Switch how you think about Bitcoin and profit – Evercoin Blog
Think and Grow Rich (peak o the nib to Napoleon Hill)
Ter this article, I will instruct you a way of reasoning about Bitcoin price movements that will:
- Make you rich
- Help you predict price fluctuations better
- Help you diversify your holdings sensibly
The usual caveats apply, this article does not constitute investment advice.
Skip this section if you just want to read and be entertained. If you are like “who the F are you?” read on. =)
I’ve bot te Silicon Valley for 25 years and am a LP with Pantera Capital’s ICO Fund, I’m also a founder of Cryptocurrency startup http://evercoin.com
I got te on ETH at $13 USD. I know it’s not that amazing, and I know it just means I’m fortunate.
I am one of the organizers of the Advanced Crypto Asset Trading group on Facebook and wij have a regular meetup ter San Francisco called “Crypto Underground”. A number of the ideas te this lump are sourced from numerous conversations with people te this group, and so I desired to acknowledge the debt to this group for a large diversity of mindsets which I describe here. I’ve bot doing the circuit of Blockchain conferences including Blockchain Summit most recently, and have embarked signing up to speak at more of this kleuter of event.
I am heading to Zug Switzerland on Saturday on the Crypto Valley Journey blogged by Fred Wilson. Anyhow I feel like I am fortunately a part of a loterijlot of tribes right now who are talking about Bitcoin and I want to share this skill.
People are telling truly stupid things right now
People are printing articles that say the stupidest things about Bitcoin prices like comparing Bitcoin prices to Moore’s Law or to Tulips or Gold. Spil far spil Moore’s law, it concerns the doubling of transistor density on microprocessors at the same price point. The analogy is nonsensical — the only correlation is to talk about a doubling interval which is a property of exponential growth.
Is Bitcoin indeed worth 3x the price of Gold?
Telling that Bitcoin has reached “three times the price of gold” is just exceedingly stupid since you are comparing an arbitrary unit of Bitcoin to the price of an ounce of gold. If you compare the total market cap of bitcoin (today about $56 Billion USD) to the total value of all gold (today about 8.6 Trillion USD) you are on more solid footing. If you want to compare Bitcoin to gold it’s clearly NOT “three times more valuable” Gold is actually one hundred and fifty three (153x) times more valuable than Bitcoin.
If you take the analogy of Gold, this suggests that if Bitcoin achieves the value of Gold (8.6 Trillion) spil a store of value, the price of bitcoin will go up by a factor of 153x which would result ter a price of 519,516 US$ (overheen half a million dollars) vanaf Bitcoin. If it were truly worth “three times” the value of gold, the price vanaf Bitcoin would be overheen 1.5M USD.
So Bitcoin is digital gold?
I’m not telling that this is how you reason about the price of Bitcoin — I’m merely pointing out how insanely stupid many people are te reasoning about the price. The author of the article that asserts that Bitcoin is 3x more valuable than gold is off by three orders of magnitude (today off by 459X).
I’m going to use the word “Bitcoin” te this article for simplicity’s sake, what I am asserting is generalizable to most cryptocurrency assets, Bitcoin just happens to be the largest by volume (on most days) and by market cap (on all days so far).
Bitcoin isn’t anything you’ve everzwijn seen before
Bitcoin is not gold.
Bitcoin is not a tulip.
Bitcoin is not a microprocessor.
Bitcoin is not a currency.
Bitcoin is not a stock.
Bitcoin is NOT anything that you’ve everzwijn seen before. By definition. Read the Satoshi Nakamoto white paper.
I’m going to assert “none of the above”. I realize that’s powerless, but it means two essential things:
- The behavior of systems te the past (gold, tulips, microprocessors, stocks, currencies) is at best an imperfect and conflicting set of metaphors that will predict outcomes ter Bitcoin.
- Since wij have no unified way to reason about how Bitcoin will behave, the price of Bitcoin will be governed by tribes that represent different mindsets, and the price will reflect a sophisticated amalgam of their beliefs and the total trading volume (by dollar value) on any given day.
So at some level, the reaction is not only “none of the above” but it is actually “all of the above”. This means that every metaphor presently te popular use represents the mindset of a nonzero sized “tribe”. There may be some ridiculous metaphors whose tribe is restricted to the one person who wrote the article and nobody else. But let’s explore some of the major tribes next.
