Trader, writer, MBA, Harvard fellow, #HSP, wife, and sci-fi fan. Fascinated in nature rights, animal behavior, technical analysis, metaphysics, personal freedom, privacy, blockchain, off-grid technology, ancient wisdom and all things #Banksy.
I don't think it's possible to separate belief system from everyday life if you want to live well. And, based on new discoveries in quantum science, separating the two may even be hindering progress in everything we do, especially if we 'believe' the path toward progress is a difficult one. In such a case, we could be the creators of our own hell. Of course the opposite may also be true, which should make this article worth reading.
What Do I Believe? We Are Living In A Simulation
I believe that we create our own reality. I believe we can do this because we live in a simulation. This may seem like science fiction, but there's a dearth of scientific (repeatable) evidence out there that says otherwise. One of my favorite discussions on the topic is the 2016 Isaac Asimov Memorial Debate: Is the Universe a Simulation?(see below)
Let's assume we're both on the same page and we both believe we are living in a simulation. Now what? The next step is to figure out the rules of the simulation so we can get the most out of this life.
The Relationship Between Newtonian & Quantum Physics
We know the physical rules of the world are based in Newtonian physics: an action or cause creates the effect or reaction.
We also know the rules of the world are based in Quantum physics, the study of matter at the atomic level. At this level, however, the laws are reversed. At the quantum level the action or cause follows the effect or reaction. Again, this is provable, peer-reviewed, repeatable science.
We know a lot about impacting reality on the Newtonian level, but what about the quantum level? What is the quantum level? Why is it there? Who is there?
In the following video, Dr. Joe talks about these questions. Specifically, he discusses the relationship between you and your "self" (the person playing the game). He gives a few ideas on ways you can tap into your infinite self using the laws of quantum physics.
The most common way is to imagine yourself as the person you need to be in order to be the person who does the things you want to do. That sentence takes a bit of unraveling, but here's an example of an exercise that will help.
Before you get up in the morning, transform yourself into the person you want to be in your mind. Walk the way they walk, talk the way they talk. Do the things they do throughout the day. Try to live out the entire day of the person you want to be before you get up in the morning. Don't let yourself get out of bed until you are that person.
Why and how does this exercise work: neuroscience
Studies show that what you imagine to be happening is actually happening as far as your brain is concerned. Let that sink in for a moment. For example, scientists have shown that if a person imagines eating, if they imagine
the entire process and all its sensations as clearly as they can,
they will have less appetite for more food afterwards, just as if they've actually eaten. It doesn't stop at mental suggestion. Another study found that just thinking about exercise can build muscle. This puts a different spin on the practice of prayer and meditation.
It is
possible to live out the experience you want
to have in your mind. If you're really good at this, if you have a
vivid imagination, you can imagine whoever you want to be.
Masters of this practice can effect change in real-time. And, if we are
infinite beings having a finite experience
on earth, it would seem that it's the infinite being that operates on
the quantum level and the finite being that operates on the physical
level. We are both. In other words, if this is a great big
simulation,
you are the player in a Newtonian world, and your infinite soul is the
controller in the Quantum world. You can communicate with the controller with your thoughts. Emotions amplify your thoughts.
Why Is It So Hard To Think About The Life You Want
It should be easy to concentrate on what you want, but it isn't. We are not wired (quite literally) to think that way. In fact, when in survival mode we are wired to think about all the bad things that can happen. Murphy's Law even tells us to expect the worst in order to prepare for the worst, but in a world where thoughts create reality, this way of thinking can be a living state of hell. The person who follows Murphy's Law is in a state of perpetual survival at their own hand.
What happens when you start meditating or praying every morning on who you want to be? As soon as you start to see yourself through the eyes of both
you and the "self", it will change the way you view everything.
Suddenly you become more aware of everything around you. You'll start to notice things
that weren't there before. Clutter will need to be cleaned, disorganized spaces will need to be organized. You'll start to question actions that don't lead you to where you want to be. You'll break out of your old programming as you create new programming.
Quantum
physics tells us that the more you are able to feel that bliss experience in your mind, the
more you can expect for it to manifest in your 'reality'. And,
when it does, your mind will reward you with the revelation that it can
happen again.
I’ve had a lot of people ask for an update to my original article.
Instead of updating the original chart, I wanted to provide you with a
calculator for you to use/share/edit. It’s available in GoogleDocs here:
Coinpot Faucet Calculator.
The
model is very simplistic, but gives you an idea for what you can earn
in one year. It then gives you the ability to see how much that would be
if prices go up by the end of the year. Finally, it provides a way to
see how much the crypto made from one year using Coinpot will be worth
based on growth rates like the ones we’ve seen over the past 10 years.
