He’s back to Bitcoin?Again?

Yeah, wild times and here we are. Well my attempt to get a full Bitcoin fizzled and honestly I found some opportunities for the money that I like far better. Did I miss the boat on it going to $60,000? Yeah. Do I mind that? Not particularly. I don’t mind some volatility in an investment, but this is a bit ridiculous. It’s almost as if the more mainstream Bitcoin gets, the more volatile the action on it and that doesn’t suit my temperament. Am I going to jump on the Bitcoin is an evil or Bitcoin is dead bus? No. I love Charlie Munger and respect the hell out of him, but I am not sure his concerns on the coin are completely valid. However, when you investment is hijacked by whatever leaks out of Elon’s mouth at this point in it’s maturity…well, I’m not in Dogecoin either let’s say.

That’s to say nothing against Dogecoin or those who profit from it and I respect Mark Cuban who loves it, but Elon is making that thing spin like a top. Let’s go back though, I realized my retracement post might have sounded like a ringing endorsement after reading it and wanted to provide some framework, further explanation and thoughts nearly six months later. Those who followed the fibs, pretty crazy those things right? Didn’t conform perfectly, but it did generally follow established expectations. If you had traded on the fibs you’d have sold on the $57K extension and waited on this retracement. Now, I hear you saying, “It was factors outside of normal market movement that made it retrace, Daddicus!” and you would be partially correct. If people weren’t already feeling a little nervous and fear was entering the market an Elon Musk SNL skit or tweet wouldn’t send people selling.

Let us always remember what drives price up is people buying the instrument, not the inherent value. Supply and demand, people buy supply dwindles and people agree to sell for more than they bought it for and price reflects that. Selling is no different, people want out and will sell at lower and lower prices to either realize a gain or stop the bleeding on a loss. Therefore if there is a 40% drop then fear was already in the market and people just needed a catalyst. That’s all that Fibs are good for in my opinion. I use them as a human psychological barometer. Peoples belief in Fibs makes them a self fulfilling prophecy and if you understand them you can exploit this. However, this is a topic for another post. If you want one send me comments asking for it and I will. I don’t want to force this on anyone though.

Back to Bitcoin. There’s a question a writer I respect greatly poses about the topic of taking chances in the market, which dives into a black hole about Martingale theory and a lot of other theories I don’t have the time of knowledge to break into. The question is if someone handed you a coin and if you flip a head then your net worth increases by 50%, sounds pretty good right? However, if you flip a tail it goes down by 40%, not so good. The question is, do you flip the coin? There are a number of ways of looking at this as it all centers around probability theory, etc., but the main question is how willing are you to gamble on theory with your own money? That’s all that Bitcoin is at the end of the day, a theory with a lot of 1s and 0s making it something real to us.

Some of you gamblers might say, I’d take the chance to flip once then quit. If you are one of the few humans who are brave enough to try something once with a huge downside potential and not succumb to the sunk cost fallacy then good for you, but I don’t now how well served you are by this. What if I told you that you had to flip the coin 100 times to play? Would you do it then? I can’t answer that question, only you can, but my point is that this is essentially what “investing” in Bitcoin is right now. I don’t consider it a long term investment still, it doesn’t fit my criteria. It is purely a gamble in that the movement is erratic. Do I still stand by my statement that it will be more valuable in 10 years than it is today, yes. By how much? Flip the coin and find out.

If you are wondering why it’s all Bitcoin, that’s because of the nature of Bitcoin, it’s meant to be a currency and that’s it. The blockchain is used for nothing else. Some might say that’s a good thing and others may say that’s not a long term boon and the world will not drop their fiat in favor of Bitcoin. I don’t know, I tend to agree with the naysayers, however, I believe that it is entrenched enough to gain some value going forward. I don’t see it gaining enough to make the risk/reward something I am comfortable with though. I prefer Ethereum these days honestly, because of everything that is being developed for real world use on the ERC20 chain. I think there is far greater potential upside to it over the long run, I don’t know that it will ever in value match Bitcoin dollar for dollar or coin for coin, but I feel it is more successful in the long run. I don’t have much of a stake in crypto at all anymore shuffling it off to opportunities which are far more lucrative long term and that fit within my risk principles.

