. It turned out MtGox also had a less advertised 2,000 bitcoin/day withdrawal limit so this was only a modest success for the person trying to abscond with their ill gotten gains. Way more than you ever wanted to know about the June of 2011 MtGox flash crash: https://blog.bitmex.com/the-june-2011-flash-crash-to-0-01/

In any case, I don't think it's relevant when asking people about their comfort zones because it was over before almost anyone had time to see the low price and react.

The much scarier bit from a bitcoin-as-an-investment perspective than a short term flast crash was that afterwards MtGox was shut for several weeks which essentially ended USD:BTC price discovery until they reopened. Since 2014, there is no single exchange that has the power to end price discovery between US dollars and bitcoin the way MtGox did a decade ago.
Ok, but does anyone seriously expect the crypto market to not lose 99%? The total US stock market lost 87% in the Great Depression. Amazon lost 95% in the .com crash. Any country's stock market that has been around a bit has lost 90+%. Do you think crypto has more fundamental support than any of those?

I think not, and it will crash 99.9%. The question is whether it will 100X first.

maizefolk

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Re: What do you think of adding a low% of crypto allocation
« Reply #584 on: November 10, 2021, 06:41:58 PM »
Ok, but does anyone seriously expect the crypto market to not lose 99%? The total US stock market lost 87% in the Great Depression. Amazon lost 95% in the .com crash. Any country's stock market that has been around a bit has lost 90+%. Do you think crypto has more fundamental support than any of those?

I think not, and it will crash 99.9%. The question is whether it will 100X first.

I'm just adding context to a statement about the history of the price volatility of bitcoin that was otherwise misleading. What the future holds I don't know, but I do know we've got a better chance at guessing what the future holds if we're at least as accurately informed about what the past holds as possible.

Radagast

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Re: What do you think of adding a low% of crypto allocation
« Reply #585 on: November 10, 2021, 07:16:00 PM »
If I wanted to make a guess about the future of the crypto, I'd ignore everything it's price has done so far and read:
Mandelbrot: The Misbehaviour of Markets
Taleb: Fooled by Randomness, The Black Swan, Antifragile

MustacheAndaHalf

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Re: What do you think of adding a low% of crypto allocation
« Reply #586 on: November 10, 2021, 07:40:39 PM »
@MustacheAndaHalf - you yourself on the first page of this thread brought up the "total value of all BTC" and how it is larger than the market caps of Visa and Mastercard. There are no strawmen from anti-crypto, just pro-crypto forgetting what they posted.

Naturally you didn't quote the topic under discussion, which was too big to fail:

Zero pro-crypto posters have made any claims about "too big to fail" in this topic. The only prior mention was from, you guessed it, boarder42.

Several pro-crypto posters have emphasised how big the crypto market is, but only to counter ravings about it all being worthless and just like beanie babies, etc. That's not the same thing.

To pretend the topic is something else is disingenuous coming from someone who clearly knew what was being discussed:

That's because crypto itself cannot be too big to fail - it is not an institution that our governments rely heavily on. The big banks might get too intertwined with crypto, and they might be deemed too big to fail. How that plays out for some average schmuck who is just holding crypto likely won't be nearly as good as it works out for the huge banks.

MustacheAndaHalf

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Re: What do you think of adding a low% of crypto allocation
« Reply #587 on: November 10, 2021, 08:00:47 PM »
The Mt Gox hack caused a 99% drop in Bitcoin's value in 2011.  There was an 84% drop that ended just 3 years ago.  Is that within your comfort zone?
https://finance.yahoo.com/news/7-biggest-bitcoin-crashes-history-180038282.html

The 99% drop of the quoted price of bitcoin at MtGox lasted all of a few minutes when somebody tried to game the withdrawal limits (at the time people could withdraw maximum of $1,000 worth of bitcoin a day) by zeroing out the price with stolen bitcoin. They sold enough of someone else's coins to use up all the liquidity in the market. It turned out MtGox also had a less advertised 2,000 bitcoin/day withdrawal limit so this was only a modest success for the person trying to abscond with their ill gotten gains. Way more than you ever wanted to know about the June of 2011 MtGox flash crash: https://blog.bitmex.com/the-june-2011-flash-crash-to-0-01/

In any case, I don't think it's relevant when asking people about their comfort zones because it was over before almost anyone had time to see the low price and react.

