Author Topic: What do you think of adding a low% of crypto allocation  (Read 32727 times)

MustacheAndaHalf

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Re: What do you think of adding a low% of crypto allocation
« Reply #600 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 #601 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 #602 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 #603 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 #604 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 #605 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 #606 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 #607 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 #608 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 #609 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 #610 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 #611 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 #612 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 #613 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!

MustacheAndaHalf

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Re: What do you think of adding a low% of crypto allocation
« Reply #614 on: November 12, 2021, 09:58:23 PM »
BITO launched on Oct 19, so I'll compare BTC-USD, BITO and GBTC using prices from the opening of Oct 20 and close of Nov 12 (no dividends to worry about!).
BTC-USD : 64,284.59 -> 63,749.39 = -0.83%
BITO : 42.22 -> 41.12 = -2.61%
GBTC : 49.02 -> 51.47 = -4.76%

BITO is beating GBTC so far.  I expected lower costs and tracking error with BITO.
I've seen graphs showing huge gaps between GBTC and BTC-USD, so I thought I'd calculate it myself by taking prices each year on Nov 12.

--- assets ------ 2018 ------ 2019 ------ 2020 ---2021
BTC-USD6411.768,759.7515,701.3063749.39
perform %n/a+37%+79%+306%
------------
GBTC7.2410.6117.8951.47
perform %n/a+47%+69%+188%
(all data from Yahoo Finance)

In the past 12 months, GBTC trailed BTC-USD by 118%.  There's problems with GBTC tracking Bitcoin, be it costs or tracking error.  I expect BITO to be more efficient using the Bitcoin futures market... but not forever.  As BITO and other futures ETFs proliferate, JP Morgan claims it could distort the futures market (and they would know futures markets better than me).
https://finance.yahoo.com/news/jpmorgan-warns-boom-bitcoin-futures-120123876.html

Telecaster

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Re: What do you think of adding a low% of crypto allocation
« Reply #615 on: November 13, 2021, 03:10:02 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.

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.


Gotcha.  That's why I was careful to say "regarding a single stock."  That might have been better phrased as "regarding an individual stock." 

talltexan

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Re: What do you think of adding a low% of crypto allocation
« Reply #616 on: November 15, 2021, 06:38:59 AM »
I entered a new set of trades over in my crypto currency trading journal.

https://forum.mrmoneymustache.com/journals/tall-texan's-crypto-trading-journal/

ChpBstrd

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Re: What do you think of adding a low% of crypto allocation
« Reply #617 on: November 15, 2021, 08:22:55 AM »
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.

You're right, I got them mixed up in my head! Contango probably explains most of the underperformance of BITO. Now it makes sense... sort of like how UVXY consistently destroys its own value trading VIX futures.

aceyou

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Re: What do you think of adding a low% of crypto allocation
« Reply #618 on: November 17, 2021, 06:15:53 AM »
I'm curios if aceyou and coolhand can give us a reasonable definition of contango without looking it up.

I wasn't able to give a good definition until I looked it up. 

MustacheAndaHalf

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Re: What do you think of adding a low% of crypto allocation
« Reply #619 on: November 17, 2021, 06:51:09 AM »
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.

Where did you get your data?  I compared Oct 20 - Nov 12 using historical prices on Yahoo Finance, by which measure GBTC is behind by 2%.

BITO launched on Oct 19, so I'll compare BTC-USD, BITO and GBTC using prices from the opening of Oct 20 and close of Nov 12 (no dividends to worry about!).
BTC-USD : 64,284.59 -> 63,749.39 = -0.83%
BITO : 42.22 -> 41.12 = -2.61%
GBTC : 49.02 -> 51.47 = -4.76%

MustacheAndaHalf

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Re: What do you think of adding a low% of crypto allocation
« Reply #620 on: November 17, 2021, 08:52:17 PM »
Most of my portfolio is passive, but I'm allocating some active picks.  I realized given Bitcoin's volatility, often upwards, I should give it a larger allocation than other active picks.

Some of my crypto allocation is now in BITO call options.  The time value wasn't cheap, at 13%, but for 2.2 years it seemed reasonable.  As an aside, I can buy leveraged Bitcoin in my Vanguard account... but if I try to buy a share of UPRO (3x S&P 500 ETF), Vanguard doesn't allow it.  I think their policy has some inconsistencies in it ...

the_gastropod

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Re: What do you think of adding a low% of crypto allocation
« Reply #621 on: November 18, 2021, 05:04:03 AM »
I just stumbled across this Cornell study from August https://arxiv.org/abs/2108.10984v1

Quote
We introduce systematic tests exploiting robust statistical and behavioral patterns in trading to detect fake transactions on 29 cryptocurrency exchanges. Regulated exchanges feature patterns consistently observed in financial markets and nature; abnormal first-significant-digit distributions, size rounding, and transaction tail distributions on unregulated exchanges reveal rampant manipulations unlikely driven by strategy or exchange heterogeneity. We quantify the wash trading on each unregulated exchange, which averaged over 70% of the reported volume. We further document how these fabricated volumes (trillions of dollars annually) improve exchange ranking, temporarily distort prices, and relate to exchange characteristics (e.g., age and userbase), market conditions, and regulation.

maizefolk

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Re: What do you think of adding a low% of crypto allocation
« Reply #622 on: November 18, 2021, 06:58:30 AM »
I just stumbled across this Cornell study from August https://arxiv.org/abs/2108.10984v1

Quote
We introduce systematic tests exploiting robust statistical and behavioral patterns in trading to detect fake transactions on 29 cryptocurrency exchanges. Regulated exchanges feature patterns consistently observed in financial markets and nature; abnormal first-significant-digit distributions, size rounding, and transaction tail distributions on unregulated exchanges reveal rampant manipulations unlikely driven by strategy or exchange heterogeneity. We quantify the wash trading on each unregulated exchange, which averaged over 70% of the reported volume. We further document how these fabricated volumes (trillions of dollars annually) improve exchange ranking, temporarily distort prices, and relate to exchange characteristics (e.g., age and userbase), market conditions, and regulation.

