What follows is our screaming-from-the-roof-tops bullish case for investing in the crypto-currency market this quarter, as well as a description of the challenges we have been helping people with over the last year, and how these challenges have helped us to develop our Haystack10 Top 10 Index-based Portfolio Service.
I started investing in the crypto-space in late 2017, and managed to turn $6,000 into $35,000 in the last quarter alone, and as Bitcoin rocketed through $15,000, I reversed course and started buying into longer term assets like mining because I knew what was coming. Thrill and euphoria were everywhere (See: Wall Street Cheat Sheet). In fact, we were advising clients and anyone who would listen to be cautious buying directly into the market after Bitcoin screamed through $15,000 USD. Fun Times. Now, everything sucks. You were warned. The obligatory Bitcoin is Dead articles are coming out every other day as we languish below $7,000 USD. The depression in the comment threads and FB posts is palpable. All our alt-coins are down generally more than Bitcoin itself. Everything sucks. Everyone is depressed.
This is EXACTLY what we were waiting for.
All of this has happened before. All of this will happen again.
I get a kick out of all the times I hear about Bitcoin being too volatile. While there is a case to be made that using Bitcoin and/or crypto as a payment channel is negatively impacted by volatility, the market is already solving for that with products like Coinpayments that will revert to fiat daily for all, or in part, of that day’s sales to make sure companies with low margins can pay their bills. For investors, volatility is the whole point! Bitcoin runs through major hype cycles fairly regularly, and experiences corrections multiple times a year. We’ve watched far too many people succumb to the monkey-mind fallacy of buying greed and selling fear. We know this market is dangerous for novice investors, and we have created a service to help people actually win long-term while avoiding the pitfalls of human psychology, and the timing just couldn’t be better! The retail market is afraid. The retail market is depressed. BUY, BUY, BUY. It’s no surprise that a couple weeks after we announced our Index Fund Portfolio Service Haystack10, Coinbase announced its Index Fund for accredited investors wanting to invest between $250,000 to 20 Million (our minimum is only 10k USD). Even institutions like Goldman Sachs, Morgan Stanley and even JP Morgan, once extremely critical of the space, have opened trading desks for crypto-currency. The big players all see whats coming, and they know when a market cycle is bottoming. This has all happened before, and it will happen again, but this time with 20 trillion dollars worth of institutional equity all over the world.
The mining break-even cost is likely creating a floor for price. In this article they discuss the new Fundstrat analysis metric. Fundstrat has proposed a new bitcoin metric called the Price / Miner’s Breakeven Cost, or P/BE. It’s very compelling and has some really fun implications. The difficulty in bitcoin mining will always go up as more computational power is applied to the network, so effectively price will operate as a function of network hashrate, which increases exponentially. Note how the P/BE chart follows the regression analysis chart that has been predicting the price of BTC with high accuracy from 2014. We believe this is primarily a function of the expression of Metcalfe’s Law where network valuation is the square of its users, and of the macro-economic reality that Bitcoin has a production cost that is tied directly to its pre-programmed digital scarcity model. In plain terms, the price rarely goes under the break even price for mining, nor does it stay there long, and that price will tend to always increase with the increasing difficulty over longer periods of time.
And never forget Metcalfe’s law, which in the crypto-space equates to: new bitcoin wallets, and new people who want to own some are coming into the space daily. Every new wallet increases the value of the network exponentially.
The bullish case for bitcoin and crypto-currrency has not changed one bit.
Halving events are reducing supply entering the market in a highly predictable way at the same time that new people are still entering the market place even while BTC is correcting. Think of these halving events effectively doubling the mining difficulty in the space of a single minute every 4 years. This has increased the price by almost an order of magnitude the first two times it happened. (See Below) We are seeing a high degree of correlation between bitcoin price and the rest of the crypto market this quarter, and we believe that at least, for the time being, this will remain linked. Bitcoin is the reserve currency in the space, so as she goes, the rest will, at least in part, follow. The next halving event is mid-2020. Our goal is to have as much in place as we can before that happens!
The fundamental bullish case lies with Bitcoin being the ultimate store of value, Gold 2.0 times the internet! It’s un-censorable, un-hackable and is imbued with digital scarcity. There will only ever be 21 million Bitcoins, and they will come into the market place at a slower and slower pace, driving the price up with basic supply-and-demand. It doesn’t see borders, it allows anyone to send any amount of money to anyone on earth for pennies, and again, the digital scarcity drives price up as new people (money) comes into the market, and as the halving events start limiting supply. It’s a good thing a single Bitcoin can be split into 100 million usable bits because…
Institutional money is coming!
While this was being written, we got the news that Coinbase is launching their custodial service for institutional investing firms, solving their largest challenge to getting into the crypto space. By the end of 2018, we will see multiple custodial services handling institutional clients all over the world. This is the path to trillions of dollars entering the crypto market, forcing market capitalization to increase geometrically at least, and likely exponentially.
“Every major bank is trying to do something in the space. Either they’re going to be offering bitcoin to their clients, they’re working on a custody platform or they’re opening up a trading desk. A deeper institutionalization of bitcoin is overall positive,” Bogart said.
The wave is coming that will dwarf the expansion of the economy after the advent and roll out of the internet. However, novice investors will lose money even in this monster coming market. We are going to help as many people as we can.
Haystack10 solves some glaring problems for average investors.
The biggest challenges we have seen in the crypto investing space over the last year have been pivotal in helping us develop Haystack10. I’ll run through the major pain points, and how we are solving for them with our Portfolio Service.
Fake ICOs, or just plain crappy ICOs?
