Global Macro Trading Journal

Standard Deviation of daily % changes per year in BTC vs SPY

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SPY in 2008

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As a rule of thumb, BTC seems to be 5 times more volatile than stocks. As volatile as BTC has been, it does seem to be declining in vol overtime. Even the full mania of 2017 wasn't enough to get the vol as high as in 2013 and 2010/2011
 

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Daal said:
Standard Deviation of daily % changes per year in BTC vs SPY

As a rule of thumb, BTC seems to be 5 times more volatile than stocks. As volatile as BTC has been, it does seem to be declining in vol overtime. Even the full mania of 2017 wasn't enough to get the vol as high as in 2013 and 2010/2011
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That's probably due to the 'law of large numbers'.

In 2013, Bitcoin's "market cap" was less than $20 billion.
In 2010/2011, the "market cap" was probably less than $3 billion.

The volatility in 2017 of a coin "worth" less than $20 billion, such as Cardano, was probably much higher than Bitcoin.

And if you go down to something "worth" less than $3 billion, like BitcoinGold or EthereumClassic, then volatility was probably even higher.

.
 
I read an article, forgot where, that 40% of equity gains happen in the first year of a cycle and another 40% in the last year (the melt-up).
That in the US over the last decades. So we have a situation where the yield curve could invert in the future, signaling a potential recession (I believe the research shows that the recession comes 1 year later on average, I also forgot where I read this) yet that does not mean that one should sell stocks and buy them back cheaper later.

Given that there is this tendency for melt-ups (not just 99/2000), seeing an inverted yield curve, selling and then watching an exponential melt-up is extremely costly. In my framework, and knowing those data, the inverted yield curve indicator is anti-convexity which means it should be used with caution and skepticism. Timing is everything and the inverted yield curve does not help because it comes late in the cycle when markets are going nuts to the upside (according to the above data).

A better combination is inverted yield curve + certain economic indicators weaking + stock prices breaking some sort of recent support. Thats the time to sell imo
 
So I saw this new ethereum game, its called Crypto Celebrities. My initial reaction was 'this is the stupidiest thing I have ever seen', it seemed like a greater fool game in a worthless underlying. But the more I thought about it, the more this thing its quite interesting actually.

Essentially people buy "crypto celebrities" (which is simply a record that says that you own the "Taylor Swift entry" for instance) but if someone comes along and pays more for it (usually a 15% premium), you lose the entry but keep a part of the profit (another part goes to the company that created the app). This is like ultra modern art, its like owning a painting or sculpture. And these assets are priced in ETH, so there is no opportunity cost for holding them, you will always get either the asset (being the owner of the entry) or your ETH back plus ~10%ish. If ETH triples, because your exit will be done in ETH, you wont lose the appreciation.

And the celebrities cant do anything about it, yes their image that are being used for another person's profit without authorization but that's the MAIN advantage of crypto technologies, they are UNSTOPPABLE. Once the developer deploys it to ethereum, no one can't take it down, not the developer, not a court, not the president of the US. Not even God can take down something that is running on ethereum. So yes, its illegal but it wont matter because it will stay there forever.

The thing that prevents me from getting involved in this is that unlike the art market, there is no unlimited upside here, at least not in the traditional way. A Picasso can be worth $1B or more, but these crypto celebrities can always be taken off your hand for 15% premium. Forcing you to buy back at another 15% premium. And the company is collecting transaction costs the whole time. Its essentially a scheme to generate a lot of friction in a collectible market. Someone can also create a copycat but I believe network effects and being first can produce a moat (anyone can copy bitcoin or ethereum's code today, but the copycat coin is extremely unlikely to get any kind of sucess). So I wouldn't invest in this but I will keep an eye out for digital collectibles in the future, in a lot of ways, its similar to ICOs, limited risk, unlimited reward
 
Here is a fun fact that I heard from a famous VC interview. Every year on Sillicon Valley 4,000 companies try to get VC funding, about 200 get funded (so 3,800 get rejected). Out of the 200, 15 produce 95% of all the economic value.

So when people say 'Most ICOs are frauds and worthless' 'The stock market is up, only because of a few handful stocks, if you remove them, there is no return', they are not saying anything meaningful (90-95% of business fail). Thats exactly how convexity markets work. There is nothing wrong with it, its only wrong to the people that are heavily influenced by NY literature/media and/or natural risk aversion, they are always looking at the cup as half empty. For those more San Francisco type folks, its just another day in the office. One of my biggest mistakes was not having exposed myself to SF type folks (through books, videos, courses) earlier in my trading/investing career. Had I done that I would be a lot richer today. These people were talking about bitcoin as far back as 2012.