So this in an interesting preprint.

First, a really important disclaimer: arXiv is a preprint server that is hosted at Cornell. As arXiv themselves put it:

Quote
Material is not peer-reviewed by arXiv - the contents of arXiv submissions are wholly the responsibility of the submitter and are presented “as is” without any warranty or guarantee. By hosting works and other materials on this site, arXiv, Cornell University, and their agents do not in any way convey implied approval of the assumptions, methods, results, or conclusions of the work.

Secondly, if a preprint goes too long without coming out in a peer reviewed journal starts to be a red flag that maybe it cannot pass peer review. But even then there are still other potential explanations, like a key author graduated or found another job and isn't interested in continuing with the large amount of work to revise and resubmit one or multiple times to get it published in a peer reviewed journal. This one is about two years old and the first version came out in 2019, so if this were in biology or engineering I'd start to see that as a red flag. But my understanding is that 1-2 year review times are frequent in fields like economics or statistics, so this should probably still be considered a "new" preprint and may still come out in a peer reviewed journal someday. So what does it actually say?

The study uses a three metrics that are indicative of things not right in financial data to evaluate transactions at cryptocurrency exchanges.

1) Uneven distribution of first digits eg. bedford's law. People trying to make up random numbers will typically have an even distribution of first digits. Data in many other cases tend to have 1 as the most frequent digit much more often than 2 and so on.

2) Human selected data also displays clustering around round numbers. You can see this yourself looking at the volume for option chains on public stock exchanges. The open interest on SPY options at 200 or 300 is far higher than at the intervening values.

3) Fat tails/power law distribution.

All three of these metrics are used to detect data that isn't want it is supposed to be. I'm most familiar with the use of Bedford's law to catch examples fabricated research data or financial records. The authors detect significant deviations from expectation for these metrics for some but not all crypocurrency exchanges and conclude that this is evidence of wash trading. They go on to show that greater violation of these metrics are associated with various exchange properties.

Assuming the proprietary data sources the authors use is solid, their reasoning that this indicates a lot of volume on these exchanges indicates a lot of volume is not being generated by human traders. It was less clear to me that transactions not generated by humans necessarily means wash trading or how the authors rule out other ways non-human generated numbers could end up in the data: computer driven high frequency trading, market manipulation other than wash trading, or non-existent trades inserted into the dataset either by the exchanges or the company providing the proprietary dataset. On page 13 they even bring up at algorithmic trading of any sort (not just wash trading) has been known for years to violate their second criteria.

If I were doing peer review on this paper (I'm not in the field so no one is going to ask me) I'd say they've demonstrated evidence of something fishy going on in the data from a subset of cryptocurrency exchanges, but don't have strong evidence that the fishiness they've found at those exchanges is clearly the subset of fishiness we'd call "wash trading". Obviously the authors disagree and think they have conclusively shown it is wash trading and you can read their argument for why they think it is wash trading on page 21 of the preprint for yourself and decide whether or not it seems convincing to you.

Rosy

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Re: What do you think of adding a low% of crypto allocation
« Reply #623 on: November 18, 2021, 11:50:26 AM »
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.

You're right, I got them mixed up in my head! Contango probably explains most of the underperformance of BITO. Now it makes sense... sort of like how UVXY consistently destroys its own value trading VIX futures.

The Contango effect is real. It is a good reason for investors, pension funds and institutions to stay away from investing in (BITO) or other ETF Futures.
 
According to Bloomberg GBTC holds around 3.4% of the world's supply of bitcoin.
I bet they will be the first BTC spot ETF to be approved by the SEC, their ETF conversion Grayscale BTC Trust is scheduled for SEC approval Jul 6, 2022.

Rosy

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Re: What do you think of adding a low% of crypto allocation
« Reply #624 on: November 18, 2021, 11:51:36 AM »
@MustacheAndaHalf and @aceyou - you might find this video interesting

Bitcoin - speculation about the impact of Mt Gox upcoming release of funds and Hedge Fund investing - Futures - on the price of bitcoin
   https://www.youtube.com/watch?v=CVSbZxEmr1w

Radagast

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Re: What do you think of adding a low% of crypto allocation
« Reply #625 on: November 18, 2021, 11:10:23 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.
I don't think they say anything one way or the other. But I think they imply that if the past ten years of crypto are normal for crypto, then just think what happens when it has ten wild years by crypto standards.

Malcat

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Re: What do you think of adding a low% of crypto allocation
« Reply #626 on: November 19, 2021, 05:32:08 AM »
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.
I don't think they say anything one way or the other. But I think they imply that if the past ten years of crypto are normal for crypto, then just think what happens when it has ten wild years by crypto standards.

There are also two totally different concepts when it comes to crypto.

The speculative gains and the actual future use. The actual gains of specific coins are largely based on hype, not on actual use. It still remains to be seen which coins will have utility in the future and what use they will perform.

I for one, despite not being impressed with ANY use cases I've seen presented in this thread, am actually quite interested in future uses of crypto, and happen to currently be running a non profit with a very, very prominent player in the crypto world.

He's really opened my eyes to the difference between utility and the current unhinged value of high priced coins.

I've read every word Taleb has written at least 3 times. I totally agree that individual crypto coins as an investment right now are kind of insane, because it's a gamble as to who in the end will end up the most utilized once actual use is shaken out.

Whomever compared crypto to the internet early on really had an excellent example. It's one thing to know a technology will be major in the future, it's another to effectively invest in the exact right avenue and not get wiped out along the way.

Is it smart to just by Bitcoin? I don't know, it's value is so insane right now and it's coin has so many drawbacks compared to some newer coins, not the least of which is the environmental concern in a time where world governments are all starting to turn their creaky old machines towards sustainability.

Then what about Etherium? Sure, okay, good coin, but also very expensive and there are other coins that are basically identical.

Well what about EOS? The "Etherium killer" that Block.one totally dropped the ball on? It's selling for a measly $3-4/coin, and yet is still considered a "top 10 coin" and can actually handle high volume transactions, and currently does, although most of those current transactions are totally worthless.