(Click here for a snapshot of historical prices from 2013. Bitcoin is up over 4000% while Litecoin is up over 1000%.)
The
spreadsheet provides a calculator for each faucet based on current
claim rates. The final spreadsheet is a chart (shown below). It provides
a summary of all three calculators.
Keep
in mind, the calculator only looks at one year. It also does not
include the mystery bonus, offer bonus or mining bonus. I wanted to err
on the side of extreme caution, so each calculator only assumes one
claim per day.
The
base rate assumes no referrals, 1 claim per day and an average of 50%
loyalty. The mid rate assumes 100 referrals, 1 claim per day and an
average of 75% loyalty. The max rate assumes 500 referrals, 1 claim per
day and an average of 100% loyalty. Note, the max rate is not a maximum.
It is only used as a max case. Theoretically, there are no limits.
I can personally attest to the mid case. I have around 80 active
referrals and only make one claim per day. I’m on track to make more
than $235, but that’s because the values above don’t include the mystery
bonus or Coinpot tokens, which add up. On average, I get around 3000
tokens per day. Again, I wanted to be very conservative here so those
tokens are not included.
You
can play with a number of scenarios around loyalty and referrals. While
I don’t want to dissuade anyone from doing this, I think referral activity is critical.
This way, even if you can’t make daily claims, you’ll still have a
growing Coinpot. If you don’t get referrals, this isn’t going to payoff.
So, I’ve created a contest for the best referral idea.
One final word
A
chap recently asked me how to convince people that this isn’t a scam.
My answer is: you can’t. But you CAN point out that a scam generally
requires you to spend money. Coinpot will never ask you for money. The
only thing you are required to give them is an email address.
Also,
remember that bitcoin is still the world’s fastest growing asset. And,
Coinpot is a great way to “get your feet wet” (as one person commented)
in the world of cryptocurrency. The learning curve can be steep for
some. It’s also a great way to earn bitcoin without having to worry
about price fluctuations, providing ID or paying any fees. When the
price goes down, the claim is higher. And since I know the price is
going back up, it’s an opportunity.
Finally,
the goal here is not to make a quick buck. You will be disappointed if
that’s your goal. This is not a get rich quick scheme. Put simply, this
is a great way to earn small amounts of what I believe will be the next
reserve currency for the world. It may not be worth much now, but the
goal is to hold onto this asset for the long-term (at least 10 years).
All you’re risking is your time. Even if you just do it for one year,
you’ll always have it and its value will grow over time.
You
can learn a great deal by listening to the "public" speeches given by
Fed leadership. It's one thing to give testimony on Capital Hill, it's
quite another to give a speech in front of people that actually know
what you're talking about. In this speech, Gruenberg, the Chairman of
the FDIC, discusses the actions taken over the past 10 years to ensure
against another "Great Recession".
He discusses the
establishment of the Dodd-Frank Act and the authority it gave the FDIC
to manage the orderly failure of banks in times of crisis. Among other
things, the new authorities gave the FDIC:
The ability to place the financial firm, including its holding company, into a receivership process; An Orderly Liquidation Fund to assure liquidity for the orderly wind down and liquidation of the failed firm; Authority to impose a short stay on derivatives contracts; and The ability to coordinate with foreign authorities in the case of a firm with global operations.
"The
progress has been substantial and I believe not well appreciated,"
Gruenberg concludes. What hasn't he and his team been appreciated for?
The Evolution of the Living Will Process
As
a way to create a framework around an orderly bank liquidation, the
FDIC created the living will process. According to Gruenberg, the living
will "required both the Federal Reserve and the FDIC to consider the
objectives of the process, the standards and the guidance that would
need to be provided to the firms to achieve the objectives, and the
means of engagement with the firms to assist them in following the
guidance". This process required banks to provide a description of the
following:
The firm’s strategy for orderly resolution in bankruptcy during times of financial distress; The range of actions the firm proposes to take in resolution; Liquidity and capital needs and resources of the firm; A description of the firm’s organizational structure, material entities, interconnections, and interdependencies; and The firm’s corporate governance process.
The
only thing that really matters here is liquidity. With the right
liquidity and capital resources, any crisis can be avoided or at least
pushed off, but for how long?
The truth is, none of these
changes would have saved Lehman Brothers or Bear. None of these
resolutions would have made AIG confess to creating bad securities. The
truth is, everything happened exactly how the banks wanted it to happen.
They got a huge bailout, 10 years of free money, and trillions in
reserves at the Fed. To top it all off, Dodd-Frank approved a resolution
to pay banks for those reserves. Who pays the interest? We do. The
American taxpayer. We don't control rates or the amount of reserves held
at the Fed, but we have to pay whatever rate the Fed sets on those
reserves. Sounds fair. This is why people are gravitating toward Bitcoin
and precious metals.
