The Cryptocurrency Trading Journal

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Another instance where 51% attacks dont matter. BSV has a $3.5B market cap. These proof of work crypto "collectibles" are pretty much impossible to stop because its not about the tech, that helps, but its about the ledger which require real world resources to change. And even than, you cant change it much (only 14 blocks in the BSV attack)
Holders are heavily incentivized to run full nodes and/or mine, continuing to maintain that ledger just like a Museum is incentivized to maintain its paintings
Only thing that could change things is for all governments to ban it like cocaine or crack but even then, how are you going to enforce? Its easy to track an address or two, try tracking and tracing and arresting dozens of millions of people
 
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I think this is so applicable to status assets (social capital based assets) like collectibles (BTC, NFT, art, rare comics etc) that its not even funny
As they get expensive, it can actually mean they are cheaper because they just reached "escape velocity" to become status symbols. The price is what enables them to reach a bigger network effect of being status symbols. I love that quote "price adds value", I'm seeing this daily in NFTs, some of them reach a certain level of expensiveness and its just "clicks" on people's head that the NFT has reached a "point of no return" and people ape into it. Then all of sudden people start to notice beauty where they couldn't see it before

I'm sure if you showed some Picassos or Monet paintings to people that knew nothing about art, they wouldn't think much of it. But if you tell them its a Picasso or a Monet and it costs millions, they will look at it differently. "Price adds value" indeed
 
I used some existing code with an API to pull price data for a handful of the larger coins this morning and I was fiddling around with it. They only had data since late 2018. But I was surprised to see that the sharpe ratio on a long diversified basket was only ~1.2. A traditional portfolio can realize that for a multi-year span in the middle of a bull-run.

However, the correlation between coins is high which hurts performance, and the native volatility is just so massive that it drags the sharpe down. But the volatility is also mostly where the outsized returns come from. Running 80% volatility on a realized sharpe of 1.2 doubles capital in less than a year so the BTC run from $3k to $60k in 4 years checks out.

Anyway just got me thinking that even with a hot asset class, to capture the insane convexity you really need to get in early. Like starting from BTC < $100 probably shows the unreal sharpe ratios. We are post- mega boom in crypto already.

I think it still makes a lot of sense for an allocation the more I learn about it, and what it does have going for it is the high natural leverage combined with a price floor gives things like crypto, GME, TSLA (past tense), etc. a long option like effect. The people who make significant money in these places after the first explosion are the ones who stay concentrated as their notional exposure ramps up.

At this point if you want to make a life-changing multiplier on your net worth in crypto you need to get in with a pretty size-able bet. Unless you can find a niche inside it that hasn’t grown to maturity yet. Like a major alt-coin in infancy, or if NFTs really do take off. So I think it makes sense to have your focus there.

Anyway I have been enjoying the journal lately and I think it makes sense to put time and effort into a space that hasn’t been fully explored yet. Just wanted to share some initial thoughts as I looked at cryptos a little closer lately. Not sure yet if there is a place to generate significant PnL with my time here, but I am adding passive exposure to crypto the more I learn and I think it’s plausible we could see good performance from a portfolio standpoint for some years to come if flows continue, before it becomes more inert from a return standpoint like developed currencies.

I would like it if I could find some carry trades here or a way to take advantage of momentum or dislocations, ways to optimize my exposure here, but crypto is expensive to trade and derivatives are under-developed. So volatile that some of my normal signals don’t seem to show much performance. Buy and hold is the main low hanging fruit I see worth picking, and I think it makes sense to pick up some NFTs if you can find the right project.
 
Magic said:
I used some existing code with an API to pull price data for a handful of the larger coins this morning and I was fiddling around with it. They only had data since late 2018. But I was surprised to see that the sharpe ratio on a long diversified basket was only ~1.2. A traditional portfolio can realize that for a multi-year span in the middle of a bull-run.

However, the correlation between coins is high which hurts performance, and the native volatility is just so massive that it drags the sharpe down. But the volatility is also mostly where the outsized returns come from. Running 80% volatility on a realized sharpe of 1.2 doubles capital in less than a year so the BTC run from $3k to $60k in 4 years checks out.

Anyway just got me thinking that even with a hot asset class, to capture the insane convexity you really need to get in early. Like starting from BTC < $100 probably shows the unreal sharpe ratios. We are post- mega boom in crypto already.

I think it still makes a lot of sense for an allocation the more I learn about it, and what it does have going for it is the high natural leverage combined with a price floor gives things like crypto, GME, TSLA (past tense), etc. a long option like effect. The people who make significant money in these places after the first explosion are the ones who stay concentrated as their notional exposure ramps up.

At this point if you want to make a life-changing multiplier on your net worth in crypto you need to get in with a pretty size-able bet. Unless you can find a niche inside it that hasn’t grown to maturity yet. Like a major alt-coin in infancy, or if NFTs really do take off. So I think it makes sense to have your focus there.

Anyway I have been enjoying the journal lately and I think it makes sense to put time and effort into a space that hasn’t been fully explored yet. Just wanted to share some initial thoughts as I looked at cryptos a little closer lately. Not sure yet if there is a place to generate significant PnL with my time here, but I am adding passive exposure to crypto the more I learn and I think it’s plausible we could see good performance from a portfolio standpoint for some years to come if flows continue, before it becomes more inert from a return standpoint like developed currencies.

