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Like many of you, I've been watching in shock as crypto continues to rally.

To me, Bitcoin reflects populist trends: distrust of institutions, a thirst for risk, and a sense of isolation from the current system. Many view it as a revolution and a chance to participate in a new economy.

While I agree with some aspects of the Bitcoin thesis—scarcity, an anonymous creator—I tend to follow my mentor Warren Buffett’s advice and approach it conservatively and avoid. However, there’s an increasing likelihood that Bitcoin could surge even further, regardless of its utility or fundamentals. As frustrating as it is that a entirely fictional coin can explode in value, I find this outcome increasingly plausible given current populist trends.

So, is it foolish to allocate 1-5% of one's portfolio in case this revolution continues?

How is everyone else approaching this trend?

So, is it foolish to allocate 1-5% of one's portfolio in case this revolution continues?

Well, I hate those posts that are nothing but a lot of trite historical quotes, but I can't resist:

While a bubble is a terrible thing to waste, it is vaguely possible that this one might have applicability:
"What the wise do at the beginning, the fool does in the end".

More prosaically, if you're going to buy BTC, do it the next time the price drops 75-80% from its peak. So far that has been a winning strategy for entry points, though extrapolation is not theoretically sound. Even if it's worth nothing, better to buy low and sell high?

Slightly less riskily, one could go with a "picks and shovels" approach. Look at the firms in the Australian CRYP ETF or the European DAPP UCITS, which are supposed to do that. THe firms that make money on crypto enthusiasm rather than on crypto "assets" per se.

Jim

OT ramble - do not read

Put it this way. If Berkshire Hathaway ever bought a single unit of crypto, I would sell every single share I own.

I consider crypto to be the most significant bubble since tulip mania. However, it does look like it will continue to go up and up, as more and more legitimate financial institutions increasingly support and now potential for US political support.

We have all heard the bull case. But the reality is crypto is being bought because it’s going up and people love volatility and get rich quick endorphins. It’s a paradise for helpers and crooks. That combination of the obvious wild speculation, combined with the cynical promotion and fraud is not something I would ever consider investing in. I don’t care if it’s going up. I don’t want to own something that can become a zero over night.

I saw an article today that said Saylor said buy this crypto before it goes up 16,939%. Not sure if he actually said that. But he is saying bitcoin is going to $1m per coin. If it was going to 10x from hear, why is he letting us in on this incredible deal? Would he not just keep quiet about it and buy it all for himself? Maybe he is just a really nice guy who is just helping strangers get rich.

Everyone here knows what integrity looks and sounds like having observed Buffett and Munger for decades. I submit that everyone involved in crypto in any way is one of the following: a cynical fraudsters; a momentum speculator; an employee of a financial institution that is skimming profits and has zero care for their customers; a politicians that would do anything for personal or political gain; low income individuals that see it as a way to get rich quick; blockchain advocates that refuse to acknowledge the flaws in crypto (such as environmental, potentially undermining the democracy by threatening government institutions and their currency); sophisticated investors that have taken leave of their senses.

I do acknowledge my absolute loathing of crypto is somewhat emotional and related to my chimp brain, reacting to missing out on the spectacular gains that have been made and will probably continue to be made by people other than me. However, I refuse to participate in something that on paper is so clearly ridiculous and awful.

Even as a spectator, I would be so concerned about the factors driving it higher will eventually go into reverse and when that happens the spectacular gains become even more spectacular and permanent losses.

Buffett is smarter than almost everyone on capital allocation and his view is, he quite literally wouldn’t pay $1 for all the bitcoin because he would have to find someone to sell it to.

And that’s the rub and it’s consistent with what is happening. If bitcoin is so great, why do the whales like Microstrategy have to keep buying it on an industrial scale to drive the price up. Why are promoters advertising so hard to pull in new buyers? If bitcoin had intrinsic value, these whales would be able to find buyers. They can’t. Their holdings keep rising. Maybe they will eventually own it all some day.

I bet we will eventually find out that the people behind the promotions and frauds have been quietly getting out and getting into USD and productive assets. And that is were the retail buyers come in. That’s how pyramid schemes work. I read that Saylor has been selling his personal shares in Microstrstegy. Shouldn’t that be a concern. He is promoting something to you and selling it himself!

Unfortunately for those who are disgusted by bitcoin there is a long list buyers, so this may continue for some time. I for one will not be telling my grandchildren in the distant future that I once owned a digital currency that could’ve bought 10 houses, which subsequently went to zero. Nor will I be telling my grandchildren that I made millions by speculating and gambling and got out just before the bust.