In other news, Nowcast is a forecast of the upcoming GDP announcement. It was
updated and revised down to 3.11%. The leading causes are due to a
decline in:
capacity utilization,
industrial production,
general business conditions (as reported in a daily brief last week); and,
retail sales.
In
other words, all things driven by consumer demand are starting to
decline, while anything driven by debt (inflation, pricing and
housing) are on the rise.
The Empire State Manufacturing
Survey/Business Leaders Survey included a supplemental survey on wages, a
critical piece of the consumer demand equation. Wages are of key
interest because without wages, GDP will continue to fall -- not
everyone has access to massive amounts of debt. What does the survey
show? Job openings are taking longer to fill, manufacturers are hiring
more, and starting pay is going up. Will it be enough to impact
earnings? My guess is no. Why? Wall Street doesn't like wage increases.
"The final rule removes references to external credit
ratings and replaces them with appropriate standards of
creditworthiness."
In other words, as long as a bank makes under $1 billion in total assets it doesn't need to reference external credit ratings in order to label an asset or security as "investment grade". These classifications are used for capital allocation and pledged assets. The rule reduces the need to classify assets as investment grade with a much lower bar -- as of this ruling "An entity has adequate capacity to meet
financial commitments if the default risk is low, and the full and
timely repayment of principal and interest is expected."
The rule also "adds cash to the list of assets eligible for pledging
and separately lists Government Sponsored Enterprise obligations as a pledgeable asset category."
So mortgaged backed securities are now considered pledgeable assets as well as cash? And, if you have cash, why do you need to pledge assets?
The report
reveals that total household debt reached a new peak in Q4 of 2017, rising $193 billion to reach $13.15 trillion. Balances
climbed:
1.6% on mortgages,
0.7% on auto loans,
3.2%
on credit cards; and,
1.5% on student loans.
This adds to the market's general instability, but we're not hearing anything about that from the Fed. It's also important to remember that debt is a form of inflation. It's essentially the creation of money out of nothing. Due to quantitative easing, banks have an unprecedented level of capital to "lend" and it's pumping all that "fake cash" into the market every day via mortgages, auto loans, credit cards and student loans. Asset values are the highest they've been in years, far surpassing what they were in 2007, jut prior to the Great Recession. Gas prices have been on the rise since July of 2017, still inflation is low and steady. Clearly there's some manipulation at play.
According to the Empire State Manufacturing Survey, a monthly survey of manufacturers in NY conducted by the Federal Reserve, the general business conditions index fell five points to
13.1.
This suggests a "slower pace of growth than in January". This at a time when the stock market was setting new highs. Perhaps the most notable takeaway is a remark about input prices and prices paid which confirms a theory of higher inflation. According to the report, "Input price increases picked up noticeably, with the prices paid index
reaching its highest level in several years." The highest level in several years is quite significant. So companies are paying more for inputs and they are charging more for products and services. I wonder who is paying for those products and services?
According to the Fed, there's been a marked increase in the number of jumbo loans on the market today. This isn't surprising because banks have an unlimited amount of capital to lend due to quantitative easing and the $2.2 trillion sitting in reserves at the Fed. This post shows how "the
supply of jumbo mortgages has improved in recent years as banks have
become more willing to take on mortgage credit risk on their own balance
sheets".
Final Thoughts: The Fed has been waiting on inflation to go above 2% to raise rates. The truth is, inflation has been over 2% since 2008. It went up and never really came back down. Meanwhile, the Fed kept rates artificially low and corporations have taken advantage of the loophole by using stock buybacks to artificially push up earnings. Now it's too late to raise rates, the economy is about to crash on its own.
Everyone wants to know when the price of Bitcoin is going back up. In this very brief article I'm going to give you three reasons why the price of Bitcoin is about to go up and well past $20Kby the end of the year.
Reason #1: The price of Bitcoin and cryptos in general falls every year in Q1. Each year, the price rebounds and soars by the end of the year.
As you can see from the charts above, this is a normal trend for Bitcoin and one that the community has come to expect.
Reason #2: Despite the call for regulation by central banks, nation states are starting to realize their own power. While the SEC and CFTC battle over who gets to regulate cryptocurrency, Arizona just passed a bill allowing it as a form of payment by the Department of Revenue. In other words, you will be able to pay your Arizona taxes in Bitcoin. There's also a resolution passed in Congress calling for a pro-bitcoin national policy. When/if that resolution gains traction, the price of Bitcoin will soar.