I would like it if I could find some carry trades here or a way to take advantage of momentum or dislocations, ways to optimize my exposure here, but crypto is expensive to trade and derivatives are under-developed. So volatile that some of my normal signals don’t seem to show much performance. Buy and hold is the main low hanging fruit I see worth picking, and I think it makes sense to pick up some NFTs if you can find the right project.
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Thanks and welcome to the journal. Yeah, the convexity here is insane. And in NFTs, its just off the charts. Usually they are minted at 0.06 ETH and they can run (if they gain traction) from 1ETH to 1000ETH. We are talking 16000x your money in the best case scenarios, in like a few months. Art blocks Fidenzas have blasted off the charts in the last month and they are really unique works of art, so I'm trying to learn more about art and stuff, I'm even reading a book on art collecting. Now the cheapest ones go for 100ETH, a humongous return for investors. And I have seen addresses from people that picked up these early and held because they knew the art was groundreaking

I think these are the levels of returns the only founders have (like the Zuckerbergs). I'm not sure even VCs have it.
In the vast majority of the cases, it wont happen and usually, one will have to pay up after the mint+traction to get a really big winner but it shows the potential there
I'm still new and havent hit anything but I'm learning a lot, its the first time I'm actually having a lot of fun investing. Plus the NFT discords are putting me in touch with people that are so well versed in crypto that they make 99.5%+ of the content out there look completely amateurish, so I'm learning a ton

I figure, worst case I lose a few percent, best case I strike something big and keep reinvesting profits for even bigger wins. I believe NFTs and Crypto will be with us for a long-time
 
Daal said:
I believe NFTs and Crypto will be with us for a long-time
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I enjoy reading your journal, and I'm doing it so that I tweak my own bias. But this bias in me says that when shit hits the fan economically, most of this "digital" stuff will tank.

The value in NFTs won't exist when free money stops flowing. The value of a digital world will be non existent when it becomes difficult to live in the real world (ie. food price inflation, difficulty paying for housing, riots leading to a lack of safety.) All this stuff about owning "property" in some digital metaverse can evaporate in a microsecond. It won't have value when you're struggling in the real world.

And although crypto will be around, with BTC being so archaic, and in direct competition with what the governments will offer, might fall to the way side, even if it does have another stellar rally. Basically, if the government losses control over the monetary system because it goes decentralized, and some universal coin is the leader, then the government pretty much looses the ability to control the population and provide services. When you have no stability or services, you have no functioning digital world. All you need is some jackass to drive his truck into a cellphone tower to knock out your link to the digital world.

So in essence, the continued move to everything digital relies on global stability, and that stability I see eroding going forward. Look at how much has changed in Afghanistan in just one week.

Thanks for reading!
 
NoahA said:
I enjoy reading your journal, and I'm doing it so that I tweak my own bias. But this bias in me says that when shit hits the fan economically, most of this "digital" stuff will tank.

The value in NFTs won't exist when free money stops flowing. The value of a digital world will be non existent when it becomes difficult to live in the real world (ie. food price inflation, difficulty paying for housing, riots leading to a lack of safety.) All this stuff about owning "property" in some digital metaverse can evaporate in a microsecond. It won't have value when you're struggling in the real world.

And although crypto will be around, with BTC being so archaic, and in direct competition with what the governments will offer, might fall to the way side, even if it does have another stellar rally. Basically, if the government losses control over the monetary system because it goes decentralized, and some universal coin is the leader, then the government pretty much looses the ability to control the population and provide services. When you have no stability or services, you have no functioning digital world. All you need is some jackass to drive his truck into a cellphone tower to knock out your link to the digital world.

So in essence, the continued move to everything digital relies on global stability, and that stability I see eroding going forward. Look at how much has changed in Afghanistan in just one week.

Thanks for reading!
More...

Let me address each of the points

- "The value in NFTs won't exist when free money stops flowing". People raised a similar point about US tech stocks, yet Janet Yellen raised rates by 225 bps a few years ago, and nothing much happened. You had the normal fluctuations you had in stocks (up or down 20%). This time around, it is evern worse because debt to gdp ratios are even higher so most likely they wont be able to raise rates by much and at any slowdown they will cut it again. 0% rates (financial repression) will be with us for a long-time because it helps the economy delever (Its part of the beautiful deleveraging that Dalio talks about)

-"It won't have value when you're struggling in the real world.". Sure, if there is a depression (which it is what you seem to be alluding to), a lot of this stuff will have a liquidity crunch. But what wont? Stocks will implode, corporate bonds will look suspect, cash will be king and maybe gold. But a depression (in the US) is off the table because they will ALWAYS choose to print tons of cash rather than to let one happen. They learned the lessons from the 30's, they applied in 2008, they applied it again in Covid. So while crypto might sell-off initially when big market disllocations hit, eventually it will rise again when the money printer is opened again. Like it happened in Covid. The supposed correlation between crypto and stocks is actually one of the bull points, because US stocks aren't exactly cheap (they are late in their cycle) but crypto is early in its cycle and it benefits from the money printer just as much

-"Basically, if the government losses control over the monetary system because it goes decentralized, and some universal coin is the leader, then the government pretty much looses the ability to control the population and provide services". Sure, these digital stores of value might create a problem for governments because people will rather own them rather than bonds, so at some point, it could hurt governments ability to finance themselves. But that is much too early to be worried about that and the same point can be made against the owning of Gold, Art, rare coins, stamps, wine collections etc etc. The point basically is "its not worth to own assets that can't be devalued, because the government wont let you, so let them devalue you". I think that is a mistake because the risk can be managed along the way. Furthermore in that 70's and early 80's, there was no ban on the ownership of hard assets even though they were super popular due to inflation. Heck, in the UK, there was no ban (to my knowledge) and they had to be bailed out by the IMF!
So, its like Raoul Pal says "talk to me when this stuff is at $10T and then we will see if they ban it"
 
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