Who are the tribes that govern Bitcoin’s price?
Metaphor Bitcoin is a ForEx (Foreign Exchange) currency.
Mindset: Technical Analysis
Description: Technical analysis will predominate their behavior. The technical narrative is exemplified by the views introduced on https://www.tradingview.com. If you immerse yourself ter this tribe you will see phrases like “Support Level”, “Resistance Level”, Ascending/Descending Triangle(s), “Cup and Treat formation” and other tradeable signals. The time frames where thesis narratives play out is often days and weeks, and indeed there are many traders who represent significant capital ter Bitcoin. So this is one tribe with a meaningful narrative.
Metaphor Bitcoin is a security system
Act: Exploit Vulnerability
Mindset: System Invasion
Description: This is a meaningful but heterogeneous tribe that operates te numerous styles. At the most superficial level are “street level” scammers, who simply troll ICO slack channels and postbode false bitcoin addresses and the like. Behavior like this only serves to mildly suppress the price of Bitcoin, spil the reputation of Bitcoin spil a toevluchthaven for scams. More meaningful influence can include “high level” scam artists who themselves create ICOs. Possibly even more meaningful exploitation and manipulation is happening at higher levels including pump and dump groups. I’m aware of telegram channels with thousands of participants which initiate “pumps” on low market cap coins and trigger “dumps”. This form of exploit is hard to execute on a large market cap coin like Bitcoin, but if you’re trading lower market cap assets, please be aware this is happening. Bitcoin itself may be vulnerable to “spoofing” attacks, made famous by a legendary entity called “Spoofy”. “Spoofy” supposedly has enough volume to place $60 million dollar trades, which is certainly enough to market make on an exchange. One latest market mover wasgoed Bitcoin Specie, which could be viewed spil an exploit.
Metaphor Bitcoin is an Open Source Community
Mindset: Software Development
Time Framework: Months to Years
Description: This group views Bitcoin spil an Open Source project, and acts accordingly. The place where this narrative has bot vooraanstaande is around August 1st the timeframe of Segwit lock-in. This tribe looks at the software technology fundamentals and invests accordingly. Things that matter to this tribe are the credibility of the core development team, the size and support of the developer community and any upcoming technical challenges including forks. One place where you might see this narrative holding a suppressive influence on price is ter the case of Ether. There is an upcoming version of Ether called “Casper” which implements a “proof-of-stake (PoS)” mechanism for governing the chain. Proof-of-Stake is also the supported governance mechanism for Tezos, which may be very first to market. The intriguing possibility with PoS is that it essentially “forks away” the influence of miners — the very source of the latest (and upcoming) Bitcoin Fork depressie. This is a very high influence group spil can be seen by the latest rally of Bitcoin’s price after August 1st.
Metaphor Bitcoin is a global-class reserve currency
Mindset: thesis investment
Description: This is a remarkably influential tribe ter Bitcoin, and this tribe defies conventional narratives such spil “ForEx” traders. It’s called HODLing because of this Bitcoin Talk postbode called “I AM HODLING” To some extent the meme of HODL has become a battle sob that cryptocurrency HODLers use when they encounter volatility. Other memes predominate the HODL narrative including this amusing description of Bitcoin volatility.
It’s bot rumored that “Satoshi Nakamoto” the creator of Bitcoin has 1M Bitcoins that he is HODLing. The truth of the matter is that there is no “Satoshi Wallet” that contains 1M Bitcoins. The prominent narrative te the HODL community is that if Bitcoin is a global-class reserve currency, it could increase ter value by more than 100x.
Another meme associated with the Dogecoin community is the battle sob “to the Moon!”. This represents a crypto-maximalist mindset and informs HODLers te many crypto currencies including Bitcoin.
The unprecedented effect HODLers have on the price of Bitcoin is that it sets a “price floor” since there are a group of investors who have determined to perform a multi-year long-term hold.