The dot com bubble was bad and pulled in a lot of people, many that were professional people working in finance that should have known better. But this crypto bubble is completely off the charts. We have never seen anything like it in our lifetimes.

No, it’s not for me.

I do think it is a rather useless asset and does represent some awful impulses: greed, corruption, lack of transparency etc. But this populist movement seems to only be gaining momentum sadly.

If only a part of a larger basket of securities, I think why not allocate a sliver to calm the FOMO? Some stock picks have utterly failed, yet we do not seem to judge them in the same way we would buying bitcoin.

On the contrary, a 1-2% allocation to BTC becomes only 10-20% of the portfolio w a 10x, so it does become challenging allocating any sort of meaningful size. Only at larger allocations does it actually begin to make life changing gains (assuming it reaches the adoption they proclaim)

Sadly, I do think we are entering an age of fraud, greed and corruption. The robber barons are back and running the show. And they are certainly promoting crypto

Maybe you answered your own question?

A:
I do think it is a rather useless asset and does represent some awful impulses: greed, corruption, lack of transparency etc.

Q:
If only a part of a larger basket of securities, I think why not allocate a sliver to calm the FOMO?


If one wants some "zip" in a portfolio, the more sensible way to do that is commonly to invest in things with uncertain outcomes but at least a chance of earnings. Generally you can find lots of things with a big but uncertain upside attached to a moderate downside, even among things with demonstrable value as investments because they can (or at least) might earn good money. Heads I win, tails I don't lose much. Sufficiently asymmetrical outcomes combined with appropriate position sizing removes the need for a conventionally mandatory Rule #1 test.

Per that reasoning, there is a pretty good case (better than bitcoin) for having a very (very) small allocation to literal lottery tickets. The chances of winning are terrible, but the upside:downside ratio is spectacular!

: )
Jim

Thats very true and a helpful way to look at the situation.

There is a real chance that Bitcoin 5-10X here.

However, the same can be said for any number of small cap, beaten down, or lottery ticket type equities. Or even options.

For example: there is a real chance FXI (Chinese stocks) could regain their all time high w incoming stiumulus. An OTM call (or spread) could easily 5-10X in that situation.

a 1-2% allocation to BTC becomes only 10-20% of the portfolio w a 10x, so it does become challenging allocating any sort of meaningful size. Only at larger allocations does it actually begin to make life changing gains


Yes, that's the problem. To minimize the risk in a tulip bulb fad like BTC you need to have a significant allocation. 1%-2% won't cut it. But 1%-2% is unlikely to make a life changing gain, so why bother?

A larger allocation like 5% is just too risky.
There is nothing but thin air supporting it.

<< How is everyone else approaching this trend? >>

In my case, by avoiding it entirely. I take my lesson from
Isaac Newton, who couldn't resist the South Sea Bubble:

https://ca.rbcwealthmanagement.com/macdonald.advis...

Obligatory: https://www.web3isgoinggreat.com/
(There isn't an FDIC to protect you from rampant crypto fraud.)

-Rubic

I do think it is a rather useless asset and does represent some awful impulses: greed, corruption, lack of transparency etc. But this populist movement seems to only be gaining momentum sadly.

If only a part of a larger basket of securities, I think why not allocate a sliver to calm the FOMO?

Let me calm that FOMO for you. For a number of reasons that are unlikely to change, Bitcoin sales transactions are typically look like this: You send cash to the exchange. The exchange uses your cash to buy a stable coin (usually Tether) and puts it in your account. You then use Tether to buy Bitcoin. Then the opposite on the way out.

In short, Tether provides the liquidity needed for Bitcoin transactions. Again, unlikely to change. Tether claims to back its coins 1:1 with real dollar assets. However, Tether has never been audited, is domiciled in the Cayman Islands away from prying eyes, has had previous regulatory trouble, and has made provably false claims about its banking relationships.

Do you trust Tether? I don't. If there is a Bitcoin sell off (which there will be eventually) and Tether isn't backed 1:1 (which it isn't), there might not be enough exit liquidity and your Bitcoin will be stranded on the exchange. That is, if the exchange itself survives. Quadriga, Mt. Gox, FTX, Voyager, etc. weren't so lucky in previous sell offs.