The much scarier bit from a bitcoin-as-an-investment perspective than a short term flast crash was that afterwards MtGox was shut for several weeks which essentially ended USD:BTC price discovery until they reopened. Since 2014, there is no single exchange that has the power to end price discovery between US dollars and bitcoin the way MtGox did a decade ago.
That's interesting, maybe Yahoo Finance has it wrong.  The article from Bitmex describes a 99.94% drop ($17.50 -> $0.01) that lasted a few minutes:
"... large sell orders on the exchange and the price crashed from around $17.50 to $0.01 and trading continued at this level for several minutes before recovering"

I assume "recovering" means from $0.01, which doesn't say how far it recovered.  If that was the only drop, it does seem unfair to label it as a 99% crash (or 99.94% crash?).  The article mentions "a peak of $32", so if BTC-USD dropped near $0.32 for several days, I'd agree with Yahoo Finance calling it a 99% crash.  But if the only event was the $0.01 price for a few minutes, I'd agree with your take on it.

What I don't have is 2011 BTC-USD price data to confirm or deny it.  I can't find BTC-USD prices for the summer of 2011 online.  That would show how may days the price traded near $0.32, if any.

maizefolk

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Re: What do you think of adding a low% of crypto allocation
« Reply #588 on: November 11, 2021, 05:45:33 AM »
This is a video of someone watching the crash live. At the start of the video, bitcoin is selling at $5/coin and the narrator mentions watching it decline from $17/dollar. Hits 0.123 cents/bitcoin about three minutes into the video.

https://youtu.be/T1X6qQt9ONg?t=363

It appears to show the price recovering to $13/bitcoin just after 6 minutes in the video (three minutes after the price approaches 0.00123/bitcoin), shortly before MtGox is taken offline to address the hack. As I posted above, the gap when MtGox was shutdown and there was no widely accepted USD:BTC exchange rate would have been a much bigger problem for people holding bitcoin at the time than the flash crash itself.

Unfortunately this may be all the information that remains at this point. The bitcoin community was really small back in 2011, a lot of the websites in heavy use back then have dried up and blown away, and basically nobody was thinking there would be historical interest in what they were doing. Just like there were US stock markets setting prices for stocks since 1790 (Philadelphia, NYSE was two years later) almost a century before 1871, but everyone always uses 1871-present data because that's as far back as Shiller's been able to reconstruct the time series.

MustacheAndaHalf

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Re: What do you think of adding a low% of crypto allocation
« Reply #589 on: November 11, 2021, 07:27:39 AM »
This is a video of someone watching the crash live. At the start of the video, bitcoin is selling at $5/coin and the narrator mentions watching it decline from $17/dollar. Hits 0.123 cents/bitcoin about three minutes into the video.

https://youtu.be/T1X6qQt9ONg?t=363

It appears to show the price recovering to $13/bitcoin just after 6 minutes in the video (three minutes after the price approaches 0.00123/bitcoin), shortly before MtGox is taken offline to address the hack. As I posted above, the gap when MtGox was shutdown and there was no widely accepted USD:BTC exchange rate would have been a much bigger problem for people holding bitcoin at the time than the flash crash itself.

Unfortunately this may be all the information that remains at this point. The bitcoin community was really small back in 2011, a lot of the websites in heavy use back then have dried up and blown away, and basically nobody was thinking there would be historical interest in what they were doing. Just like there were US stock markets setting prices for stocks since 1790 (Philadelphia, NYSE was two years later) almost a century before 1871, but everyone always uses 1871-present data because that's as far back as Shiller's been able to reconstruct the time series.
The guy talking about Bitcoin says he has ~6 BTC at MtGox, or about $100 worth.  Seems like a hobby back then.  At the end of that video, he says BTC is back up to $15.  So at best maybe a 50% crash when viewed across days, instead of minutes.  Certainly not a 99% crash that leaves investors wondering what to do next.  Your account makes more sense than the freelance journalist who wrote the Yahoo article.