Reason #3: Third and perhaps most importantly, hedge funds and other large institutional players are just now getting into the market. They could not enter the market prior to Bitcoin futures which started in December 2017. Below is one of my favorite videos in support of this, hedge fund manager clearly explains what institutional players are doing right now.
It might take six to eighteen months, but Bitcoin is a much more valuable way to store your digital currency. Remember, only 9% of the world's currency is physical, the rest is digital. Institutions get it and they're getting on board.
Final thoughts: Bitcoin is extremely volatile. For this reason, you don't want to buy at the highs, but rather the lows. Bitcoin is officially in a low cycle and now is a great time to buy. If you don't buy now, save up to buy next year at this time.
Where to buy? You can buy Bitcoin from an exchange (Binance or Local Bitcoin) to hold yourself or you can purchase an investment product, like an IRA. Bitcoin IRAs have the same tax treatment as traditional IRAs.
This is one of those articles the Federal Reserve releases that has absolutely no application. It's asking if increased capital requirements help banks to reduce the amount of risk they take. The answer is OF COURSE!!!!! Are you kidding me?
This is like asking if someone feels the same if they lose their money or someone else's money. That said, I think this article has more application than the title gives it credit for. Here's a quick excerpt from the article:
Excessive risk-taking by banks has long been a paramount concern of
regulators. The basic problem arises in part due to misaligned
incentives; under the current limited (single) liability
structure, shareholders of a failed bank can lose no more than their
initial investment. With this limited skin in the game, bank
shareholders’ private incentives may lead them to take more risk than is
socially optimal. If, by contrast, shareholders were liable for the
entirety of a bank’s losses, their private risk-taking decisions may be
more aligned with socially optimal risk‑taking.
So, instead of looking at this as a consideration for banks, let's extend it. This should be a consideration for all stocks. Perhaps the issue with the corporate state is that the shareholders don't have any personal liability. They are limited in the amount they can lose. What if the shareholder had to worry about being liable for legal or environmental issues? What if the shareholder had to worry about being sued for the corporation's irresponsibility? I suppose a lack of earnings equates to a sell-off, which is the ultimate punishment for the corporation.
Final thoughts: This article does nothing but shed light on the fact that we still have an incredible amount of power over the corporate state. Anything that can hurt earnings is a threat to the corporate state, including its own hubris. Couching gambling schemes in terms of limited liability structures doesn't hide what's happening. If anything, it is a concession to the system's vulnerabilities.
______________
The Overnight Bank Funding Rate currently stands at 1.42%. Do not be confused. This rate is based on the interest rate on excess reserves (IOER rate), which is not the same as the interest rate on required reserves (IORR). Currently, both rates are the same, however (you can view both rates here)
If you're old like me, you remember when the rate was referred to as the fed funds rate. The name was changed when banks were given the ability to charge interest on reserves in 2008. Once this deal was made, the Fed started giving out "reserves" like candy in a scheme referred to as quantitative easing. Today, over $2.2 trillion sits in reserves at the Fed and we (the United States) are paying interest on all those reserves, both at the IOER and the IORR.
The overnight bank funding rate is reported every day. It will never be higher than the rate banks can get from leaving money at the Federal Reserve (IOER or the IORR).
Final thoughts: Every now and then I like to revisit this issue of rates. I hear people wondering if the Fed is going to raise rates and I wonder if they understand what's really going on. Ultimately, the real reason why the Fed is going to raise rates has very little to do with the state of the economy. And, the higher rates go, the more banks get paid. The issue for banks is that inflation is a four letter word. It means lenders will be paid back with less money. If you own $100,000 on your home, and the value of the dollar tanks by 50%, you still owe 100,000 of those dollars, but they're only worth $50,000. Inflation is great for borrowers. So, the game the Fed has to play is -- how do we make sure people still believe in the value of the dollar while raising rates? It has nothing to do with cooling off the economy.
___________
The next article is about Deutsche Bank. The bank will have to pay $3.7 million to customers for misleading them about mortgage backed security prices. What's interesting to me is that this is supposed to be a fair settlement.
To settle the charges, Deutsche Bank agreed to reimburse customers the
full amount of firm profits earned on any CMBS trades in which a
misrepresentation was made. According to a payment schedule in the
order, Deutsche Bank will distribute more than $3.7 million. Deutsche
Bank also agreed to pay a $750,000 penalty. Solomon agreed to pay a
$165,000 penalty and serve a 12-month suspension from the securities
industry.