Before you can say "self custody," how do you buy or sell without an exchange? You almost can't do it. So by buying Bitcoin you're taking a lot of institutional risk. And that's assuming Bitcoin isn't in a speculative bubble in the first place, which is not a good assumption.

Start with 1%. (FBTC) Then do 100 hours of research before you ramp it up a little. After a thousand hours you'll understand it pretty well. Still early, no rush. This board has a few blind spots - consistently hitting below the Mendoza Line. Bitcoin is one of them.

I intrude on the happy consensus here with trepidation. In the spirit of the late Mr. Munger, invert, always invert! So here goes. Please limit any fruit thrown to the overripe variety.

I consider crypto to be the most significant bubble since tulip mania.

Tulips reproduce. The supply is potentially infinite. Bitcoin is a mathematical invention with a finite supply.

We have all heard the bull case. But the reality is crypto is being bought because it’s going up and people love volatility and get rich quick endorphins.

Each time you read or hear the phrase "the reality is," substitute "in my opinion." Certainly, animal spirits contribute a great deal to the buying in any asset rising rapidly in price, but anyone even vaguely familiar with cryptoworld knows there are numerous, not necessarily irrational, cases for a store of value with a finite supply in the context of unprecedented levels of debt associated with fiat currencies.

Just this morning, the U.S. national debt swept past the $36 trillion mark (balloons, party hats, we love round numbers). Nobody else comes close (USA! USA!), although China, at $14.7 trillion, and Japan, at $13.7 trillion, are doing their best to compete. The U.S. public debt is growing at a rate in excess of $2 trillion per year. As sober a judge as Jay Powell, chair of the Federal Reserve, has repeatedly called this trajectory unsustainable.

As far back as Plato, thinkers have observed that one pronounced weakness of democracy as a governing system is that prudent financial management is likely to be unpopular. Today, Elon Musk's extra-governmental DOGE project notwithstanding, both major political parties pander to the desires of the electorate for higher spending and lower taxes. In other words, there is no present indication of any change to the trajectory Mr. Powell calls unsustainable.

The dollar has been the world's reserve currency since 1944. This is the store of value the world believes in. Treasury bill auctions are now treated as sporting events on CNBC. Mr. Tea Party himself grades the demand and interest rate for each tranche to judge the market for the latest addition to the massive global pile of U.S. I.O.U.s.

If bitcoin is so great, why do the whales like Microstrategy have to keep buying it on an industrial scale to drive the price up.

Microstrategy identifies itself as the first Bitcoin development company. It holds approximately 1% of all Bitcoin outstanding. Its average cost per coin stands currently at a little more than $42,000. It has been issuing convertible bonds, essentially the first securitization of Bitcoin, to an eager market willing to accept negligible interest rates for the optionality of converting to equity, generally at a price some 30% higher than the BTC price at time of purchase. All of these people may be fools, the world has no shortage, but they are increasingly institutional money managers inaugurating small allocations through relatively harmless instruments.

I read that Saylor has been selling his personal shares in Microstrstegy. Shouldn’t that be a concern. He is promoting something to you and selling it himself!

Elon Musk is selling Tesla shares! Jeff Bezos is selling Amazon shares! Mark Zuckerberg is selling Meta shares! Billionaires will billionaire. You would too if you needed a new jet.

I am among the least sophisticated, least knowledgeable Bitcoin investors in the world. If it is a pyramid scheme, I will be among the last to know. But being one of the least sophisticated investors in the world has its advantages. I have made so many mistakes, so many egregious decisions, over the 40 or so years I have been investing, that I have no illusions about my abilities. So I read lots of different cases for lots of different things, take small stakes in a relatively wide array, and then try to keep up and manage them from there.

When my son, who works in fintech, became interested in blockchain technology a few years back, I read up just so I could participate in the conversation with him. I bought a small amount of Ethereum because of the use case then being made for the blockchain platform, and an even smaller amount of Bitcoin to track the price of the market leader.

On Jan. 11 of this year, the first Bitcoin ETFs began trading in the U.S. This occurred despite a highly Bitcoin-skeptical regime at the SEC. I thought this might be an important development. On that day, I bought small positions, between 0.5% and 1% of my investment portfolio, in one of the new ETFs and also in Microstrategy. I considered these as I would sports bets. I was psychologically prepared to lose all of the capital I invested. And, indeed, both Bitcoin and MSTR proceeded to fall in the subsequent days and weeks.