Looking at the other claim, I'd say technically there might have been a peak to trough drop of 84%.  People tend to talk about the peak prices, so maybe it had more significance than just a short spike.  When I instead look at rough averages over a few months, the Dec 2017 to Dec 2018 crash is closer to 75%.

maizefolk

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Re: What do you think of adding a low% of crypto allocation
« Reply #590 on: November 11, 2021, 08:07:07 AM »
I agree. 75-85% drops in the price of bitcoin are well supported based on historical data*. Obviously there could be much larger drops (or a permanent drop to zero) in the future.

*Feels strange to say that when "historical data" is less than a decade, but I'm not sure what other term to use.

LateStarter

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Re: What do you think of adding a low% of crypto allocation
« Reply #591 on: November 11, 2021, 08:55:49 AM »
What was the market cap for subprime mortgages in 2007 again?

Too high, and a fair point.  Market cap as a stand alone factor is an unwise way to judge something.  However, to not make market cap a consideration seems equally unwise. 

I think the correct statement would be: Don't make any one metric your complete guide for what to invest in.  Instead, look at a variety of factors to make an investment decision, one of which should be market cap.

I've never made an investing decision regarding a single stock based on market cap, ever.   Simply because market cap says nothing about the value of the underlying asset.  I suppose you could say market cap is related to the share price, so that plays into metrics like P/E or P/E.  But market cap by itself tells you nothing.  I don't know the market cap of any of the stocks I own, unless I happen to see it in a headline or something. 

With stocks, the share price is ultimately tied to the expectation of future profits.  With Bitcoin, the price is tied to supply and demand.  If more people want to buy it, the price will go up and vice versa.  So there's not even a tangential connection to Bitcoin price and market cap.   If we look at gold prices, there was a big run-up in the 1970s as the US went off the gold standard and people started buying gold as an inflation hedge.   The price went up 10x or something over the decade.  But as inflation cooled, so the gold market.  And if I'm not mistaken gold has never returned to its inflation-adjusted peak price.

There's some off-topic chat among the anti-cryptos a few posts back about strategies specific to small cap stocks. Doesn't that clearly indicate that market cap is being considered in investment decisions ? Market cap might not be part of the final analysis, but "small cap" is a qualifying requirement - it's clearly something that matters.

I don't understand your "not even a tangential connection" point ?

The market cap of Bitcoin doesn't indicate much more to me than the fact that it's a substantial beast, ie. $1.2trillion among 70-80 million parties. It's an indication of mass and substance - and things with mass and substance tend to have resilience and staying power. No guarantees of course, but it's an indicator of substance nonetheless.

If anyone is interested in speculating on Bitcoin, they should ask themselves if the think more people will want to own it in the future than own it right now.  The answer may be "yes."  But keep in mind there is a finite limit on the number of people who want to own Bitcoin.   That means there is a finite limit on the price as well.

Yeah, I agree that's the fundamental question. I'm not so sure about the price cap theory though - at least, not while it's priced in (devaluing) fiat.

We're currently at 70-80 million Bitcoin users from a potential market of 5 billion* = 1.6%. We can't gauge their interest of course, but there seems to be plenty of room for further growth.

* a wild guess at global adult population

talltexan

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Re: What do you think of adding a low% of crypto allocation
« Reply #592 on: November 11, 2021, 02:45:51 PM »
If I wanted to make a guess about the future of the crypto, I'd ignore everything it's price has done so far and read:
Mandelbrot: The Misbehaviour of Markets
Taleb: Fooled by Randomness, The Black Swan, Antifragile

I borrowed and read the Taleb series (also Skin in the Game), and I came away from it a bitcoin-skeptic. I've mellowed since then, mainly because I think I've made other parts of my life more durable, so I can withstand the losses that crypto- not working out would inflict on me.