If we had a dime for every green behind the ears investor in crypto who asked us what the next 10,000% gains ICO would be, we would have a lot of dimes to trade in for Bitcoin. Here’s what we would have to answer: “Yes, there will be super performing ICOs in the future, but its near impossible to know in advance which ones will succeed, and which will be lost to the dust bins of history.” Even among more established projects, investing in this market is like finally having access to the Silicon Valley start-up sector, where 90% or more companies fail. The ICO sector is likely ten times riskier, so if you’re ready and able to invest in one hundred projects at a time, you can be assured of winning, and if you manage risk properly, you can even have a decent credible certainty level of creating profit. Also, we read whitepapers and a dozen articles before breakfast daily, and there is no way we are going to spray and pray in the ICO sector. The main reason I started back testing top ten index algorithms and trading strategies in the first place is because I wanted a math and data driven solution to help people create alpha with a much higher degree of certainty and a built-in risk management strategy. When the numbers for one of the tests came back, the index fund was the clear winner, and we knew we were ready to start sharing Haystack10. Put plainly, our system is the most balanced and risk averse way we have found so far to create the most gains statistically possible based on a back test. No one knows for sure what will happen, but we feel our system will be able to help anyone create extra-ordinary gains when the crypto market expands past 4 trillion mark towards the 20 to 40 trillion mark that we see as likely in the next 3 to 10 years. The assets we invest in will only be the ones that are already winning: The Bitcoins, the Ethereums and Litecoins: the future blockchain versions of Facebook, Amazon, Netflix, and Bank of America.
Novice traders buying greed and selling fear.
On top of questions about ICOs we get messages every single day from “average joes,” who after 2 weeks of investing back in 2017, would be expert swing and day traders. You could literally throw a dart at the entire crypto market in late-2017 and win. This made people stupid. We actually know many traders that were actually losing money during the most heated bull market last year. Buying every giant green candle, selling every major correction at the bottom. Buying greed. Selling Fear. Now investors can check out our back-test, understand how and why it works, and let us do the work. And we can have a better answer for people who are losing money than “Please put the shovel down!”
Having to place your assets with a 3rd-party in the hopes of returns.
We got suckered. I feel the need to bear our soul a bit here. When we first started consulting, after getting asked for the 100th time “What should I do with my crypto investing!?,” we went looking for opportunities to increase their Bitcoin studying at least fifty companies before landing on two that weren’t clearly scams. We looked for evidence of work. We studied white papers. We got reviews from excessively successful people. Turns out, the only thing that counts is what you can see on the blockchain. We had a few clients in USI-Tech which promised 1% a day in arbitrage trading gains, which is perfectly plausible up to a point. USI got a cease-and-desist order from an AG in Texas, and basically disappeared on us, right around the same time we started to get more confident in them because they were clearly mining Ethereum, which we could track independently on the Blockchain. We are told we will get our money back, but we aren’t holding our breath. The other was a bitcoin mining assets company, that while suffering during this downturn, is still plugging away. They were clearly (and remain) among the top bitcoin mining outfits in the world, and we got to actually tour their facility in Iceland. The lesson we learned though is that we need to do this ourselves. Our clients need to control their assets, and know exactly what is going on with their funds at all times. Investing in our portfolio service means we set up a new encrypted email account just for your portfolio, and we set you up with your own Binance account (the cryptocurrency exchange where all the trading happens) that you have access to, and that we run. Upon request, we can also set our clients up with portfolios that live entirely off the internet in cold storage, although most of our clients trust Binance as much as we do. Our personal accounts are left on Binance for the simplicity.
So of the fifty companies we researched, we picked two, and should have, in hindsight, only picked one. During 2017, we were getting multiple messages every single day about companies offering 3–8% returns daily. These companies were obviously pyramid schemes, and the result was painful to watch. There are people that will go from one to the next to the next losing money every time. They were buying greed. Fail. It cannot be overstated that if you find an organization online that promises gains if you send them your money, that it is likely a scam. When you send us Bitcoin to set up your accounts, within hours you will have passwords to your new encrypted email, and to the Binance account where your Top-Ten Index Portfolio lives, or if you really want to test us we can set the whole thing up while live on a zoom call. This is so important, we feel VERY strongly about doing this right, and in the best possible service of our clients.
Wallets, Transfers, Cold Storage.
Most of our clients are brand new, learning for the first time what a Bitcoin wallet is. Handling the portfolios we do, especially if we are maintaining it in cold storage, requires twenty wallet transfers to ten different kinds of currency wallets every ninety days. We’re really good at not screwing that up. If you send Bitcoin to an Ethereum wallet, the result is an immediate and irreversible loss of funds. That’s worth our fees (which are half the industry standard by the way) all on its own.
Not knowing what to buy, how long to hold, and how to manage risk.
We’ve covered this a bit but it bears elaborating. The clients we have designed Haystack10 for are as convinced as we are that blockchain is the future, but they are not expert investors. Our portfolio service, and the underlying back-tested algorithm and trading strategy, are designed to take all the guess-work out of the process. It’s well established now in the equities market that index funds outperform actively managed funds. We don’t even want you to trust our judgement on what to buy. We just want you to trust the math. The Top-10 outperformed the whole market by a huge margin in 2017. Re-balancing the portfolio, and managing the top ten by weighted average every ninety days, outperformed the market by 336%. In real terms, $10,000 invested using exactly our system would have been $960,000 by the end of the year. It would still be nearly half a million. We are expecting the same level of expansion to take considerably longer since we are in a cyclic market correction, probably around 3 years, plus or minus. It still beats the thirty years it will take with a mutual fund.
So we’re screaming from the roof tops. The time is now. We can help.