As I type, ten months later, the Bitcoin ETF (BTCO) is up 95%. MSTR is up 540%. A parade of analysts point to this asymmetry as nonsensical. And it is -- unless you buy Mr. Saylor's thesis as the first Bitcoin development company. Block, Semler Scientific and Stone Ridge Holdings Group are other firms that have made corporate treasury allocations to Bitcoin.

I bought my positions in taxable accounts, so I am two months from being able to sell at a long-term capital gains rate. Assuming the bottom has not fallen out by then, I will withdraw my initial investment, maybe twice my initial investment, depending on my outlook and news developments at that time, and then I will let the remainder ride.

This is similar to my strategy with Lumen Technologies, which I mentioned here sometime back, as it was taking off. It was priced for bankruptcy earlier this year. I was of the contrarian opinion that this was an unlikely outcome and loaded up. Today, at about $8.50, it's a six-bagger over a few months. I've taken out roughly twice my initial investment and am letting the rest ride.

I view these investments as similar -- both long shots, both products of my own peculiar reasoning process. Both winners (for now), a rather unusual outcome for me among my long shot bets. Lest you think I'm boasting, please feel free to ask about my cannabis investments.

Most of my portfolio is devoted to more conservative fare, but I've always enjoyed having a relatively small, speculative wing. Maybe that's all it is -- having fun.

My fundamental view on all this is a vast learned humility about all the things I don't know. The world is changing more rapidly than my father could ever have imagined. Everything -- all knowledge, all corporate processes -- is being digitized, a verb that did not exist when he died. Why wouldn't digital assets develop? I am doing my best to keep up.

So, is it foolish to allocate 1-5% of one's portfolio in case this revolution continues?

I think we've had this conversation before, but I think it's reasonably low risk to just use some moving averages. Jump in when the price is rising, and jump out when it's not. Jim's "buy when it's down 75-80%" has worked so far. I'd guess it might have done better using a 50% threshold, as then you could have caught the January 2018 and March 2020 relative bottoms too.

I started backtesting at EMA 5/25, and quickly found there were way too many whipsaws. And tried numerous SMA's too. I have come up with something reasonable for me, which is pretty darn conservative, so a little less than a year ago dipped my toe into the BTC world. Right when the ETF's showed up. (There is also a BTC micro Future - MBT at Interactive Brokers, which is 0.1 BTC.)

My strategy is conservative enough, that barring an overnight "It's a scam!" plunge to zero, I felt comfortable putting in 5%. But I hadn't touched BTC before I'd done CaptKerosene's 100 hours of research. And I won't buy any other Crypto products.

So far so good. It's always nice to start an MI strategy on an upswing - BTC can go down quite a ways and I'd get stopped out with a profit.

I wish I could figure out how to share a screenshot in Google Drive or Dropbox without sharing my whole life. It's a good looking back test.

In general, I'm willing to participate if the price is going up. No different than using BCC or other timing systems really. (Right?) :-}

Tails

"Certainly, animal spirits contribute a great deal to the buying in any asset rising rapidly in price, but anyone even vaguely familiar with cryptoworld knows there are numerous, not necessarily irrational, cases for a store of value with a finite supply in the context of unprecedented levels of debt associated with fiat currencies."

I think it is very irrational to call something a "store of value" when it has multiple 25%+ moves in either direction every couple of months. That is literally the complete opposite of a store of value.

I think it is very irrational to call something a "store of value" when it has multiple 25%+ moves in either direction every couple of months. That is literally the complete opposite of a store of value.

It has certainly been volatile, so maybe not for the faint of heart, but new highs come along often enough that it has worked as a store of value for lots of folks. Here is what Gemini, Google's AI chatbot, says when asked to define a store of value:

A store of value is an asset, currency, or commodity that retains its value over time and can be used again in the future. The main purpose of a store of value is to manage risk by maintaining a stable demand for the asset.
Here are some examples of stores of value:

Money
A common store of value that can be invested, stored in a bank, or kept at home.

Precious metals
Gold and silver are examples of precious metals that can be used as a store of value.

Cryptocurrencies
Bitcoin is an example of a cryptocurrency that can be used as a store of value.

Fine wines, classic cars, watches, or art
These items can be good stores of value because their worth usually increases over time.

I guess "over time" is the key qualifier here. One can lose money in precious metals as well by selling at the wrong time. The volatility is much less, granted, but Bitcoin is a much newer asset. I suspect that institutional and sovereign ownership will produce reduced volatility over time.

