Monday, February 5, 2018

Crypto Aint Fer The Scared

Credits: @barneytheboi

The crypto markets is a bloody mess right now.

From ATHs:

BTC -63%
ETH -48%
XRP -81% (lol)
TRX -89% (lol)
XVG -85% (lol)

How is GMGH doing? Not too bad, still over 150% in profit, lol.

What is the market like now?

What am I doing now?

Worst case scenario?

Best case scenario?

See you at the front lines.


  1. Hi, I chanced upon your blog and i wanted to share my 2 cents on crypto currencies. I don't own any because I cannot anchor a value on them. For a stock, I can anchor value in many ways. In a turnaround story, I can anchor my downside valuation on it's hard assets, or an assumed take-out price. In a high growth stock, I can anchor today's price to a normalized earnings multiple 3 / 5 even 7 years in the future and decide if the risk reward is attractive.

    Crypto's value is driven by the number of people who believe in them. The more the number of people who believe in it, the higher it's value. It's value is backed by faith and herein lies the first problem - how do I quantify the value? If 500 people believe in Bitcoin, what should the value of a bitcoin be? If 2000 people believe in it, what should the value then be? How do I even know how many people believe in it? These crypto currencies might be backed by blockchain (which have real world applications) but how much of these cryptos are actually transactional in nature? If I cannot reliably measure or quantify the value of something, and if something does not have "hard" applications, How then can we justify coin market capitalizations of over US$100bn? Personally, I feel that this is a bubble

    You might say that this is no different to currencies, and gold. These assets have no cashflow (For simplicity's sake, let's assume interest you earn on cash = 0, which is not that far off from actual reality), and are mostly backed by faith (esp. for gold - real world applications are v small compared to total quantity of gold around the world). What I would say is that (i) Currencies are driven by the financial health of a country. You can quantify (I can't, but there are models to do so) the demand and supply of a currency from it's exports, it's imports, it's fiscal and monetary policies etc. (ii) Gold is more similar to Bitcoin. It's value as a safe haven is driven by herd mentality. What I would say is Gold has been used as a store of value since thousands of years ago. Crypto currencies have not. Perhaps one or 2 crypto currencies can achieve the "status" that Gold has in people's minds, as a store of value, many years later. That would likely take very long, the volatility will be intense, and it might very well never happen for the currencies that one holds. Besides, from a regulatory standpoint - which government would readily allow crypto currencies?

    In any investment, or trade, you make money by buying low and selling high. How then, can I make an informed choice on risk / reward if I cannot put an anchor to it's value? How can one justify 100x in a few years or even months for some crypto currencies?

    I apologize for this long post, I just feel compelled to share my thoughts here. Cryptos can earn you outsized returns, fast, but because of what I've written above, to me it feels very much like a bubble. Stocks are slow - but there are no (little) short cuts in life. As they say, the most important thing in investing is not to lose money...

    Wish you all the best in your journey to financial independence!

    1. Hi Zhitong,

      The points you brought up were my conclusion of cryptos back in 2013 and all the way until mid 2017.

      I'd just say that you should just do what you are comfortable with and you understand. Since you don't understand cryptos and can't build a framework, it's best just to stick with what you know works with the asset classes that you are familiar with. Cryptos really aren't for everyone. There's no need to play this game just because others are.


    2. Yes, that's what I've been doing and I do not plan to start buying Cryptos. Of course I am under no illusions that I understand everything so I would be keen - if you are willing - to hear your (abridged) framework on how you assign value to Cryptos and perhaps I (or both of us) can learn something through our discussion


    3. To start, there are crypto securities. Such tokens represent a share of a project and shares the profits to token holders on quarterly basis. There are a few of them, but their operations are usually regarding casino operations or fund management. Can you estimate their payout ratios? Yes. In fact, you can monitor it in real-time. What is a fair "value" to pay? It depends on your dividend yield you are willing to accept. Some are as low as 6% while others are as high as 40% (annualized yield).

      Regarding "pure" cryptocurrencies - what is the value to have an unstoppable, uncensorable, untamperable currency which no inflation, which acts as both an unseizable pseudo-anonymous bank account and also a global payment network that cannot never be turned off? Is it $0? Definitely not. That is the value of Bitcoin.

      What if those payments and bank accounts were all anonymous and opaque? What is it's value? Well, what's the value of black markets and offshore bank accounts? And anyone that wants privacy in their finances? Mind you, black markets and offshore bank accounts do not have to be sinister or evil in nature. That is the value of Monero.

      Obviously the value of these systems and technologies are not zero. And if you can figure out how much they are worth, then you get to make a shit ton of money buying them if they are undervalued and shorting them if they are overvalued.

  2. Agreed. Crypto aint for the weak hearted. Although have to admit this correction is quite different as it is quite sudden and fast. Many weak hands will be shaken just seeing their btc value from 11k to 6k plus in a matter of hours. I can imagine how much conviction one would need just to hodl

    1. I find this quite similar to June 17 when BTC dropped 40% and ETH dropped 70%. There was a mad rush into all these assets that was caused by new investors coming in, and it's just a natural correction from all the exuberance. It did take ETH 6 months to finally reclaim that previous ATH.

  3. The crypto markets are a blood bath today. Kinda hard to understand without any major events going on, why do you think this is happening?

    1. Hi Anon, can see above. I think it we were just in an exuberant period and most of the speculators that came in recently over the past 2-3 months have been burnt out of the market already.

    2. There's also a lot of FUD and misreporting by the media that probably triggered the panic selling. There was the misreporting that South Korea was gonna ban crypto (they didn't), then India's Finance Minister supposedly saying they'll ban crypto (he didn't), the Bitfinex-Tether subpoena saga (which was served months ago, but Bloomberg initially wrote that the subpoena was served "recently" until the crypto world highlighted that it was wrong), Facebook banning crypto-related ads (which is actually a good thing cos it'll weed out all the scammy ICOs), and more.

      FUD --> panic selling --> downwards price pressure --> people get worried that it'll crash even more and sell --> further downwards price get the gist.


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