If we go back to the example of the internet, none of the early players survived except for Yahoo, which was the first big dog and substantially better than the other garbage services, but it did eventually die after being so bad for so long and making the dumbfuck decision of not selling.

So is Bitcoin the crypto Yahoo? The biggest of the first gen with serious staying potential as long as it adapts to the rapidly changing ecosystem? Can it adapt as needed?

So then who ends up being Google? Who ends up the one coin to rule them all? Is EOS the sleeping giant that will finally overcome its leadership in-fighting and keep working in the background until it can forge a path forward, or will the bickering between Block.one and the community drag it down in the mud until it drowns?

Or will we all end up buying our cars and houses with Dog Money at the end of the day?

There is a TON of randomness in the crypto world right now, and Taleb is right, it's virtually impossible to know what the smart play is, just like it was impossible to know exactly which business was the right bet at the beginning of the internet.

It's one thing to see the vague shape of technology coming, it's another to know exactly where to invest your dollars.

If I were to buy coins, my bet would probably be EOS, because I wouldn't buy individual coins unless I was willing to lose my money and hoping for a moonshot. Just because it's cheap and still feasibly could take off if they can get past their initial faceplant. I would consider a top coin ETF though.

FTR, I was just away for vacation visiting DH's family, some of whom are working class O&G folks and very anti-establishment but with no real rationale, and who have been crypto-crazy, and I am bloody exhausted from total fucking clueless crypto-pushers. It's these pushy conversations that make even talking about crypto so tedious sometimes.

I've also had a good laugh at a whole new type of crypto article that I'm seeing, which is basically explaining the basics of crypto risk to idiots. The concept of meme coins, how speculation works, why some coin investments might be risky. Basically, explaining Shit-coins to the kind of people who call every crypto coin a "Bitcoin"

When you see the fucking idiocy that is propping up some of these values, it's entertaining, but also so very tiresome.

One cousin paid for a coffee with his phone and used that as evidence that crypto is the future. "See, with technology, we don't even need banks. See! I don't even need a bank card! That's the future, that's crypto!" The dude was using his bank card...on his phone.

I said "there was a dude years ago who put an RFID chip in his arm to pay for things, well before crypto" trying to point out that RFID tech has nothing to do with crypto and that the tech in his bank card is the EXACT same thing, and the guy enthusiastically responded "yeah! The future! Crypto!"

*Facepalm*

Fooled by randomness indeed.

Anyway, idiots and even idealists aside, I'm still avidly paying attention to how this will all play out. As someone who was dating the founder of a tech startup in the early 2000s, was very much part of that world, and saw far more individual investors lose money than make money, this is feeling very familiar, and I'm rather interested to see how it plays out.

The hype, the idealism, the idiocy, the floods of money not really having clear direction as to where to go, it feels the same. We'll see if the absolute gruesome carnage of that time plays out in a similar fashion or not.

MustacheAndaHalf

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Re: What do you think of adding a low% of crypto allocation
« Reply #627 on: November 19, 2021, 08:42:21 AM »
Well what about EOS? The "Etherium killer" that Block.one totally dropped the ball on? It's selling for a measly $3-4/coin, and yet is still considered a "top 10 coin" and can actually handle high volume transactions, and currently does, although most of those current transactions are totally worthless.
Maybe it's popularity peaked earlier this year?  While it was above $10 earlier, it's now just inside the top 50 on Coin Market Cap.  Even on 24h volume it doesn't seem to be in the top 10 anymore.
https://coinmarketcap.com/


If we go back to the example of the internet, none of the early players survived except for Yahoo, which was the first big dog and substantially better than the other garbage services, but it did eventually die after being so bad for so long and making the dumbfuck decision of not selling.
That's close to the metaphor I used, which was the dot-com bubble and crash.  The survivors of the dot-com crash include Apple and Amazon, which grew to be two of the top 5 public companies in the U.S.  I compared them to Bitcoin and Ethereum, which may have a first mover advantage that leaves other coins behind.

Malcat

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Re: What do you think of adding a low% of crypto allocation
« Reply #628 on: November 19, 2021, 10:42:59 AM »
Well what about EOS? The "Etherium killer" that Block.one totally dropped the ball on? It's selling for a measly $3-4/coin, and yet is still considered a "top 10 coin" and can actually handle high volume transactions, and currently does, although most of those current transactions are totally worthless.
Maybe it's popularity peaked earlier this year?  While it was above $10 earlier, it's now just inside the top 50 on Coin Market Cap.  Even on 24h volume it doesn't seem to be in the top 10 anymore.
https://coinmarketcap.com/

Their hype died out years ago shortly after their ICO, there's a lot of drama around it. It's a *very* interesting case study. (Bolded added by Malcat)

If we go back to the example of the internet, none of the early players survived except for Yahoo, which was the first big dog and substantially better than the other garbage services, but it did eventually die after being so bad for so long and making the dumbfuck decision of not selling.
That's close to the metaphor I used, which was the dot-com bubble and crash.  The survivors of the dot-com crash include Apple and Amazon, which grew to be two of the top 5 public companies in the U.S.  I compared them to Bitcoin and Ethereum, which may have a first mover advantage that leaves other coins behind.

Maybe, but maybe not. Neither Amazon nor Apple were the behemoths early in the dot com era. The early big players are all gone. So my perception of it is actually the opposite of yours.

My memories of the dot com era and lesson learned were that the big players at the beginning often don't end up being the big players at the end of the day.

It's not a perfect model obviously, it's very difficult to predict how it's all going to play out.

Rosy

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Re: What do you think of adding a low% of crypto allocation
« Reply #629 on: November 19, 2021, 11:32:09 AM »
You raised valid questions, Malcat, some have answers others require a crystal ball.

PRICING
YES, the pricing in the entire crypto market at this moment in time is beyond frothy and has very little to do with the actual value of an individual coin or rather the projects or network behind it.
NO, the current crypto bubble is not comparable to the tech bubble that caused the infamous crash. This particular bubble is caused every four years by the halving of bitcoin. The usual media hype whenever the price of bitcoin goes crazy and in this cycle the inflation concerns are whipping up more froth.