Cynthia Lummis, a senator from Wyoming and member of the new Senate Republican majority, has announced plans to introduce a bill establishing a federal Bitcoin reserve of 1 million coins. Given Mr. Trump's advocacy, this seems plausible.

Some of the comments are making use of a bit of a false dichotomy.

The middle ground between "it's all a bubble of worthless number patterns" and "it's the new era of monetary structure" is not having a small investment allocation instead of a big one.
The middle ground is being willing to believe that it might well have a huge market value far into the future--but appreciating that there is still no reason to hold any.

There are three types of things into which one can put money and sorta expect to get it back: money, investments, and capital assets. Bitcoin (and other crypto) is a capital asset, not money (as demonstrated ad nauseam elsewhere) nor an investment (as it can never earn anything or support any future coupon).

A capital asset can have a very high market value, and that may be true very very far into the future. No-one would suggest otherwise. But the salient distinction between that and an investment is that a capital good like a Tahitian pearl does not produce earnings, so there is no "present value" part of the value: the value is 100% nothing but supply and demand, present and future. Again, there is nothing wrong with that, and nothing at all to suggest that demand won't still be there a millennium hence. It just isn't an investment security.

The issue here is the one little detail about price of a capital good being determined by--and SOLELY by--supply and demand. In a steady state, the market value will be flat. No matter how finite the supply, no matter how coveted the good, the market price will not rise without demand increasing relative to supply. The price of bitcoin has gone up a lot in recent years, because (and only because) there has been a substantial increase in the number of people willing and able to part with funds in order to hold crypto coins at any given price. Yet there is no reason whatsoever to suspect that that process can continue indefinitely--it will top out, because it must, because the world population is finite. When it tops out, as it must, the price will stop rising, as it also must. Again, nothing wrong with that. The market value of paintings by Camille Corot has largely flatlined in the last century, but they still fetch a hefty price.

The problem arises when you note that, when they're being honest, essentially 100% of all holders of bitcoin (or other coins) are holding them on the expectation of being able to sell at a higher price in future. They have mistakenly been thinking of them as investments. Yet per the reasoning above, that process will definitely stop. When it does, those people will be disappointed. After some unknown period of no net price change, it will be considered "dead money" and one assumes that a lot of people will want to invest in something else they think will go up...presumably prompting them to start to sell crypto at the margin rather than accumulate.

So, despite my being willing to grant that there will be a meaningful market value for bitcoin far into the future, and that the things described above might take decades to unfold, the simple observation that it's a purely capital asset leads you to realize, by the reasoning above, that demand WILL top out, and with it the price, which will almost certainly then start falling as its new long term trend. Since it's not an investment, there is no investment value (present value of future supportable distributions) to set any floor at all under the price. It could drift sideways, or it could trend to zero, but it definitely won't keep rising indefinitely. Consequently it seems to have a demonstrable natural price limit to the upside (when everyone who will ever want one has one), and no natural limit to the downside. The downside might be a little below the peak, or vastly below, but the up trend will end, and with it the only reason that all holders hold it. Then what?

So, the sensible middle ground conclusion is to believe it may well have a very high market value long into the future, but still not to bother playing the inevitable up-then-flat-then-probably-down price elevator. Not the conclusion that a small allocation is the middle ground between the extremes of fandom/abhorrence. I'm fully willing to stipulate that Corot paintings will hold their value an indefinitely long time into the future, but I don't need any at all in my portfolio, as there is no solid reason to think that any finite interval of an uptrend in price will continue.

Jim

So, despite my being willing to grant that there will be a meaningful market value for bitcoin far into the future, and that the things described above might take decades to unfold, the simple observation that it's a purely capital asset leads you to realize, by the reasoning above, that demand WILL top out, and with it the price, which will almost certainly then start falling as its new long term trend.

This might be true, I don't know, but it doesn't seem to have happened yet to gold, also a capital asset with no earnings or coupons, which has been around a long time. Monet's Meules sold for a record $110.7 million five years ago, double its pre-estimated value of $55 million, and he's been dead nearly a hundred years. Maybe the durability of demand depends on the quality of the asset.

A sated world population suggests a static world population, which, of course, is never the case. There is always a new generation coming along, providing fresh demand for many things.

In any case, even if it is true, if the main threat to Bitcoin's price is sated world demand, I would guess, as you say, that it's far off in the future. Corporate, institutional and sovereign demand are just now ramping up. The demand curve looks to be at a relatively early stage.