But I'm fixing that mistake, for this year, one of my goals is to cutback my daytrading hours significantly and swap that for time in Venture Capital. I'm opening my own little VC shop and I'm looking to fund and maybe even work with some startups. But first, I will be doing a lot of research. I need to know the "warren buffett system" equivalent in VC before taking a lot of risk. I'm also working on expanding my network of contacts, it helps that I tend to work from a Google Campus (essentially a free LAN house that google has in some cities), I get to meet a lot of startups there
 
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I'm more positive on BTC here. I took off some of my hedges (short GBTC and other stuff) and longed some BTC. I plan to buy more at low 7's and 6s IF it goes there
The idea is, if this is not the end of the mania, I make 15K+ per coin (if it breaks ATH, it probably runs a bunch), if it is, it probably tanks to 2-3k and stays there (the optionality there will be huge and I doubt it goes bellow there for any significant period of time), so I lose 6K per coin. So 3-1+, and in the alts (which I'm long a number of them), I can probably get 3-5 times my capital

I understand the chartists are all screaming how the charts are saying this or that but I feel comfortable ignoring that nonsense, those were the same techniques that failed all the way up (IIRC, Peter Brandt called out the top many times with his TA). Furthermore most of TA (and people with empirical backgrounds can relate) is just storytelling (the narrative fallacy). Most of the time, there is no backtest or an empirical study of some kind but rather, a person picking and choosing things to fit their biases. Also, as I explained in previous posts, negativity (which chartists are drawing from their TA as it relates to BTC, to say that its all over) is fragile in convexity markets. Its correct in limited amounts but wrong exponentially. Positivity is just the opposite

So I'm going with the convexity, plus sentiment has improved (meaning the huge bullish sentiment has decreased materially), and speculative manias tend to surprise people, they tend to go further and last longer than people think. But even more important than all, if I'm making a mistake there (which it could be), its a "better" mistake to make, buying convexity and being more of an optimist, rather than "shorting convexity" (by staying out) and being a pessimist. Over the long-run, its a better mistake to be making (not only in markets but also in life, most contrarians/bashers aren't happy people, so even if they get rich, they will still be miserable. Optimists are just the opposite)

I also got to know the technology a bit better, public blockchains are here to stay, they will continue to be used for years (like BitTorrent which is still going strong, uncensorable/unstopable services are too useful to people, especially those under bad governments). They will continue to be updated (BTC should have the lightining network up and running this year, ETH might even get sharding and proof of stake), big companies will continue to wake up to the blockchain possibilities, some ICOs will produce giant leap forwards in terms of innovation (kinda like NFLX, FB and others did), producing giant returns to holders (leading to even more speculation. Point is, I think there is still a lot of fuel to continue to feed the mania. And governments coming after crypto will have a limited effect, very limited, I can download pretty much any popular paid program/movie or series right now on Bittorrent, even though governments hate it and have tried to stop it for years, peer to peer (or node to node) networks are unstoppable.

Lots of weak hands got cleaned out on this drop. So I got the odds in my favor (3-1+), sentiment is neutralish, I'm going with the convexity, and my risk is limited (essentially I'm risking what I made so far in cryptos, but it depends on how crazy I get in the ICOs, which I will continue to play). And if this is all a mistake and they die, at least I made the 'correct' mistake
 
Good twitter thread by Lee
https://twitter.com/x/status/960887476293455879

Unbounded convexity assets are lot tricker to decide which side is getting the best deal (buyers or sellers) than silly contrarians seem to think. Especially if there is a speculative mania
This is even more true when you consider that the world will one day see a bubble that will be the biggest one ever and it will break all the records.
 
Here is a little lesson that I learned from Venture Capitalists that explain some of the action on SNAP. They say its about the people, not the idea. The shorts hate SNAP because FB is competing hard with it and Instagram made it tougher for SNAP to grow, but good VCs talk about how some of their investments were made based on the guy running the company because if he is good enough, he can pivot into something else entirely and produce a huge return.

Examples: are Twitter (it used SMS in the beginning), Slack (IIRC, it was a failing gaming company when the CEO decided to pivot into what it is today).

Furthermore some of the best bests Zuckerberg ever made was buying Instagram for less than $1B (it would be worth over $15B today according to some people), buying Whatsapp for $19B, plus there is the GOOGL purchase of Youtube for $1.6B (some say it would be worth $50B today, they call the earliest exit in history).

So the guys running SNAP look like they really understand millenials and young people, they made an hugely sucessful app (in fact they created a whole new way to live for some), at any second they can do something else inside the platform of the software (like adding some kind of feature that does extremely well, a sort of a pivot), they can acquire a company for a few hundred million that becomes worth a huge amount (in the case they are smart as Zuckerberg) or they deploy the cash balances of the company into some kind of new app or venture that does really well. In other words, there is huge convexity/optionality IF those guys are smart as they appear to be. That's the bull case, and that's the type of logic you dont hear from the financial media. I believe its quite sound, I'm not invested but I'm flirting with it. I would have to research those guys more, understand them better. They definetly suprised everybody by accelerating growth despite the fact that Instagram copied them hard

The bears dont get that when there is a great person at the top, you don't get JUST the assets/revenues/profits from the company, you also get a 'convexity lab' that comes with the team. That convexity lab (which generates ideas and invests capital) can be worth a huge amount if the person has the right idea, or buys the right company (so there is a Venture Capital firm inside the app company).
 
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