$3.7 million is nothing in the trading world. We are supposed to believe this is the full amount of the profits made? What's funny is that the SEC apparently believes it. They also think that a 12-month suspension from the securities industry and a $165K penalty is going to stop this kind of activity. The penalty is nothing compared to rewards, even if you do get caught. Final thoughts: As I've said before, the SEC has been rendered toothless over the years. What's funny is that the very banks that gutted the SEC's power are asking for its protection against Bitcoin. Good luck with that.
__________
As an extension of what's going on at the SEC gutting, I think it's interesting that the SECs budget request is 3.5% higher than it was last year.
In order to keep up with the rapid pace of technology advancement in the
areas the SEC regulates, the request seeks a $45 million increase in
funding for information technology enhancements to support the agency’s
cybersecurity capabilities, risk and data analysis, enforcement and
examinations, and automation of business processes. The fiscal year 2019
budget request level is a 3.5 percent increase over the fiscal year
2018 budget request of $1.602 billion.
The total request is for $1.658 billion.
__________
On Monday, the SEC launched the Share Class Selection Disclosure Initiative (SCSD) to encourage self-reporting. The SEC has no way to enforce this really -- how can they enforce fiduciary responsibility when its antithetical to capitalism? So they've created a hotline to encourage self-reporting. This is also funny. Here's an excerpt that sums up the effort:
The Commission has long been focused on the conflicts of interest
associated with mutual fund share class selection. Differing share
classes facilitate many functions and relationships. However, investment
advisers must be mindful of their duties when recommending and
selecting share classes for their clients and disclose their conflicts
of interest related thereto. In the past several years, the Commission
has charged nine firms with failing to disclose these conflicts of
interest. These actions included significant penalties against the
investment advisers, and collectively returned millions of dollars to
clients.
The reason this won't work is because there's no motivation to self-report. Advisers have to pay back all ill-gotten gains and admit to their customers that they mislead them, but the SEC won't impose a civil monetary penalty? C'mon.
Under the SCSD Initiative, the Enforcement Division will recommend
standardized, favorable settlement terms to investment advisers that
self-report that they failed to disclose conflicts of interest
associated with the receipt of 12b-1 fees by the adviser, its
affiliates, or its supervised persons for investing advisory clients in a
12b-1 fee paying share class when a lower-cost share class of the same
mutual fund was available for the advisory clients. Among other things,
for eligible advisers that participate in the SCSD Initiative, the
Division will recommend settlements that will require the adviser to
disgorge its ill-gotten gains and pay those amounts to harmed clients,
but not impose a civil monetary penalty. The Division warns that it
expects to recommend stronger sanctions in any future actions against
investment advisers that engaged in the misconduct but failed to take
advantage of this initiative.
Final thoughts: Initiatives like this are the reason why the SEC is absolutely ineffective.
___________
Finally, the Fed issued their weekly report on oil prices. It says that a "large drop in demand expectations decreased oil prices significantly". As a trader of crude oil, I know that the price of crude oil has gone nowhere but up since the middle of last year so I find this pronouncement humorous. Please note that gas prices are a key part of inflation. In fact, the Fed/FOMC credit low inflation with declining oil prices. In other words, the Fed is actively trying to suppress the true price of oil because. Final thoughts: The Fed's pronouncements are incongruent. The headline is the opposite of the points used to prove the point. The headline reads "Gas prices down", while the bullet points read, "Gas prices headed up." This is a classic case of someone being told what to say when they don't have the data to support the conclusion.
Strategy #1 — Bitcoin: 50% — Buy Bitcoin when Bitcoin P/E or NVT (network value-to-transaction ratio) dips.
Strategy #2 — Alt-coin: 35% — Buy high visibility, high access coins (platform currencies and top 50 market cap).
Strategy
#3 — Baby-Crypto: 15% — Buy undervalued baby alt-coins based on a
measure of liquidity (transactions to price) and buy orders on the order
book.
A
few months ago I met someone with a net worth well over $50 million.
That’s not uncommon these days. We found ourselves sitting next to each
other throughout a seminar. He happened to mention something about
wanting to invest in some new thing called ‘Bitcoin’. What ensued was a
lengthy discussion about ‘how to invest $1 million in the crypto space’.
He had no way of knowing that our conversation would inspire the
article Bitcoin Valuation: $4 million.
As
both a trader and crypto-enthusiast I get asked this question all the
time. Whether you have $1 million or $10,000, my answer generally
depends on how much time or money you can invest in the research
required to make informed decisions. I advise friends and family to never exchange dollars, euro, M-Pesa, pounds, cowry shells (whatever) for crypto unless you understand what you are buying.
Not all coins are the same. Of the top 50 coins by market cap (out of
1,300+), only 8 can be considered Bitcoin or Ethereum clones.