I am not a crypto currency expert either as many of you may have picked up on, I’m an investor and as such I understand and see the market as a whole with crypto currency very much being a part of that marketplace. I write about it not be a high and mighty crypto god, but instead as an every day investor who sees the good and bad of every investment. Companies are hitting some tough sledding, the market is dangerously inflated, inflation is poking its nose around no matter what Jerome Powell and crew do with interest rates, all of this is creating a growing storm of people looking for what to do. Which is why I have pulled back to some very safe and steady companies in industries designed to weather these kinds of storms that I see approaching.

I don’t see Crypto as being that bastion or harbor. Crypto is still moving more or less WITH the market. I want something to be an investment that will move contrary to the market in times like this, which is why so many are moving to gold and other commodities. Nothing wrong with that, until there is. My personal and not professional opinion is that major stable cryptocurrencies bought today, no I’m not giving names that’s for you to figure out, will be worth more in the future than they are today barring massive government intervention of an EMP from a nuke going off. The question is what will the compounded annual rate of return be? That’s my biggest problem with calling it a long term investment. I wake up one day and what was worth $60,000 is now worth $40,000, the market flipped tails. Another I wake up and it’s up 50%, market flipped heads. The only way to make any of these gains or losses real is to sell them, and based on human psychology and market history that means it will more likely be when it’s down. There are strategies on exits that I could also cover later if people are interested, but if not then I’ll give me thoughts. Exits approached methodically are better than trying to time the market.

If I told you at $57k that the market would peak on or above $63K how many of you would cash out, having bought at $20K and be happy? Most would say not at all I left $6k or more on the table. Flip it then at $40K after trying to eek out every penny you could and knowing you could have sold at $57K, how much more upset would you be? You just let $17K slip through your fingers and as of this morning it’s only lower. Also, if you cashed out at $57K and your friends stayed in and rode the way higher and sold at $63K, would you be upset that they gained more and timed it better? How much better and smarter would feel for having sold at $57K and their investment is now worth $40K. This little comment illustrates how human nature, fear and greed play into the market. I will tell you this learned from painful lessons and agony. It is better to let the top go and come out with a good profit than timing the top and regretting holding on too long.

Selling at $57K would net you nearly a double and a half in six months, that’s impressive by any count. Now you can use that money to invest on the retracement or move to less risky businesses and grow at a good rate of compounding. This would be the example of hitting it big on a company and letting that money take you higher. $40K isn’t bad either, you made a double in 6 months, that’s 100% return, well done, but it’s going to hurt that you could have made more. I’ll tell you about my history and that I no longer care about hitting the top, instead hitting points where the metrics and analysis tell me it’s time to hop off. I bought Shopify at $300 a share (not a lot of shares mind you, I don’t have that kind of money) because everything told me it was a deal there. I sold off one tranche at $660 and the other at $1000 because $660 was 20% over my estimation of intrinsic value at the time and $1000 because that was double almost my intrinsic value. I made a hefty profit in the space of less than a year with a double on half and triple on the other. Shopify now trades at around $1200. Do you know what I feel about that? Nothing, but joy. I missed out on a potential ton of money, but I followed my metrics, made a better profit on it than the best investors return in most years and got out when I could realize a profit. Remember no profit or loss is real until you sell it. Who cares if I missed out on the further rise, I beat my benchmark return by over 75% in the end. I’ll take slow and steady over flash and crash, thank you.

As, I feel that I have now whipped the horse to death I will close with a reminder that I am not a financial advisor nor am I your financial advisor, any statements made in this post are my opinion only and not advise on any transaction or plan as I do not know your personal situation, nor am I your fiduciary. These statements are made for the purpose of education and entertainment only and you should never invest money you can not afford to lose, and I mean that. Investing is risky by nature and no investments spoken of here are insured by the FDIC or any body and carry an inherent risk. I am long Ethereum, and have no plans to start, open, close or modify any of the mentioned companies or positions I am a holder of in the next 72 hours and I am receiving no compensation of any form for this. That being said, let’s go out and learn.


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