There is no price mystery at all.
BITCOIN has a well-documented four-year cycle at the end of which there is a halving, which means going forward the amount of bitcoin mined is now cut in half. Afterward the price rises each time. This cycle had a few months delay while the 60% of the world's bitcoin mining operations in China was redistributed to the rest of the world. 
When the price is frothy enough FOMO happens and the market cap explodes.
Once bitcoin reaches its new ATH it totally crashes and goes into a decline for the next three years and the four-year cycle begins again with the next halving.
The bitcoin code also raises the difficulty of mining bitcoin at each halving - both the halving and increasing the difficulty of mining bitcoin is by design and cannot be changed. Price is a function of supply and demand.
We seem to be following the pattern of 2017 in this cycle but who knows until this cycle is truly over.

THE CRASH
Bitcoin - around 85% or so.
Possibly it will bounce right back in the 30's or even the high fourties - if you believe JPMorgan's CEO $30K to under $50K is a realistic price for bitcoin.
Altcoins always crash near 90% although ETH holds up better and there will be an eventual rise to a price that reflects the true value.

BUT THIS TIME IT WILL BE DIFFERENT
There are always rumors that it might do something different in "this" cycle but so far it has repeated this pattern since inception.
Of course, I am hoping that with the changes in 2021 at least bitcoin might fare better this time around.
The longest credible projections for an extended supercycle are for March 2022 before it all collapses until the next round or maybe this time for the first time it will be different:).  ​

PERMANENCE and STABILITY
Of note here is that both the price of bitcoin and the crypto market cap has indeed increased over time. In my book that is a positive. Bitcoin has a well-deserved reputation of extreme volatility, but if you look at the trends and the charts you can easily see that bitcoin is slowing down.
There certainly are no 100Xs any longer, no one even expects a 3X or 5X except for the moon boys. Perhaps the institutional investments will have an effect on price stability...

SPECULATION
I'll be radical here and say that bitcoin is now for boomers and retirement portfolios, balance sheets of corporations that plan way into the future.
Whether it will be relevant in the future other than as a digital asset or legacy wealth is too soon to tell.

Bitcoin has had only two major changes in development in seven years - both changes went live this year, 2021.
The Lightning Network and as of one week ago Taproot. It will take at least six months to see the effect of Taproot - security and privacy are two of the new features. For the first time in years, there are all sorts of new projects being built on bitcoin, including bridges.
Bitcoin is still in the game and for now, I still deem it a wild success:).
The Scarcity Aspect
Foreign Government demands or Pension Funds in Europe might trigger the scarcity factor of bitcoin sooner than we think and owning one whole bitcoin might be the smartest thing you ever did.

THERE IS NOTHING NEW OR DIFFERENT ABOUT THIS CRYPTO BUBBLE
It happens every four years.
In my opinion, it is time to take your profits if that is your goal and bring on the popcorn to watch the show, maybe bitcoin will surprise us and the bull run will extend into 2022 and then slowly fizzle but who knows.
There is no valid reason to think that bitcoin and crypto et al will perform differently this time - we are very near the end of this cycle. There may still be a parabolic rise to $100K for bitcoin or not.
It means all the altcoins would have one last blast off - even the dead ones like EOS. A rising sea elevates all ships.

The key concept here is the four-year cycle and the strength and dominance of bitcoin to move the price including the price of all the altcoins including eth.
None of them not even ETH is strong enough to move on their own - yet.
« Last Edit: November 19, 2021, 12:18:23 PM by Rosy »

boarder42

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Re: What do you think of adding a low% of crypto allocation
« Reply #630 on: November 19, 2021, 12:22:51 PM »
Oh sweet we've got a 4 year cycle on something that's only been thru that what 3x

You talk about this like it's been around for decades. And you continue to use terms and comparisons typically used for equity markets that have established history.

There's plenty of valid reason to think it will be different every single day bc it doesn't have enough history to say it will do anything predictable long term.

Further you sound like a chart reader talking about when to buy and sell and time stuff saying things like this. Which most people avoid when trying to invest for wealth and maintain it.
« Last Edit: November 19, 2021, 12:44:03 PM by boarder42 »

the_gastropod

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Re: What do you think of adding a low% of crypto allocation
« Reply #631 on: November 19, 2021, 02:40:30 PM »
Whomever compared crypto to the internet early on really had an excellent example. It's one thing to know a technology will be major in the future, it's another to effectively invest in the exact right avenue and not get wiped out along the way.

But... will it be major in the future? Every bank and financial institution has tried and failed to come up with some problem cryptocurrencies could solve. They've had 12 years to do this, and still the only use-cases are speculation, regulatory arbitrage, ransomware, and criminality. Is it not possible that—like the Segway—crypto is a really amazing solution to almost nothing worthwhile?

Every example future use-case given in this thread was people taking the solution (blockchain, duh) to solve non-existent problems they didn't understand. As far as I can tell, there is no evidence crypto is innovative in the sense that the internet was. There is substantial evidence that it is actively harmful to society at large: it allows for bypassing regulation (laws, like... AML, KYC, etc.), it allows its user to evade taxes, it enables extortion and scams, to say nothing of the environmental disaster it exacerbates. If cryptocurrencies suddenly vanished tomorrow, the world would be a slightly better place.
« Last Edit: November 19, 2021, 02:48:02 PM by the_gastropod »

Malcat

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Re: What do you think of adding a low% of crypto allocation
« Reply #632 on: November 19, 2021, 02:53:43 PM »
Whomever compared crypto to the internet early on really had an excellent example. It's one thing to know a technology will be major in the future, it's another to effectively invest in the exact right avenue and not get wiped out along the way.

But... will it be major in the future? Every bank and financial institution has tried and failed to come up with some problem cryptocurrencies could solve. They've had 12 years to do this, and still the only use-cases are speculation, regulatory arbitrage, ransomware, and criminality. Is it not possible that—like the Segway—crypto is a really amazing solution to almost nothing worthwhile?