Second,
as a piggyback on the first, if you don’t have the time to research
cryptos other than Bitcoin (referred to as alt-coin), just buy Bitcoin
and/or Ethereum and HODL. You needn’t waste your time with the rest of
this article. That’s the extent of your strategy.
Parking lot: HODL
is an intentionally misspelled word that started four years ago when
GameKyuubi seemed unable to type the word correctly due to some
‘personal issues’. The crypto-community embraced the error and turned it
into its own verb.
Third,
if you want to add baby alt-coins (read: ICOs and coins less than $.01)
to your portfolio, proceed with caution. They are extremely volatile
and you must be prepared to lose your entire investment. That said, they
can grow up to be quite impressive. Sometimes the growth spurt occurs
overnight. With such a payoff, the best strategy invests a small amount
in a handful of promising baby alt-coins.
With
that said, here’s my crypto portfolio strategy. It is structured in
three segments to mitigate risk. It consists of ~31 coins. All positions
are meant to be purchased and held for at least 1 year.
Strategy #1 — (50%) The HODL Churn: This strategy focuses on Bitcoin. Action: Buy Bitcoin when Bitcoin P/E or NVT (network value-to-transaction ratio) dips below 50, sell when it goes above 100. Repeat.
Strategy #2 — (35%) The Mall: This strategy focuses on alt-coins. Action: Buy high visibility, high access alt-coins (platform, exchange, and top 50 market cap).
Strategy #3 — (15%) The Incubator: This strategy focuses on baby alt-coins. Action: Buy baby alt-coins based on a measure of liquidity (transactions to price) and buy orders on the order book.
Strategy #1 — (50%) The HODL Churn
I’m a big advocate of Bitcoin. It’s 50% of my crypto portfolio. How do I decide when to buy/sell it? I like to use Bitcoin P/E. What is Bitcoin P/E?
P/E
(price to earnings ratio) is a metric commonly used by investment
analysts to value stocks with earnings calculated as the market price
divided by earnings per share. A possible equivalent to a P/E for
Bitcoin was presented at the Token Summit in May 2017 by Chris Burniske.
In the following video Burniske provides three calculations for a
Bitcoin P/E.
I like calculation #2. It is referred to as the NVT ratio or network value-to-transaction ratio. This is the Bitcoin P/E that I use.
First
devised by Willy Woo, the calculation uses a coin’s network value, or
the money flowing through the network, as a proxy for earnings. Below is
a historic chart of Bitcoin’s NVT ratio. A live and interactive chart is available on his website Woobull.com.
Using
the chart above, Woo shows how NVT can be used to forecast a market
bubble. It can also provide buy/sell signals. Specifically, if the NVT
goes above the normal NVT range, it’s time to sell. If it touches the
bottom of the NVT range, it’s time to buy.
Where
are we today? The chart would suggest that we are NOT in a bubble
today. In Woo’s words, “The transaction value flowing through Bitcoin’s
network is perfectly healthy and supports the current valuation.”
What data do I use for Strategy #1? I track the NVT on Woo’s site. This is an easy one.
Unfortunately,
this metric isn’t quite ready to be applied across the crypto universe.
According to Woo, “Ethereum is only two years old… It will take some
time before its NVT ratio settles into a meaningful long term range for
bubble detection.”
What can we use to value the rest of the crypto universe? Visibility and access.
Strategy #2 — (35%) The Mall
I’d
like to think that everyone that buys Ethereum or Ripple actually
understands what they are buying, but that’s unlikely. Most probably saw
the name on a top 10 market cap list somewhere. Some simply reallocated
profits from Bitcoin into other coins on the same platform.
Visibility
and access are two strong value drivers for alt-coins. The most highly
visible coins are the ones with the most access. When I say access, I
mean places or exchange houses where you can easily buy or trade the
crypto. In fact, two of the best performing coins are from the most
popular trading houses (one is up 71% and the other 150% in the last 7
days).
Some
cryptos can be purchased on almost any exchange. I refer to these as
platform cryptos. Bitcoin, Ethereum, Bitcoin Cash and Litecoin are the
most common examples of platform coins. These are all highly visible and
highly accessible. You also need platform cryptos to trade other
cryptos. It is not uncommon for a coin’s price to run up as soon as it
is listed to a major exchange like Coinbase or Binance.
What data do I use for Strategy #2?
I use a spreadsheet that tracks the performance of the top 50 cryptos
by market. It includes a brief description of the top 50. I refer to
this spreadsheet as “The Mall”. Not all coins that make it to The Mall
are good, but they all have considerable backing (users, miners,
consortiums, stakers, etc).
I don’t like to talk about the gains made in the crypto space because it is not a common experience. The truth is, most cryptos fail.
