Cryptocurrencies

I was far too skeptical on the crazy ride to the top and frankly missed the easy money because I am too old in my ways (hopefully for better than worse). I fought it and fought it and fought it and never invested anything. Now that we are on the backside of the move (at the time of writing at least) I have begun trying to trade it and develop strategies for it. A large part of its legitimacy is the futures contracts hosted on actual trading exchanges. I do not trade it on these hacked exchanges put together by some ambitious software developers trying to cash in a on a fad. I only focus mostly on the big two: Bitcoin and Ethereum. Most of the volume tends to be in these and the whole market seems to be highly correlated so no point in owning some of these smaller crap cryptos except for lottery ticket type plays which is not my style. Since I have dove head first into this community I have often wondered quite a few things that I will discuss below as the market matures. The idea of crypto is rooted in good ideas but the execution seems to be awful consuming ridiculous amounts of energy to produce a digital asset making it almost impractical to maintain at this point. I do like smaller government intervention but having a central authority to validate or back the money we use seems to be a good idea? Maybe I am wrong (it has happened before). Here are some other musing I have in the space.

  1. Will it exceed $20,000 or hit $0 first?
  2. Can it replace Gold?
  3. Will it be taxed?

Will it hit 20,000 or 0 first?

I think technically this market is cooked and heads to 0. I do think some external event could create some buzz in a second for this counter argument. What would happen if a major bank is hacked or we find out there is no gold in any of the worldwide vaults or if the central banks lose control of this crazy game they play? I think if something crazy were to happen we could see an overnight surge in these coins and for that it is probably worth holding some no matter what. A quasi black swan protection trade is probably what gets it to 20,000 before 0 otherwise it is a slow death as the last bag holders grip onto their dreams of early retirement with no work!

Can it replace Gold?

Can it become the new ‘risk off’ safe haven? I do not think so. Gold has actual industrial value so in a post-apocalyptic world Gold still has value whereas Bitcoin cannot operate without electricity and ironically Gold can be used to conduct electricity. Can Bitcoin steal some market share in a pumped up economy? Probably more plausible but not something I would bet substantially on. I would be very interested to see pairs trades or switching strategies between the two assets and could be a point of future research for me. I wonder if it will become an integral part of professional portfolios as it does provide some negative or uncorrelated returns to traditional assets. If you come across any interesting articles please forward to me.

Will it be taxed?

Yes! The government money killing device is now giving a portion to the government. Oh how powerful governments truly are. The taxing has already begun with CoinBase having to or agreeing to disclose customer accounts to the IRS. Personally I will gladly report any crypto gains to avoid an audit and I think this is prudent for other traders too but of course there are always those greedy bastards and I cannot wait to see the first crypto tax evasion case casualty of war. Most likely will be a super star like Jon McAfee (who still claims Bitcoin will be $500,000 per coin or he will eat his own…).

Crypto Trading Software

This is an update to the original post because the primary algo trading software that I use, BuildAlpha, now has support to create crypto trading bots and strategies. Dave continues to upgrade the software as the trading markets evolve and recently added integrations to live data from Binance.

Disclosure: I own some for lottery purposes but I fully expect them to go to 0. Why am I holding? Fear of missing out.