MustacheAndaHalf

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Re: What do you think of adding a low% of crypto allocation
« Reply #593 on: November 12, 2021, 05:50:57 AM »
If anyone is interested in speculating on Bitcoin, they should ask themselves if the think more people will want to own it in the future than own it right now.  The answer may be "yes."  But keep in mind there is a finite limit on the number of people who want to own Bitcoin.   That means there is a finite limit on the price as well.
Even with a finite number of people, won't they earn money throughout their lives?  And with new money, be able to make new purchases of Bitcoin?

Part of Bitcoin's price is driven by that feedback loop.  People like it, buy more, and that drives the price up.  For a long time I've complained nobody can invest on Bitcoin dropping (without visiting lawless websites located in offshore havens).  But that changed last month, after ETF "ProShares Bitcoin Strategy ETF" (BITO) was created.

BITO has an options market in put and call options, with durations out to Jan 2024.  If someone felt strongly that Bitcoin's price will crash to zero before the end of 2022, they could buy $32 strike BITO puts expiring Jan 2023.  It's risky, because BITO has to fall 42% to break even.  But if BTC crashes, the futures crash with it, and in that case the puts triple your investment.  Going for at the money puts cost 35.5%, representing how volatile Bitcoin futures can be.  Hopefully that doesn't prevent Bitcoin bears from investing against BTC using BITO puts.

maizefolk

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Re: What do you think of adding a low% of crypto allocation
« Reply #594 on: November 12, 2021, 06:20:59 AM »
If you wanted to invest based on the prediction of bitcoin dropping before there were bitcoin ETFs approved for sale in the USA*, you could sell cash settled bitcoin futures which were traded on the Chicago Mercantile Exchange and accessible through lots of regular retail investment brokers like TDAmeritrade.

Chicago's not my favorite city in the world, but hardly a offshore haven, nor would I describe CME as a lawless website.

*Folks in Canada, had access to bitcoin ETFs long before we did here in the states.

ChpBstrd

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Re: What do you think of adding a low% of crypto allocation
« Reply #595 on: November 12, 2021, 01:02:30 PM »
Despite my earlier criticisms, I'm thinking about adding a low% of crypto exposure to my portfolio. :)

BITO has underperformed GBTC by an astounding 5.4% just since 10/22 despite being for the same asset and leverage. In fact, BITO has done worse each individual week of its short lifetime. This is strange, because the bitcoin futures market is in contango, so one would expect the futures fund (GBTC) to do worse than the fund holding the underlying asset. Somehow, BITO is doing worse, perhaps due to the high costs involved in securing a portfolio of bitcoins? I don't know what it is but something BITO is doing, but it's destroying value compared to GBTC, and BITO has an options market.

The plan would be to buy GBTC, and sell a bear spread on BITO, so as to engineer a bitcoin-up, I win or bitcoin-down-a-little I win arbitrage.

Buy:

100 GBTC (-$5090 total)

Sell:

10 BITO Dec 10, 2021 bear call spread at 41 and 44 strikes for a $1.07/share credit (+$1070 total). Because the combined delta of these short and long call options is about 0.10, I'm buying 10x as many of these as I'm offsetting with GBTC. 

Obviously, I lose between zero and (5090-1070=) $4020 if GBTC falls by more than (1070/5090=) 13.2%. The maximum loss would require GBTC to go to zero in the next 28 days, so my realistic potential losses are much lower. There's no theoretical cap on the upside though. Best of all, if the BITO price doesn't move, I keep the $1070 for a 21% profit on the funds employed, in less than a month.

TLDR: Poorly managed funds can be something to get excited about.

dandarc

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Re: What do you think of adding a low% of crypto allocation
« Reply #596 on: November 12, 2021, 01:58:35 PM »
I'm curios if aceyou and coolhand can give us a reasonable definition of contango without looking it up.