This might be true, I don't know, but it doesn't seem to have happened yet to gold, also a capital asset with no earnings or coupons, which has been around a long time.

Actually, yes it has. The cool thing about bugs liking to hold gold is the conceptually beautiful inherent contradiction of their reasoning: on the one hand, they like the fact that gold tends to hold its real purchasing power (despite a lot of transient squiggles) over extremely long time frames, which is pretty impressive. On the other hand, they want to make money, which isn't possible because the purchasing power of gold has been flat for millennia.

It has reached the point that, barring some cyclical squiggles, everybody who wants gold already has it, so the price is net flat over remarkable time frames. (some gets dug up, some gets dissipated, but both of those are pretty small relative to the mainstream gold market of folks just holding the same-old nuggets and trading among themselves).

Nobody sane holds gold because of the long run up-trend in price (real purchasing power), because there plainly isn't one. It has charms that bitcoin doesn't, like being pretty and some valid industrial uses, but its use as a speculative asset forever has the same problem: without continually increasing demand, there is no prospect whatsoever of continually increasing real price.

Without any prospect of a continually increasing price, bitcoin (without any of the several relative advantages of gold) will struggle to have ever-increasing demand, or even constant demand, from prospective holders. There is nothing wrong with that. A finite demand can support a substantial price, granted. But at some point, once price tops out when demand tops out, a lot of the putative reason for holding will be more obviously hopeless.


In any case, even if it is true, if the main threat to Bitcoin's price is sated world demand, I would guess, as you say, that it's far off in the future. Corporate, institutional and sovereign demand are just now ramping up. The demand curve looks to be at a relatively early stage.

One hears that a lot from fans. There is soon-to-be-unlocked incremental demand from XXX and YYY. OK. Even to the extent it's true, there are only a few XXX and YYY left. The list will end. Then what? Besides, most sources of plausible future incremental demand are institutions trying to make a buck on hidden end-user demand, which is already relatively saturated. The middlemen will at some point be due for a shakeout.

Bottom line: Nobody holds it except those expecting the price to go up. Some more individuals or institutions may join in on that idea, but the rising saturation will end, and with it the rising price trend. Sure, it could stabilize at a high price, no argument. It might even have some remaining merits as a store of value at that point. But I would remain quite skeptical of the long run price trajectory when the #1 reason people and (by extension) institutions hold it--expectation of rising price--no longer applies. Without the main reason to hold it, why would you? Without that demand from greed for profits, what holds the price up? More to the point, if you KNOW that the heat-death of rising future demand is coming sooner or later, which seems pretty obvious, why play the game now? A momentum play like a meme stock? As always, the exit can get crowded, and it's rare to have a solid reason to think you're smarter than the average bear.

In short, the only reason to hold it, being a capital good, is because the price has been going up from rising demand. We've all seen how that story always ends. *Always*. Some people will still want a Princess the Bear Beanie Baby and be willing to pay up for it, but most won't. The price rise will halt, and peak.

None of the above suggests that the price of bitcoin is going to zero any time soon. But when you think about it--you know the incremental demand driving the price rises will halt, MUST halt--there is no other sensible reason to be a buyer or holder. The price of *any* static capital good will rise so long as demand rises relative to supply, but that trajectory must end for every one of them. The *only* reason to hold is a rising price, and we know that this only reason to hold is going away.

And, needless to say, the belief system underpinning the "story" could entirely falter and collapse rather than merely topping out. At that point the price of bitcoin will be a function of its true underlying utility (SFA for lawful use cases), not a pleasant thought for current holders.

Jim

Maybe the best comment re Bitcoin comes from Saul's board on the new TMF website. There this question was asked:

What needs to happen before it will be ok to discuss Bitcoin ... ? The best performing large stock in the last 4 years is not NVDA - it is a stock we are not allowed to discuss.

Which received this answer:
So what are you going to discuss? The earnings? The cashflow? or the Revenue?

I have nothing to add (as Charlie says).

It has reached the point that, barring some cyclical squiggles, everybody who wants gold already has it, so the price is net flat over remarkable time frames.