I own a lot of coins worth $.00000001 to prove it. What keeps me in the
game is the uncommon experience. Specifically, my research focuses on what these “uncommon” coins had in common six months ago.
What have I found:
Coins
with a unique value proposition, i.e., location, development team,
usage, technology, have grown the most over the last 6 months.
Dogecoin and Bytecoin grew ~400% and are still valued at less than a penny.
Another privacy focused coin, Verge, grew over 4,000%.
One of my favorite coins, RaiBlocks, gives everyone their own blockchain — it grew over 60,000% in the last six months.
Stellar, a coin specializing in digital IOUs is up 2,600% over the same time period.
The worst performing coin on The Mall is up 1% and that’s because it’s “tethered” to the USD. The name of this coin is Tether.
Of the 50 coins on The Mall today (1/21/2018), 30 were on the list 6 months ago.
Of
the top 25 on the list 6 months ago, only one was not on the top 50 six
months ago. In other words, the closer the coins were to the top of the
list six months ago, the closer they were to the top of the list today.
Strategy #3 — (15%) The Incubator
We’ve
covered Bitcoin, platform/exchange and high market cap coins. What
about baby cryptos? This is by far the riskiest category. As a result, I
only invest small amounts in this world of crypto. I also try to use
faucets as much as possible.
My
goal is to find 10–20 severely undervalued cryptos. Since visibility
and access are hard to find at crypto infancy, I like to look for coins
that have a high price to transactions ratio. The coins with the highest
ratio are the ones I research further.
Parking
lot: Transactions represent a buy or a sell order. The number is an
absolute value. It is possible to have an increase in transactions from a
sell-off.
Once
I find an exchange, I look at the recent orders and the orders in the
order book. I am looking for a market. If I see all sell orders, I walk
away. If I see a mix of buy and sell orders on decent volume, I usually
buy. If I see more buy orders than sell orders, I buy.
Parking
lot: When I place a buy limit order, I always calculate the current
exchange rate first. It is not uncommon for cryptos to trade at a price
that is higher or lower than the actual cross when calculated. These
markets are so young that anomalies like this do exist. I then place my
limit order slightly below the calculated cross.
So
what did $10 in the top 10 cryptos by transaction to price (T/P)
produce? 2014 was a bad year for cryptos altogether — nearly the entire
investment was lost — but 2015, 2016 and 2017 saw profits of $134,707,
$160 and $49,251, respectively. There is no guarantee that this strategy
will work next year, but I like the upside potential.
What data do I use for Strategy #3? I
use a spreadsheet showing me the T/P for all 1300+ cryptos sorted from
highest to lowest. T/P is not a magical indicator, but I use it as a way
to focus my research.
Important:
To mitigate risk, only transfer fiat or coin to the exchange when you
are ready to trade it. The exchange is not a place to store or park your
coin. Buy your coin and then transfer it to an offline wallet
immediately. Leaving it in the exchange is exposing yourself to
unnecessary risk.
Final Thoughts: Once You Go Crypto, There’s No Going Back
As
much as I love Bitcoin, it has flaws. The biggest flaw is its link
between security (validation) and transaction cost (miner incentive).
That said, I have no doubt the issue will be a non-issue by the time
mining rewards end, but it feels like a giant asteroid. I’m excited by
all the solutions circulating about how to kill the asteroid, but I also
feel the need to mitigate the impact of this issue on my portfolio by
investing in other cryptos. I’m not alone, though I may be alone in my
reasoning.
2017
saw a surge of funding into Bitcoin, but that surge is small compared
to the amount that flowed into alt-coins. Bitcoin was the conduit for a
reallocation of recent profits made in all asset classes, including
Bitcoin. Those funds were reallocated
to alt-coins. As you can see from the chart below, for the past 4
years, Bitcoin represented ~88% of the entire crypto market cap. At the
end of 2017, that dropped to 39%.
The
total number of alt-coins in the market increased from 644 at the end
of 2016 to over 1300 by the end of 2017. It is hard to go back to the
promise of 12% per year when you’ve been making 12% (or more) per week,
especially at a time when assets are overvalued.
There
is nothing scientific about my approach. It is a work-in-progress.
Though it is structured to mitigate risk, cryptos are still a highly
volatile asset class. The goal is to be invested in a diversified
cross-section of Bitcoin and alt-coin. This article and the crypto
investment strategies discussed within it are intended for learning purposes only.
Many people are interested in cryptocurrencies, but are concerned about government intervention.
The SECs Chairman Jay Clayton made a statement about cryptos last month that was largely overlooked.
Clayton is doubling down on the “21(A) Report” at a time when his regulatory counterpart is embracing Bitcoin.