Every example future use-case given in this thread was people taking the solution (blockchain, duh) to solve non-existent problems they didn't understand. As far as I can tell, there is no evidence crypto is innovative in the sense that the internet was. There is substantial evidence that it is actively harmful to society at large: it allows for bypassing regulation (laws, like... AML, KYC, etc.), it allows its user to evade taxes, it enables extortion and scams, to say nothing of the environmental disaster it exacerbates. If cryptocurrencies suddenly vanished tomorrow, the world would be a slightly better place.

I'm not at all convinced of crypto's use as a currency, but I have now spent enough time with very smart people who are currently advising my government on possible uses for the technology, not just as a currency, and this is where I think some unexpected potential might start turning up.

However, I am in no way an expert and in no way equipped to make those arguments. But much more tech savvy people than myself who are not patient enough or don't owe me enough to take the time and explain things to me like I'm 5, have made it clear that they don't see crypto primarily as an anti establishment currency toppler like a lot of the idealists do.

I wish I understood the workings of crypto better enough to understand what the fuck they're talking about, but I know enough to recognize when someone isn't 1000% full of idealistic shit.

MustacheAndaHalf

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Re: What do you think of adding a low% of crypto allocation
« Reply #633 on: November 19, 2021, 07:09:31 PM »
There certainly are no 100Xs any longer, no one even expects a 3X or 5X except for the moon boys. Perhaps the institutional investments will have an effect on price stability...
It hurts your case that Bitcoin tripled in the last 12 months.  Nobody expects what happened now to happen again?  Historical data doesn't support your claim.
https://finance.yahoo.com/quote/BTC-USD/

In case BTC changes price soon, note that GBTC quadrupled last year, in 2020:
https://www.morningstar.com/etfs/pinx/gbtc/performance


THERE IS NOTHING NEW OR DIFFERENT ABOUT THIS CRYPTO BUBBLE
It happens every four years.
In my opinion, it is time to take your profits if that is your goal and bring on the popcorn to watch the show, maybe bitcoin will surprise us and the bull run will extend into 2022 and then slowly fizzle but who knows.
There is no valid reason to think that bitcoin and crypto et al will perform differently this time - we are very near the end of this cycle. There may still be a parabolic rise to $100K for bitcoin or not.
"Bitcoin's most recent halving occurred on May 11, 2020."
https://www.investopedia.com/bitcoin-halving-4843769

On May 11, Bitcoin lost 10% compared to May 8.  It fully recovered a week later, on May 18.  Is that the "crash" you were talking about, driven by Bitcoin cutting the block reward in half?

MustacheAndaHalf

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Re: What do you think of adding a low% of crypto allocation
« Reply #634 on: November 19, 2021, 07:41:18 PM »
"The VanEck Bitcoin Strategy ETF (ticker XBTF) launched Tuesday" (Nov 16).
"While the ProShares fund absorbed $1.1 billion in just two days -- the quickest an ETF has ever done so -- that pace of growth has cooled considerably. Assets have lingered between $1.3 billion and $1.4 billion for the past several weeks, according to data compiled by Bloomberg."
https://www.bloomberg.com/news/articles/2021-11-16/bitcoin-futures-etf-frenzy-is-fading-fast-as-another-fund-debuts

I'm guessing two ETFs investing in the same underlying futures will have very similar performance.  I'll probably leave some in BITO, but I plan on chasing the lower expense ratio (0.65%) of XBTF.

As a bonus, I like the name better.  Bitcoin used to be "XBTC", like it was a currency.  While it's not looking like a suitable currency anytime soon, I like that VanEck researched and used an older name.  But that's just a bonus - I'm chasing (and rewarding) lower expense ratios with my investment dollars.

BicycleB

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Re: What do you think of adding a low% of crypto allocation
« Reply #635 on: November 19, 2021, 09:05:33 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.
I don't think they say anything one way or the other. But I think they imply that if the past ten years of crypto are normal for crypto, then just think what happens when it has ten wild years by crypto standards.

There are also two totally different concepts when it comes to crypto.

The speculative gains and the actual future use. The actual gains of specific coins are largely based on hype, not on actual use. It still remains to be seen which coins will have utility in the future and what use they will perform.

I for one, despite not being impressed with ANY use cases I've seen presented in this thread, am actually quite interested in future uses of crypto, and happen to currently be running a non profit with a very, very prominent player in the crypto world.

He's really opened my eyes to the difference between utility and the current unhinged value of high priced coins.

I've read every word Taleb has written at least 3 times. I totally agree that individual crypto coins as an investment right now are kind of insane, because it's a gamble as to who in the end will end up the most utilized once actual use is shaken out.

Whomever compared crypto to the internet early on really had an excellent example. It's one thing to know a technology will be major in the future, it's another to effectively invest in the exact right avenue and not get wiped out along the way.

Is it smart to just by Bitcoin? I don't know, it's value is so insane right now and it's coin has so many drawbacks compared to some newer coins, not the least of which is the environmental concern in a time where world governments are all starting to turn their creaky old machines towards sustainability.

Then what about Etherium? Sure, okay, good coin, but also very expensive and there are other coins that are basically identical.

Well what about EOS? The "Etherium killer" that Block.one totally dropped the ball on? It's selling for a measly $3-4/coin, and yet is still considered a "top 10 coin" and can actually handle high volume transactions, and currently does, although most of those current transactions are totally worthless.

If we go back to the example of the internet, none of the early players survived except for Yahoo, which was the first big dog and substantially better than the other garbage services, but it did eventually die after being so bad for so long and making the dumbfuck decision of not selling.

So is Bitcoin the crypto Yahoo? The biggest of the first gen with serious staying potential as long as it adapts to the rapidly changing ecosystem? Can it adapt as needed?

So then who ends up being Google? Who ends up the one coin to rule them all? Is EOS the sleeping giant that will finally overcome its leadership in-fighting and keep working in the background until it can forge a path forward, or will the bickering between Block.one and the community drag it down in the mud until it drowns?

Or will we all end up buying our cars and houses with Dog Money at the end of the day?

There is a TON of randomness in the crypto world right now, and Taleb is right, it's virtually impossible to know what the smart play is, just like it was impossible to know exactly which business was the right bet at the beginning of the internet.

