Been a while since I busted out the soapbox but things are finally getting interesting again. I’ll follow this up with a TA post, as I have since before it was cool – and now not, again. Know you’re all dying for that one. Oh, and gas. We’re going to talk about ‘crypto diversification’ and ways to actually do that, because, owing shitcoins is not. You know this now.
A little detour today though, something I haven’t written much about. I hope its relevant to some of you as we breakdown to new 2018 lows. Nothing personal here, just some context for those soul searching through oblivion.
Trading vs. Investing
I promised in the BTFD series to cover my thoughts on trading vs. investing in Bitcoin.
I’ve come to agree with Pierre Rochard’s recent comments that ‘investing’ isn’t a great label for buying and holding Bitcoin. By some definition it’s still currency speculation. There’s an important distinction there, even if it doesn’t much change the plan to apply conservative portfolio principles to Bitcoin.
Trading vs. Speculating?
While we’re back to speculating, let’s preface this with some nuance. Information asymmetry would seem less prevalent in Bitcoin. You aren’t speculating on something that isn’t already well known by the market. You’re speculating that Bitcoin will survive. The rest seems like a foregone conclusion. The bulk of what made Bitcoin compelling has existed since conception. Fundamentals and demand have done nothing but strengthen.
Betting against Bitcoin is the speculation today. That’s 10 years of successful history. The nature of Bitcoin’s risk hasn’t changed despite it’s maturation. It’s still possible you could experience massive capital loss at a rapid rate, as 2018 has shown. But ‘failure’ hasn’t happened, creating quite the dilemma. Bitcoin either works, or it doesn’t. It either goes down in flames, or the force of math takes over. That math hasn’t changed, more people just believe and trust it today than ever.
We’re closing the gap on Bitcoin’s parabolic upside opportunity in 2018, but we’re not there yet. It doesn’t take a mathematician to see. To expect Bitcoin’s demise is out-thinking and out-predicting the market, which has long spoken by now. This time we have more data. This time there’s more traction. This time represents the most validated the Bitcoin protocol has ever been.
So fine, we’ll call this currency speculation. We’re still going to apply conservative portfolio ideas.
Traditional Financial Planning
Bitcoin does this well. While we won’t stray into all the ways Bitcoin is useful for this, let’s just consider portfolio application.
There aren’t many portfolios today that can’t justify 1% allocation as an uncorrelated hedge against global systemic risk. Bitcoin could also serve as a hedge against inflation. While price volatility makes it unpalatable for short term savings, long term savings have maintained buying power well. You could defend a strategy that splits commodity allocation or maybe even high risk growth equities.
Allocation depends entirely on your risk tolerance and goals. As a general premise however, Bitcoin exposure should probably represent more than 0% of your wealth in 2018. As has been said before, it’s too risky to ignore it.
There’s a number of factors to be considered in allocation of any asset, including Bitcoin:
- What are your goals with this money?
- What is the maximum loss you can accept?
- How long before you need to use this money?
- What is your ability to withstand unexpected events before requiring this money to survive?
- What is your plan to account for all the risks present?
These questions help form an idea of what allocation is viable for you. It’s different for everyone. While there is an argument to be made about having conviction with generational opportunities, that risk profile is not conducive to the average saver. You can have prudent Bitcoin exposure right now without drinking the kool aid. This is simple math. Bitcoin is a force of nature.
While traders carried the torch in Bitcoin, adoption has outgrown the number of people who should be trading it. That’s not a path for the average person who doesn’t even have a firm grasp on their savings. They are suffering the consequences of misallocated risk today.
While we love to blame trading and tell people they should never do such a dirty thing, this is ridiculous. There’s a reason trading exists as a profession. Of course you’re not going to wake up and be a doctor tomorrow, but that doesn’t mean you shouldn’t go to med school – if that’s what you want. Just as in any difficult profession, only the best make the grade. Trading provides one of the most challenging and ruthless adversaries available. It’s certainly not a path for the faint of heart, but it’s naive to think it’s not useful or worth knowing to the average person. Of course it is. That doesn’t mean you have to.
Hot takes aside though, traders are passing the torch to savers. It’s time for the Bitcoin financial services industry to mature and serve greater subsets of the community and population at large.
Trading vs. ‘Saving’
Failing to plan is planning to fail. It doesn’t matter if you’re trading or saving. Your safety is executing a prearranged set of conditions, not predicting an infinitely complex system. Being underwater doesn’t change anything. Not having a plan changes everything.
The prudent Bitcoin saver was prepared before they left shore. They’re prepared to hold 100% downside over a 3-5 year horizon. They’re not even phased by 2018 price action. It’s hard to shake that out. They’re going to survive gut wrenching volatility. They’re prepared if Bitcoin fails entirely. They’ve kissed that money goodbye for years the second it hits Bitcoin.
The prudent trader is also ready for anything. They’re just prepared to take more shots and abandon ship a hell of a lot faster if things go wrong. Make no mistake, that is still a plan.
If you’re hurting here, it might say more about your due diligence than the merits of Bitcoin. You’re the walking dead without a plan. That goes for most new ‘virtual asset’ owners I’ve met over the past 18 months. Maybe not today, maybe not tomorrow, but in no uncertain terms – it’s a matter of time until you’re another nocoiner normie.
Again, it doesn’t matter if you trade or save. If you’re not going to take your money seriously, or find someone who will purportedly try, there’s no hope for you against a ruthless and disruptive market. This wasn’t about Bitcoin for those fully rekt (RIP). This is a problem of financial education.
Money doesn’t care if you’re right or wrong. Check your emotional bags at the curb. Time to get with the program and get with a plan.
Thanks for reading!
While most of you should definitely take financial advise, I’m just a Bitcoin sockpuppet, and this concludes my quarterly bag shill.
We’re still going to cover trading systems in another episode of BTFD. Somehow, I don’t see enough on this for how many of you there are. You should remove emotions and prediction from your trading as aggressively as you do in savings and investing. If you’re going to insist on being a Bitmex degen, we’ll talk about staying in the hunt with boring, emotionless math.
Until next time, all the best to you through the perpetual beatdown of sloppy risk.