It appears a showdown is brewing: who controls the regulation of the fastest growing asset in the world.
I
enjoy talking to people about the viability of bitcoin. It appears to
have a different value proposition for everyone. For some, there is no
value proposition because they are certain
the government is going to shut it all down. These people are not
stupid — they know their government. For this reason, I think it’s
important to track statements made by government institutions like the
Federal Reserve and the SEC pertaining to Bitcoin, cryptocurrencies and
ICOs.
SEC Chairman Jay Clayton
On December 11, 2017, the SEC issued a statement regarding Bitcoin and cryptocurrency.
“This statement,” said SEC Chairman Jay Clayton sworn in by Trump in January of 2017, “provides my general views on the cryptocurrency and ICO markets…
Among the more interesting points Clayton points out in his statement are the following:
1) “to date no initial coin offerings have been registered with the SEC.”
2) “The
SEC also has not to date approved for listing and trading any
exchange-traded
products (such as ETFs) holding cryptocurrencies or
other assets related to cryptocurrencies.”
3) “If any person today tells you otherwise, be especially wary.”
Translation: The SEC has not approved any crypto or ETF.
“Please also recognize,” Clayton goes on to say,
that
these markets span national borders and that significant trading may
occur on systems and platforms outside the United States. Your invested
funds may quickly travel overseas without your knowledge. As a result,
risks can be amplified, including the risk that market regulators, such
as the SEC, may not be able to effectively pursue bad actors or recover
funds.
It
is Clayton’s job to protect investors, but I think he goes beyond that
role here. In particular, he tells investors to be weary because at any
point in time someone could run away with your money overseas — as if
this can’t happen with other investments.
This
is a specious argument. Your invested funds may quickly travel overseas
if you invest in stocks as well. In fact, they very likely do.
Corporations spend the money we invest with them overseas all the time,
why not? So yeah, this is a risk, but nothing we aren’t already very
much accustomed to with our current system of currency, which is over
90% digital.
On a good note, regarding ICOs, Clayton believes that:
initial
coin offerings — whether they represent offerings of securities or
not — can be effective ways for entrepreneurs and others to raise
funding, including for innovative projects.
So that’s good, but he goes on to say that:
replacing
a traditional corporate interest recorded in a central ledger with an
enterprise interest recorded through a blockchain entry on a distributed
ledger may change the form of the transaction, but it does not change
the substance.
Translation:
“The reason I like ICOs is because they’re essentially IPOs. If these
are really IPOs, I (the SEC) should be regulating them.”
The 21(A) Report
Clayton
has two options regarding his views on crypto. He can say that ICOs and
cryptos are legal or illegal. Here Clayton does not mix words. He urges
market professionals to use a document referred to as (the “21(A) Report”) as legal precedent. The 21 Report is an investigative report released in July of 2017 in the SEC vs. The DAO.
the
Commission applied longstanding securities law principles to
demonstrate that a particular token constituted an investment contract
and therefore was a security under our federal securities laws.
He goes on to say that,
brokers,
dealers and other market participants that allow for payments in
cryptocurrencies, allow customers to purchase cryptocurrencies on
margin, or otherwise use cryptocurrencies to facilitate securities
transactions should exercise particular caution, including ensuring that
their cryptocurrency activities are not undermining their anti-money
laundering and know-your-customer obligations.
Or
what? This statement may sound threatening to those worried about
government intervention, but it’s more like the roar of a toothless
tiger. Money laundering disclosures are a joke in the financial
industry. Just during the week of Christmas, the Federal Register
announced that the Trump Administration would be waiving fraud and
corruption fines for Citigroup (5-year exemption), JPMorgan (5-year
exemption), Barclays (5-year exemption), UBS (3-year exemption), and
Deutsche Bank (3-year exemption). This is the same list of megabanks
that the Obama Administration extended one-year waivers to as well,
though it is
particularly troubling that Trump, unlike Obama, owes these banks a
large amount of money. Even if the exemptions weren’t in place, any
fines rendered are a tenth of a percent of the profits made. What’s
ironic is that the SEC has been rendered impotent over the last five
years by the very institutions that are asking for its protections
today.
What’s Next: Wall Street Is At Odds With Itself Over Bitcoin
In
my next article we’ll continue to look at the battle brewing between
the CFTC and the SEC. Both want control over this growing industry. On
the one hand government regulators like the SEC want to shut Bitcoin
down. On the other hand, the CFTC recently approved bitcoin futures
contracts for several institutions including the CME, CBOE and Cantor
Fitzgerald. Both sides have many stakeholders with deep pockets. My
money is on Bitcoin.
Disclosure: I am/we are long cryptos. I wrote this article myself, and it expresses my own opinions.