It's one thing to see the vague shape of technology coming, it's another to know exactly where to invest your dollars.

If I were to buy coins, my bet would probably be EOS, because I wouldn't buy individual coins unless I was willing to lose my money and hoping for a moonshot. Just because it's cheap and still feasibly could take off if they can get past their initial faceplant. I would consider a top coin ETF though.

FTR, I was just away for vacation visiting DH's family, some of whom are working class O&G folks and very anti-establishment but with no real rationale, and who have been crypto-crazy, and I am bloody exhausted from total fucking clueless crypto-pushers. It's these pushy conversations that make even talking about crypto so tedious sometimes.

I've also had a good laugh at a whole new type of crypto article that I'm seeing, which is basically explaining the basics of crypto risk to idiots. The concept of meme coins, how speculation works, why some coin investments might be risky. Basically, explaining Shit-coins to the kind of people who call every crypto coin a "Bitcoin"

When you see the fucking idiocy that is propping up some of these values, it's entertaining, but also so very tiresome.

One cousin paid for a coffee with his phone and used that as evidence that crypto is the future. "See, with technology, we don't even need banks. See! I don't even need a bank card! That's the future, that's crypto!" The dude was using his bank card...on his phone.

I said "there was a dude years ago who put an RFID chip in his arm to pay for things, well before crypto" trying to point out that RFID tech has nothing to do with crypto and that the tech in his bank card is the EXACT same thing, and the guy enthusiastically responded "yeah! The future! Crypto!"

*Facepalm*

Fooled by randomness indeed.

Anyway, idiots and even idealists aside, I'm still avidly paying attention to how this will all play out. As someone who was dating the founder of a tech startup in the early 2000s, was very much part of that world, and saw far more individual investors lose money than make money, this is feeling very familiar, and I'm rather interested to see how it plays out.

The hype, the idealism, the idiocy, the floods of money not really having clear direction as to where to go, it feels the same. We'll see if the absolute gruesome carnage of that time plays out in a similar fashion or not.

@Malcat, thanks for posting these thoughts. Combining the experience, the people, and your own evaluation makes them a valuable report from my viewpoint.

Telecaster

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Re: What do you think of adding a low% of crypto allocation
« Reply #636 on: November 19, 2021, 09:10:53 PM »
Every example future use-case given in this thread was people taking the solution (blockchain, duh) to solve non-existent problems they didn't understand. As far as I can tell, there is no evidence crypto is innovative in the sense that the internet was.

I'd like to expand on that a little bit.  In the early days of the Internet-especially after the web became available to the the public, it was clear the Internet was going to be huge, and it was also clear that there was vastly more out there than anyone was imaging at the time.  No one was really sure, but everyone knew it would be big.   Remember, in say, 1995 most people probably didn't have email.    There was profusion of all these ideas about what the Internet could be come.     Most of them didn't pan out but some of them did, and a select few panned out in a incredible ways. 

Which brings us to cryptocurrency.   The upsides of cryptocurrency are:

1) There is no need for a trusted third-party
2) Currency cannot be manipulated by a central bank
3) Easy cross-border transactions

And maybe one or two other small advantages, but that's about it.  3) seems attractive in some cases, but I haven't needed it.  There are also some non-trivial downsides to 1) and 2).   In the meantime, I go to the grocery store and the credit card works fine.   I don't see any problem in my life that crypto would solve or make easier. 

In all of these crypto threads we've had, literally the only reason people say you should buy crypto is "it goes up a lot."  That's not a bad reason by itself, but it raises the question, "why does it go up a lot?"

The reason isn't because "people use it to buy stuff."  The reason is that there is a belief that more people will want to own it in the future than own it right now.   






Rosy

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Re: What do you think of adding a low% of crypto allocation
« Reply #637 on: November 19, 2021, 10:09:14 PM »

There certainly are no 100Xs any longer, no one even expects a 3X or 5X except for the moon boys. Perhaps the institutional investments will have an effect on price stability...
It hurts your case that Bitcoin tripled in the last 12 months.  Nobody expects what happened now to happen again?  Historical data doesn't support your claim.
https://finance.yahoo.com/quote/BTC-USD/

In case BTC changes price soon, note that GBTC quadrupled last year, in 2020:
https://www.morningstar.com/etfs/pinx/gbtc/performance


THERE IS NOTHING NEW OR DIFFERENT ABOUT THIS CRYPTO BUBBLE
It happens every four years.
In my opinion, it is time to take your profits if that is your goal and bring on the popcorn to watch the show, maybe bitcoin will surprise us and the bull run will extend into 2022 and then slowly fizzle but who knows.
There is no valid reason to think that bitcoin and crypto et al will perform differently this time - we are very near the end of this cycle. There may still be a parabolic rise to $100K for bitcoin or not.
"Bitcoin's most recent halving occurred on May 11, 2020."
https://www.investopedia.com/bitcoin-halving-4843769

On May 11, Bitcoin lost 10% compared to May 8.  It fully recovered a week later, on May 18.  Is that the "crash" you were talking about, driven by Bitcoin cutting the block reward in half?


1. Sorry, I wasn't clear - the 100X referred to the past and the part about the 3X or 5X is meant to refer to the present as in going forward from right now.
As in from today to the end of this cycle.


2. No - not at all. The crash to end this cycle hasn't happened yet. This is an up-to-date take with solid data:
  https://cointelegraph.com/news/next-bitcoin-price-crash-will-be-shallower-than-80-says-pantera-capital-ceo



3.  The four-year bitcoin market cycle  - 2012, 2016, and 2020 halving events.
  • Every low of a major cycle never reached the top of the previous one. I.e., the lowest price of 2017’s cycle, ~$3120, was way above the 2013 cycle’s top at ~$1150 (so far, it’s true for 2021’s cycle – the low was around $26k, which is above 2017’s high amid $20k).