Us Indians are furiously making more Indians to take care of precisely that problem.
As long as a "soft dowry", in the form of bedecking the bride in gold, persists in Indian weddings, and Indians' purchasing power keeps going up, demand will keep increasing.

it does seem the the growth utility of bitcoin is in those 'entrepreneurs' that want to expand their criminal empire, and thus want\need to transact in such at increasing volume.

so yes, the potential for 'B2B' criminal trade does lean towards a long runway for bitcoin. it is more practical than gold, which is russia's preferred method to settle accounts. and it should not surprising that some of mainstream finance wants a piece of the bitcoin action, whether they justify it as a momentum trade or whatever is the most palatable.

however, was soon as you start going down the chain to those that are doing actual criminal work, there is an immediate request for normal goods and services for their efforts. and what is being requested for this?
that's right, the 'worthless' dollar. the very same that u.s. investors request when wanting to monetize their own bitcoin.

This (price topping out) might be true, I don't know, but it doesn't seem to have happened yet to gold, also a capital asset with no earnings or coupons, which has been around a long time. Monet's Meules sold for a record $110.7 million five years ago, double its pre-estimated value of $55 million, and he's been dead nearly a hundred years. Maybe the durability of demand depends on the quality of the asset...The demand curve looks to be at a relatively early stage.

It may have happened with gold already. Gold's inflation adjusted price is still below the 1980 peak (around $3100 in today's prices). Same with silver. It is possible gold will not return to its inflation-adjust peak price within living memory of the people who experienced it. That's us, boyos. I'm saying there is a good chance we will all be dead before we see gold prices that high again.

On the topic of Monet, consider three artists who were active at about the same time as him:

Ernest Meissonier was the highest-paid painter of the 19th century, with his meticulously detailed military scenes selling for astronomical sums. Today he's largely forgotten outside of specialist art history circles.

Jean-Léon Gérôme was one of the most famous painters of his day, known for his Oriental scenes and historical paintings. His work commanded huge prices and he was considered one of the most important artists of his time. Similarly, he's a mostly footnote today.

Vincent Van Gogh was a commercial and critical flop during his lifetime and only sold a few paintings (maybe a as few as one).*

If we were in 1890 discussing which artist would have enduring value, we certainly would not have picked van Gogh. Buying gold and silver was a mistake in 1980.

We could be early in Bitcoin's demand curve. Could be at the peak too. We might be dead before we find out which.


*After his death, his sister-in-law Jo van Gogh-Bonger inherited his collection. She developed and expanded relationships with museums and dealers (her late husband Theo and Vincent's brother was an art dealer) and otherwise promoted van Gogh's work, including in America. After her death in 1925, her son Vincent Willem van Gogh continued her promotional work. By the 1950s and 1960s van Gogh paintings were selling for high prices. Even talent spotting might not be enough to identify an enduring asset, unless you can also talent spot the PR team.

Thought I'd share a bit from Bernstein's second edition of "Four Pillars of Investing"

"late antivirus entrepreneur John McAfee opined in 2017 that if Bitcoin's price did not reach $500,000 by 2020, "I'll eat my dick on national television," a losing bet he thankfully reneged on."

B-2-B is becoming C-2-C

It may have happened with gold already. Gold's inflation adjusted price is still below the 1980 peak (around $3100 in today's prices).

It may have. Also, maybe not. Forty years in the history of gold and humans is not a lot. If I pick a start date more convenient to my argument and less convenient to yours, say, the early 1970s, today's price would be well ahead of the inflation-adjusted cost, if still not much of a return next to stocks. CNBC had a throwback bit today claiming SPDR Gold (GLD) shares are up 442% over the past 20 years. I haven't checked the math. My point was not that gold is a great investment, only that demand may not be sated.

If we were in 1890 discussing which artist would have enduring value, we certainly would not have picked van Gogh.

It is true that picking long-term winners in the fine arts is difficult. I was responding to an argument that all capital assets reach a point of demand saturation buttressed by reference to the works of a single artist. So I mentioned a different artist whose works continue to see increasing demand 100 years after his death. Again, this was not investment advice, just a response to a theoretical claim.

We could be early in Bitcoin's demand curve. Could be at the peak too. We might be dead before we find out which.

Anything is possible, although the fact that Bitcoin is 15 years old, has increased in price from less than a penny to roughly $90,000 in that relatively brief span, and has only recently been made available to investors through traditional market vehicles, seems to me to make the peak demand case require some sort of evidence. As I mentioned, the fact that prominent Republicans are talking about a substantial U.S. federal Bitcoin reserve would suggest the opposite, as would non-U.S. entities eager to escape U.S. dominion (sanctions regimes) tied to the dollar.

