Tag: BTC

Categories
crypto

Bitcoin, Ethereum, the stock market and the war

There is a tremendous amount of talk about the value of crypto compared to stock prices and especially since the beginning of the Russian invasion of Ukraine on Feb. 24, three weeks ago today. So I did a comparison of how Bitcoin and Ethereum are doing compared to the S&P 500, and the results are quite surprising.

As the starting date of comparing the two benchmarks of crypto, Bitcoin and Ethereum, with the most widely used gauge of stock markets, the S&P 500, I took the date of Ethereum's IPO on Kraken, Aug. 7, 2015. Completely arbitrary, of course, but I could hardly take a date from before Ethereum existed. To avoid making too long a row, I went on to look at the prices on Jan. 1 of this year, then Feb. 24, which was the day of the invasion three weeks ago, and today's position.

I understand that it is debatable to compare an index of 500 largest stock market funds to two cryptocurrencies. But the S&P 500 constitutes about 70% to 80% of the market value of U.S. exchanges. Bitcoin and Ethereum together represent over 60% of the entire crypto market of nearly $2,000 billion. Hence the choice of Bitcoin, Ethereum and the S&P 500.

First, let's look at Bitcoin:

Bitcoin:

  • August 7, 2015: $276
  • January 1, 2022: $47686
  • February 24, 2022: $35000
  • March 17, 2022: $41000
  • Percent increase between Aug. 7, 2015 and today: 14755%

Anyone who bought Bitcoin for $100 on August 7, 2015, had received 0.36 Bitcoin for it, and those are worth nearly $15,000 today. In short, 150 times your deposit back on every dollar.

Since January 1, Bitcoin has fallen 14%; the day of the humanitarian peace mission, cough, the drop was a whopping 26% compared to the first day of this year, but since then Bitcoin has risen 13% again.  

The second crypto to watch is Ethereum.

Ethereum:

  • Aug. 7, 2015: $2.77
  • January 1, 2022: $3683
  • February 24, 2022: $2336
  • March 17, 2022: $ 2820
  • Percent increase between Aug. 7, 2015 and today: 101705%

Anyone who bought Ethereum for $100 on August 7, 2015 had received over 36 ETH for it, and those are worth over $100,000 today ($101080 to be exact). In short, that's over two thousand times your deposit back on each dollar.

Since Jan. 1, Ethereum has fallen 23%, but has rebounded 13% since the start of the war.  

Finally, we look at the main gauge of stock prices, the Standard & Poor's 500.

S&P 500:

  • Aug 7, 2015: 2000 points
  • Jan. 3, 2022: (because Jan. 1 fell on a Saturday, U.S. stock markets did not open until Monday, Jan. 3, those slackers): 4796 points
  • February 24, 2022: 4225 points
  • March 17, 2022: 4357 points
  • Percent increase between Aug. 7, 2015 and today: 119%

Since Jan. 1, the S&P 500 is down only 9% (compare that to Bitcoin and Ethereum) yet up 3% since the start of the war.  

Conclusions:

  • *opendoor alert* over the long term, think at least 5 years, Bitcoin and Ethereum have proven to be much better investments than traditional stocks - despite all the huge declines in between
  • this calendar year, the S&P 500 remains strong, compared to a 14% decline in Bitcoin and a chilling -23%decline in Ethereum
  • since the start of the war, crypto has risen more than the S&P 500, but 13% rise for cryptos against 3% rise for the S&P 500 is not particularly spectacular
  • the myth that crypto is immune to "normal" economic influences such as interest rate increases, war and rising energy prices has been punctured.

And this despite all the rumors that wealthy Russians have been stepping into crypto en masse in recent weeks, with all the assets they did manage to liquidate.

sources: Coinmarketcap, Google Finance and Yahoo Finance.