Metaphor Bitcoin is a startup
Time Framework: Weeks to Years
Description: This mindset actually may have a suppressive effect on the price of Bitcoin, because if Bitcoin is a currency, there will only be a few superior cryptocurrencies, but if Bitcoin is a stock, there will be many thousands of such stocks including many forks of Bitcoin itself. This means that those ter the investor tribe will diversity. The investor mindset is dictated by thesis, diligence, leading and following, and the objective to invest early te assets that appreciate more and swifter by percentage than Bitcoin. Wij are already watching that mindset te the explosion of Initial Coin Offerings (ICOs). A clever and bold investor can turn a relatively puny holding of Bitcoin into a massive fortune.
Metaphor Signal Processing
Act: Permit algorithms to explore the search space
Mindset: Investment Banking/High Frequency Trading/Quant
Time Framework: Microseconds to days
Description: An enhancing number of algorithmic traders are coming in this space including classical quant traders, algorithmic players, evolutionary algos, and fresh “Machine Learning” players. Since the blockchain is visible to everyone, the opportunities for gegevens mining and machine learning are vast. Spil far spil “trading signal” this group is worth watching. Spil trading volume from algorithmic players increases, the capability of human “Day Traders” to build up Alpha should decrease. Inexperienced day traders of cryptocurrency should consider throwing ter the towel, spil algorithms will likely be countertrading signals like emotion-driven investment “strategies” including FOMO (Fear Of Missing Out) and Scare Selling. Thesis bots have no emotions and will punch you ter the gut and take your lunch money.
7. Institutional Investors
Metaphor Bitcoin is an asset class
Time Framework: Months to Years
Description: At the uur Institutional Investors are mostly sitting on the sidelines — but wij are observing enhancing signs that there is a “wall of money” coming into Bitcoin because it is a fresh asset class. People who voorkeur it is “risky” do not understand the portfolio management mindset, which is essentially that risk is about exposure spil well spil asset holding correlation rather than the properties of any individual holding. There are many milestones inbetween today and when major institutions will be able to invest — not the very first being enhanced SEC regulation. More SEC regulation will make it safer for larger institutional investors to deploy large volumes of capital. Another analyst says that if Banks accept Bitcoin spil collateral, this will be another trigger for Institutional investment.
Description: My friend Sebastian Job on our Advanced Crypto Asset Trading group is to be credited for pointing this out: Geopolitical tribes. While there are many with different interests, I would throw them into several broad categories.
a) Troubled Fiat Currencies: Te countries like Argentina, the fiat currency is experiencing terrible inflation and devaluation pressure. Ter thesis circumstances, fiat value goes down and bitcoin value goes up.
b) Financially regulated countries: Many eyes are on the US SEC for their attempts to signal regulatory intent te cryptocurrency. The rigorous requirements could create chance for other locations such spil Switzerland, Singapore, Korea, Japan, Maldives and Gibraltar to name a few crypto-havens.
c) Russia: The influence of Russia on cryptocurrency is difficult to describe, and possibly the topic of a long chunk unto itself.
d) China: China is the source of many mining companies, so there is a lotsbestemming of hash power there. Because of the mining, China has lots of stockpiles of bitcoin and other cryptocurrencies. Another significant phenomenon to know about China is their history developing independent internet companies like Baidu, Ali Baba, Ren Ren, Tencent and many others. Because of the tendency for China to create and invest te their own versions of Internet services, there is a tendency for investors to buy into coins such spil AntShares/NEO which is touted spil the “Chinese Etherium”.
Metaphor: Bitcoin is money
Description: This group is motivated by irritation, annoyance, disgust or general resistance to centralized financial institutions and ter some cases governments. Trust ter Banks and Governments (and collusion inbetween them) is pulling down and the emergence of Bitcoin Debit Cards is fueling an unbanking movement that has some people getting paid their salaries ter Bitcoin and living their entire lives on Bitcoin. While presently a petite fringe factor, the geopolitical pressures may cause this trend to increase.
Since Bitcoin and Cryptocurrencies are fresh, there are many historical mindsets that fail to describe reality. That said, it’s not meaningless to look at each of thesis lenses and understand how they will affect the price. At different timeframes, one of thesis narratives will be prominent — so for example during the August 1st window for SegWit lock-in, the technology fundamentalist narrative wasgoed the vooraanstaande narrative, whereas before that, the superior narrative wasgoed the Trader narrative. My private treatment to cryptocurrencies hybridizes all of thesis tribal mindsets and looks for ways te which the influence of tribes waxes and wanes at various times.
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