In any case, I was responding to a rant suggesting Michael Saylor of Microstrategy was a swindler of some kind. I probably shouldn't have; this board is an unreceptive audience and Bitcoin is off-topic here anyway. My bet on MSTR has worked out so far, the price jumping again today on news Mr. Saylor added more BTC to its balance sheet. For geopolitical and other reasons, a new digital currency (or currencies) makes sense to me, but, as Dennis Miller used to say, that's just my opinion, I could be wrong. :)

CNBC had a throwback bit today claiming SPDR Gold (GLD) shares are up 442% over the past 20 years. I haven't checked the math. My point was not that gold is a great investment, only that demand may not be sated.

Demand goes up, demand goes down. Greed goes up, greed goes down.

My original comment was a bit longer term. You can get a nice set of gentleman's clothes for an ounce of gold, as you could on average in almost any of the last 25 centuries. The current position in the current cycle isn't really the point--gold has, quite impressively, held its real purchasing power on average over very long intervals, if you squint a bit.

And, by extension, it hasn't gone up in value.

There may be a squiggle up soon, or a squiggle down, but there is no particular reason to think that the purchasing power will go up on trend.

Jim

Do you trust Tether? I don't. If there is a Bitcoin sell off ...

Does the collapse of Bitcoin present any kind of new-fangled risk for traditional investors in actual securities? Does it depend on how high it goes before the fall?

Baltassar

Does the collapse of Bitcoin present any kind of new-fangled risk for traditional investors in actual securities? Does it depend on how high it goes before the fall?

Interesting question.

To simplify a bit, it's a zero sum market. If the price of Bitcoin collapses and even disappears, it is in effect just a big transfer of wealth from one group to another. A lot of money would have been moved, net, from small punters late to the game and dumb institutions and Microstrategy shareholders to some hucksters and thieves and early adherents who lightened up (and a few smart but endearingly fearless folks who are short), but the total amount of wealth in the world would be entirely unchanged. The amount of money moved (net) from one group to another is vastly smaller than the nominal "market cap" of bitcoin.

The wider damage would be limited to the secondary fallout from the losers. Lower purchasing power among people who just lost their savings, defaulted-on bondholders of Microstrategy, and so forth. I think this would be unpleasant in a few places but not at all Lehman-like. It could have secondary "reflexivity" effects on sentiment. It would be a hit to the wealth effect (a certain population would feel poorer and react accordingly), though not to aggregate actual wealth.

In terms of markets, one would not want to be long non-bitcoin things that aggressive bitcoin holders tend to own a whole lot of. Some will have bought on margin and will sell whatever they can, causing the prices of those things to come under pressure.

Jim

There is also the anti fragile approach to Bitcoin: try to profit from its collapse.

e.g. buying put options on MSTR ($30 strike, 2027 expiry).

Rational: When the current flows into bitcoin dry up and the only reason people are buying (it’s going up, buy it) goes into reverse (it’s going down, sell it all),

You will make 7.5x when MSTR files for bankruptcy. You may not even have to wait until 2027 once the Trump sugar rush fades, as it becomes apparent he can’t get any of his more radical ideas through both houses of congress within the two year window.

I am buying a small amount of such puts once a month for the next year. Just for fun.

Features of MSTR:
3 times book!
Book is Bitcoin!
The average price of their bitcoin continues to increase with each wave of buying.
When bitcoin falls, they have to sell Bitcoin to pay back the convertible bonds in USD.
When the wheels eventually come off, the unraveling will be extremely fast.

Now that IBIT has options theres a multitude of ways to speculate on up(or down)side

There is huge call skew(calls more expensive than puts, usually the other way around). Because BTC has no sales, earnings, or book value and no ability to value the asset. Only upside speculative potential, hence call skew.

Any option strategy would have to mitigate this high IV and skew.

e.g. buying put options on MSTR ($30 strike, 2027 expiry).


You will make 7.5x when MSTR files for bankruptcy.

Looks like you would not sell at any lesser profit?

e.g. buying put options on MSTR ($30 strike, 2027 expiry).

Importantly, it limits your down side.


On MSTR. If they are buying a Billion in BTC every day at a 50% margin, it won't take long to grow into their valuation.


I sold some BTC yesterday. It has grown to be an uncomfortable size in my portfolio. Today I bought it back and a little more by selling TSLA options I owned. The setup just seems so perfect. No margin. Waiting for Mungo to capitulate ... that'll be the top.😃

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