Categories
crypto

Those who cannot take their losses very well should stay out of crypto

The most frequently asked question of 2022 is without a doubt: how much money should I invest in crypto? Over the next few months, I will share how I try to build a balanced crypto portfolio with limited active trading. This is NOT advice. It is mainly to prove that it is possible to invest in crypto without reaching for your phone like crazy every second because you are afraid of missing the next hype or crash in Bitcoin.


In 2017, legendary investor Fred Wilson (Twitter, Tumblr, Zynga, Etsy, Coinbase, etc) gave this answer, based on the investor's profile:


- young, aggressive risk taker - 10% of net worth in crypto
- sophisticated investor seeking a high performing portfolio - 5% of net worth in crypto
- average investor, slightly conservative, but with some appetite for risk - 3% of net worth in crypto
- retiree seeking to preserve portfolio value and generate income - 0% of net worth in crypto

A detailed and careful answer. And, in my opinion, completely unnecessary. Some elderly people are incredibly well able to make a substantial dent because their house is already paid off up to and including the geraniums. While many young, aggressive risk takers have to sell their textbooks and become delivery drivers at Gorilla's when they get their memecoins see evaporate. Because I don't know any young aggressive knuckleheads who manage to limit their crypto gambling to 10% of their net worth, as Wilson advises. (I'd like to see more research on the investment decisions women make; are there still fewer women than men in crypto, or are they really just smarter because quieter about it?)

When people ask me how much to invest in crypto, I always answer with a counter-question: can you stand to see everything you put into crypto go up in smoke? Evaporate to nothing? Binance, Binance, alles ist vorbei? And just as important: will you get into a fight with your partner if you lose everything?

The couple lunatics go-getters who then remain always ask the same follow-up question: which crypto should I buy? To that question, too, Fred Wilson was kind enough reply to give:

"A diverse set of crypto assets would include Bitcoin, Ethereum, the other major layer one blockchains (Solana, Flow, Avalanche, Polkadot, Algorand, etc), the major Defi protocols (Uniswap, Aave, Compound, etc), storage protocols (Filecoin, Arweave, etc), telecommunications protocols (like Helium), some layer two protocols (like Stacks, Polygon, etc), some gaming assets (like Axie, Decentraland, etc), a maybe some NFTs."

Wilson sometimes forgets to indicate which of these companies he himself, or his fund Union Square Ventures, has already invested in. But that doesn't make his answer any less relevant. Previously, Wilson stated that he and his spouse have invested 5% of their assets in crypto, both directly and through funds.

In the coming months, I will share here how I try to put together a crypto portfolio using a more conservative methodology than Wilson. No gaming assets or NFTs for me, those are too difficult and time consuming for me to understand properly. I am in crypto for the long term and want to reduce all costs as much as possible, preferably passive HODL-end.

Summary:

1. I am convinced that "something huge" will come out of crypto innovations. Decentralization and transparency bring an intrinsic new value that cannot be achieved in other ways.

2. I believe strongly in the crypto market, but I don't have the guts to assume I can pick the winners. This has proven difficult with every disruptive advance in technology. The challenge is to identify potential winners early.

The plan is to buy layer 1 tokens in proportion to market cap that are as Proof of Stake as possible, i.e. have lower energy consumption than Bitcoin. It has the disadvantages that Ethereum will be over-represented (well over half of my crypto portfolio) and that I will always get fast-growing hypetokens into my portfolio too late.

Of course, everyone dreams of that one stale token that rises 45 million percent in value, like Shiba Inu did in 2021. Whoever bought SHIB for $100 at 1 minute past 12 on Jan. 1, 2021, and sold them again in December, got to credit over $45 million. But I would then fret about the right time to sell, which is why I avoid these tokens.

My goal is to eventually have at least 100 tokens in my portfolio that each have a minimum market cap of $1 billion. The crypto market is not that big yet. Preferably I will automate all trading through a liquidity pool, but more on that in the coming months. In any case, the goal is to make the portfolio transparent for everyone. And it is explicitly not investment advice. It just needs to make clear that it is possible to invest in crypto without reaching for your phone every second like a crazed neurotic for fear of missing the next bitcoin swing.