MustacheAndaHalf

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Re: What do you think of adding a low% of crypto allocation
« Reply #638 on: November 20, 2021, 05:49:19 AM »
Every example future use-case given in this thread was people taking the solution (blockchain, duh) to solve non-existent problems they didn't understand.
Are you you saying that just to troll people?  You're the expert that can decide who understands which problem?  Because you understand them all, and nobody else does?

MustacheAndaHalf

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Re: What do you think of adding a low% of crypto allocation
« Reply #639 on: November 20, 2021, 05:59:36 AM »

There certainly are no 100Xs any longer, no one even expects a 3X or 5X except for the moon boys. Perhaps the institutional investments will have an effect on price stability...
It hurts your case that Bitcoin tripled in the last 12 months.  Nobody expects what happened now to happen again?  Historical data doesn't support your claim.
https://finance.yahoo.com/quote/BTC-USD/

In case BTC changes price soon, note that GBTC quadrupled last year, in 2020:
1. Sorry, I wasn't clear - the 100X referred to the past and the part about the 3X or 5X is meant to refer to the present as in going forward from right now.
As in from today to the end of this cycle.
Based on what data?  You claim nobody "expects a 3X or 5X except for the moon boys".  Is that insult supposed to prove your point without data?

In the past 12 months, Bitcoin tripled.  I provided evidence.  I think it's reasonable to assume it could triple in the future.  Right now, the data is on my side, not yours.  Feel free to add data to support your view... a viewpoint without data strikes me as weaker than a point backed by data.

Malcat

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Re: What do you think of adding a low% of crypto allocation
« Reply #640 on: November 20, 2021, 06:12:11 AM »
Every example future use-case given in this thread was people taking the solution (blockchain, duh) to solve non-existent problems they didn't understand. As far as I can tell, there is no evidence crypto is innovative in the sense that the internet was.

I'd like to expand on that a little bit.  In the early days of the Internet-especially after the web became available to the the public, it was clear the Internet was going to be huge, and it was also clear that there was vastly more out there than anyone was imaging at the time.  No one was really sure, but everyone knew it would be big.   Remember, in say, 1995 most people probably didn't have email.    There was profusion of all these ideas about what the Internet could be come.     Most of them didn't pan out but some of them did, and a select few panned out in a incredible ways. 

Which brings us to cryptocurrency.   The upsides of cryptocurrency are:

1) There is no need for a trusted third-party
2) Currency cannot be manipulated by a central bank
3) Easy cross-border transactions

And maybe one or two other small advantages, but that's about it.  3) seems attractive in some cases, but I haven't needed it.  There are also some non-trivial downsides to 1) and 2).   In the meantime, I go to the grocery store and the credit card works fine.   I don't see any problem in my life that crypto would solve or make easier. 

In all of these crypto threads we've had, literally the only reason people say you should buy crypto is "it goes up a lot."  That's not a bad reason by itself, but it raises the question, "why does it go up a lot?"

The reason isn't because "people use it to buy stuff."  The reason is that there is a belief that more people will want to own it in the future than own it right now.

The two crypto experts I've been talking to don't invest in coins because they don't see toppling existing currencies as the future use of blockchain technology. They see it like the internet, something which will eventually create its own uses.

This is where I get lost and don't understand it. But when I know that that someone is making significant sums advising governments on how the tech works and how it *might* be used, I sit up a little straighter and pay attention.

It doesn't mean I'll make any speculative investments, because if the use is unpredictable, then it's virtually impossible to predict who of the current players will survive.

And as I said about the dot com era, everyone likes to remember the money that was made, but let's not forget about the MASSIVE number of people who lost money.

When I think back to 2004, living with a bunch of tech guys who had lost everything. The boom of the internet at that time was seen by a lot in tech as gruesome loss with the field of companies littered with dead bodies.

VCs were throwing gobs of money at anything "internet", individual investors were frothing at the mouth to give their money to the new tech investments because everyone was making money hand over fist for awhile. Idiot cousins were rambling on about "the internet" and "the future" and pushing their relatives to invest in tech start-ups.

I personally don't think back on the dot com era with a sense that it all worked out and people made a lot of money. What I primarily remember is people losing money, and then some shiny giants rising from the ashes of everyone else's losses.

It's that experience that makes me such a cautious investor when I see tech hype. Especially when I see tech hype that the people hyping can't seem to explain very well.

the_gastropod

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Re: What do you think of adding a low% of crypto allocation
« Reply #641 on: November 20, 2021, 04:03:36 PM »
Every example future use-case given in this thread was people taking the solution (blockchain, duh) to solve non-existent problems they didn't understand.
Are you you saying that just to troll people?  You're the expert that can decide who understands which problem?  Because you understand them all, and nobody else does?

Huh? No?! I think many of us are still very interested in hearing a single coherent use-case for blockchain that: 1. Isn’t to drive pure speculation, 2. Isn’t criminal, 3. Actually benefits from the properties of blockchain (i.e., would not be better solved with a sql database)

effigy98

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Re: What do you think of adding a low% of crypto allocation
« Reply #642 on: November 20, 2021, 07:56:43 PM »
MSTR is a better BTC play if you need to use the stock market (retirement account).

Gatzbie

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Re: What do you think of adding a low% of crypto allocation
« Reply #643 on: November 21, 2021, 12:25:36 AM »
Every example future use-case given in this thread was people taking the solution (blockchain, duh) to solve non-existent problems they didn't understand.
Are you you saying that just to troll people?  You're the expert that can decide who understands which problem?  Because you understand them all, and nobody else does?

Huh? No?! I think many of us are still very interested in hearing a single coherent use-case for blockchain that: 1. Isn’t to drive pure speculation, 2. Isn’t criminal, 3. Actually benefits from the properties of blockchain (i.e., would not be better solved with a sql database)

Crypto world still appears to be in its infancy (even for the current top coins) with no real-world use cases for people living in first-world countries. Right now - try to send $100 worth of any ERC-20 token on Ethereum - you will have to pay $800 in fees. What does Bitcoin do? Well it just goes up. Many people have agreed on the idea that it's a store of value & have collectively put in $1.1T dollars on this idea. Bitcoin's only value is if its market cap can keep going up. Holders sometimes referred to as "shillers' must keep convincing new money to keep coming into this idea so it can remain a store of value so they can take profits. Bitcoin will only lose value when new money quits coming in for X reason.