Rosy

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Re: What do you think of adding a low% of crypto allocation
« Reply #597 on: November 12, 2021, 07:18:12 PM »
Despite my earlier criticisms, I'm thinking about adding a low% of crypto exposure to my portfolio. :)

BITO has underperformed GBTC by an astounding 5.4% just since 10/22 despite being for the same asset and leverage. In fact, BITO has done worse each individual week of its short lifetime. This is strange, because the bitcoin futures market is in contango, so one would expect the futures fund (GBTC) to do worse than the fund holding the underlying asset. Somehow, BITO is doing worse, perhaps due to the high costs involved in securing a portfolio of bitcoins? I don't know what it is but something BITO is doing, but it's destroying value compared to GBTC, and BITO has an options market.

The plan would be to buy GBTC, and sell a bear spread on BITO, so as to engineer a bitcoin-up, I win or bitcoin-down-a-little I win arbitrage.

Buy:

100 GBTC (-$5090 total)

Sell:

10 BITO Dec 10, 2021 bear call spread at 41 and 44 strikes for a $1.07/share credit (+$1070 total). Because the combined delta of these short and long call options is about 0.10, I'm buying 10x as many of these as I'm offsetting with GBTC. 

Obviously, I lose between zero and (5090-1070=) $4020 if GBTC falls by more than (1070/5090=) 13.2%. The maximum loss would require GBTC to go to zero in the next 28 days, so my realistic potential losses are much lower. There's no theoretical cap on the upside though. Best of all, if the BITO price doesn't move, I keep the $1070 for a 21% profit on the funds employed, in less than a month.

TLDR: Poorly managed funds can be something to get excited about.

That just makes my head spin - wicked. Interesting observation though about BITO being a loser.
I suddenly feel quite safe with my own small crypto portfolio. Especially after seeing the effect that 10%-15% bitcoin allocation can have on an index fund portfolio. 

maizefolk

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Re: What do you think of adding a low% of crypto allocation
« Reply #598 on: November 12, 2021, 07:43:34 PM »
BITO has underperformed GBTC by an astounding 5.4% just since 10/22 despite being for the same asset and leverage. In fact, BITO has done worse each individual week of its short lifetime. This is strange, because the bitcoin futures market is in contango, so one would expect the futures fund (GBTC) to do worse than the fund holding the underlying asset. Somehow, BITO is doing worse, perhaps due to the high costs involved in securing a portfolio of bitcoins? I don't know what it is but something BITO is doing, but it's destroying value compared to GBTC, and BITO has an options market.

I think this might be backwards. I believe GBTC owns the underlying asset (bitcoin) and charges a crazy expense ratio for doing so while BITO is the one constructed to theoretically follow the price of bitcoin using rolling futures contracts without actually owning any bitcoin.

If so, it sounds like the relative performance of the two bitcoin tracking investments is exactly what you'd expect given their different approaches.

MustacheAndaHalf

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Re: What do you think of adding a low% of crypto allocation
« Reply #599 on: November 12, 2021, 09:13:41 PM »
If you wanted to invest based on the prediction of bitcoin dropping before there were bitcoin ETFs approved for sale in the USA*, you could sell cash settled bitcoin futures which were traded on the Chicago Mercantile Exchange and accessible through lots of regular retail investment brokers like TDAmeritrade.

Chicago's not my favorite city in the world, but hardly a offshore haven, nor would I describe CME as a lawless website.

*Folks in Canada, had access to bitcoin ETFs long before we did here in the states.
How could I forget about the Bitcoin futures market?  My bad.  Bitcoin futures have been available since Dec 2017.

I'm scared of the futures market and didn't consider investing in it.  So maybe I'm altogether wrong in my point, because investing against Bitcoin has been available for almost 4 years.

As an aside, a surprising number of U.S. states (Delaware, Nevada) are heavily used by one of the big offshore companies owing to their relaxed laws, according to the Panama Papers.  But my comment about offshore was intended to head off people claiming bitcoin derivatives are available on random websites headquartered in the Seychelles, which I saw another poster claim ages ago.

But your joke about Chicago at my expense was well done, and deserved.  I liked it!