 Many alt-coins *ahem* *cough* shit-coins ride on the tail-winds of Bitcoin going up only exist to be pumped & dumped to ride on peoples hopes to get rich fast with 21,000% returns. I know people who have tried to get me involved on these. Would I be up a lot if I bought Saitama wolfpack coin for $0.00000025 & joined the wolfpack? Yes, I would be up 1,000% compared to my S&P 500 if I joined the wolfpack that night. People out there are making huge gains on this.

For the good projects out there, will keep improving to where someday can have real-world use cases. The nonsense silly projects will die. Which ones will hang in there? The ones that are the fastest to solve real-world problems, offer a convenient way for the masses to use, & execute on pulling users to their project. Bitcoin & Ethereum etc. had first-mover advantage & coins that offer better scalability already are being developed & catching up or are finding & developing their own niche uses.

Good projects out there still trying to improving on themselves to become better & better. Maybe some day will be able to apply themselves & have real world use cases.

As of November 2021: I am seeing a coin out to replace Ethereum that offers better scalability, 9% stablecoin interest on CEFI or 20% fixed rate stable interest accounts on DEFI with additional options to pursue "delta neutral strategy" on "synthetic stocks" aka you don't own Tesla stock but you buy something that tracks its price in the crypto world to get a "conservative" & "reliable" 40% gain on average, & places to buy untraceable Chili's gift cards with crypto to help evade taxes on your gains while at the same time having a nice family dinner with unlimited salsa.
« Last Edit: November 21, 2021, 01:09:18 AM by Gatzbie »

MustacheAndaHalf

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Re: What do you think of adding a low% of crypto allocation
« Reply #644 on: November 21, 2021, 01:06:27 AM »
Every example future use-case given in this thread was people taking the solution (blockchain, duh) to solve non-existent problems they didn't understand.
Are you you saying that just to troll people?  You're the expert that can decide who understands which problem?  Because you understand them all, and nobody else does?
Huh? No?! I think many of us are still very interested in hearing a single coherent use-case for blockchain that: 1. Isn’t to drive pure speculation, 2. Isn’t criminal, 3. Actually benefits from the properties of blockchain (i.e., would not be better solved with a sql database)
Read the quote again - that's not what you said.  You said of this thread, "solve non-existent problems they didn't understand".  That's an insult, not curiousity.  You claim others "didn't understand", implying you do?  And you said "non-existent problems" covering every post in this thread?  That comes off as arrogant and trolling.

MustacheAndaHalf

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Re: What do you think of adding a low% of crypto allocation
« Reply #645 on: November 21, 2021, 01:10:58 AM »
Right now - try to send $100 worth of any ERC-20 token on Ethereum - you will have to pay $800 in fees.
What source claims Ethereum gas fees are $800?

"ERC20 Transfer   $20.11"
https://etherscan.io/gastracker

Graph showing a fee under $40.
https://bitinfocharts.com/comparison/ethereum-transactionfees.html#3m

Gatzbie

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Re: What do you think of adding a low% of crypto allocation
« Reply #646 on: November 21, 2021, 01:18:15 AM »
A bit of an exaggeration to get a point across. I based on posts i've seen on places like reddit.. Some people trying to send $50 worth of stablecoins paying $80 of transaction fees. The fees are so high they cannot move their stablecoins in current environment so must HODL. Apparently they are trying to make upgrades to help solve this as part of Ethereum 2.0 upgrades. Many are being encouraged to use L2 now instead of L1 which whales or institutional inventors can continue using with high fees.

I can send you an example trasnaction hash I saw - look at it on etherscan:
0xf5a93bf4985b16d9af580b7f8617f67da32ca5c32764894149fbd5d0c2e566fa

$85.42 to send $50 but I believe this ether price fluctuates from when it was originally sent - originally was still over $50 though.
« Last Edit: November 21, 2021, 01:39:20 AM by Gatzbie »

Juan Ponce de León

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Re: What do you think of adding a low% of crypto allocation
« Reply #647 on: November 21, 2021, 02:59:13 AM »
Why worry about ETH fees, if you're not a whale just don't use the ETH network.  BSC fees are 30 cents, AVAX fees are 50-70cents.

the_gastropod

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Re: What do you think of adding a low% of crypto allocation
« Reply #648 on: November 21, 2021, 03:16:49 AM »
Read the quote again - that's not what you said.  You said of this thread, "solve non-existent problems they didn't understand".  That's an insult, not curiousity.  You claim others "didn't understand", implying you do?  And you said "non-existent problems" covering every post in this thread?  That comes off as arrogant and trolling.

Perhaps your definition troll differs from mine. I feel like I’m being gaslit here.

Reread the thread. There are examples of: Ticketmaster replacements, supply chain tracking, etc. And they all fall into the “the poster did not understand the problem at hand. And blockchain is also an non-solution”. I do not believe you are debating in good faith. I won’t recognize any further bad-faith responses from you.

boarder42

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Re: What do you think of adding a low% of crypto allocation
« Reply #649 on: November 21, 2021, 07:03:42 AM »
Read the quote again - that's not what you said.  You said of this thread, "solve non-existent problems they didn't understand".  That's an insult, not curiousity.  You claim others "didn't understand", implying you do?  And you said "non-existent problems" covering every post in this thread?  That comes off as arrogant and trolling.

Perhaps your definition troll differs from mine. I feel like I’m being gaslit here.

Reread the thread. There are examples of: Ticketmaster replacements, supply chain tracking, etc. And they all fall into the “the poster did not understand the problem at hand. And blockchain is also an non-solution”. I do not believe you are debating in good faith. I won’t recognize any further bad-faith responses from you.

It's all he does welcome to the debate about words because the real debate can't be debated. 

Ive decided this poster is toxic to actual conversations so I've quit talking to them. All they do is claim personal attack and then debate the words that were said and what was meant and do not actually have productive conversations about what's going on. 
« Last Edit: November 21, 2021, 07:06:52 AM by boarder42 »