Bitcoin has proven a point, even if it fails

Nassim Nicholas Taleb on Bitcoin:

Which is why Bitcoin is an excellent idea. It fulfills the needs of the complex system, not because it is a cryptocurrency, but precisely because it has no owner, no authority that can decide on its fate. It is owned by the crowd, its users. And it has now a track record of several years, enough for it to be an animal in its own right.

He concludes that Bitcoin may fail, but that it’s proven useful regardless.

Finally, Bitcoin will go through hick-ups (hiccups). It may fail; but then it will be easily reinvented as we now know how it works. In its present state, it may not be convenient for transactions, not good enough to buy your decaffeinated expresso macchiato at your local virtue-signaling coffee chain. It may be too volatile to be a currency, for now. But it is the first organic currency.

But its mere existence is an insurance policy that will remind governments that the last object establishment could control, namely, the currency, is no longer their monopoly. This gives us, the crowd, an insurance policy against an Orwellian future.

via Bitcoin – Opacity – Medium at Medium

Coinbase earned over $1 billion in revenue in 2017

Coinbase, the bitcoin trading broker that has exploded in popularity as cryptocurrencies surge and nose dive, has encountered an unusual problem for a Silicon Valley startup: Too many investors are trying to get in. The six-year-old company crossed $1 billion in revenue last year, Recode has learned from industry sources, a tremendous rise fueled by layman interest in both bitcoin and competing virtual currencies that users can buy and sell through the app.

via Bitcoin broker Coinbase booked $1 billion in revenue last year at Recode

Paying for performance

Matt Levine on charging higher fees for increased performance. It’s not looked upon well, which doesn’t make sense.

One mental model you might have is: Shouldn’t the active managers’ share of the pie be reduced by competition? If Fund X outperforms by 60 basis points but takes 44 for itself, shouldn’t Fund Y swoop in and offer to outperform by 60 basis points but take only 30 for itself? Just asking the question makes it obvious that the answer is no. Sure, right, if lots of active managers could predictably outperform, then they might compete with each other on price. But as long as reliable outperformance is rare, investors should rationally prefer to pay a lot for outperformance rather than to pay less for underperformance.

Full post Is Paying for Performance Bad? at Bloomberg.com

Findings from 3 research papers on stop losses

From a 2015 post at Quant Investing, a look at 3 research papers on the use of stop losses.

Study 1: When do stop loss rules stop losses?

What they also found was that the stop-out periods were relatively evenly spread over the 54 year period they tested. This shows you that the stop-loss was not just triggered by a small number of large market movements (crashes).

Study 2: Stop Losses, Trailing, and Buy & Hold compared

Trailing better than traditional
Only at the 5% and 10% loss levels did the traditional stop-loss perform better than the trailing stop-loss. At all other loss levels the trailing stop loss out performed, most notably at the 20% loss level where it performed 27.47% better over the 11 year period.

Study 3: Stop Losses in Momentum Investing

The stop-loss momentum strategy also completely avoided the crash risks of the original momentum strategy as the following table convincingly shows.

Click image to enlarge

Note that if you followed a stop loss strategy you would have made a small profit when the momentum only strategy lost nearly 50% and 40%.

The studies actually convinced the author to change is opinion on stop losses:

This has been a rather long article to come to a very clear and simple conclusion: Stop-loss strategies work

As you have seen:

  • When applied to a 54 year period a simple stop-loss strategy provided higher returns while at the same time lowering losses substantially
  • A trailing stop loss is better than a traditional (loss from purchase price) stop-loss strategy
  • The best trailing stop-loss percentage to use is either 15% or 20%
  • If you use a pure momentum strategy a stop loss strategy can help you to completely avoid market crashes, and even earn you a small profit while the market loses 50%
  • Stop-loss strategies lowers wild down movements in the value of your portfolio, substantially increasing your risk adjusted returns

via Truths about stop-losses that nobody wants to believe at Quant Investing for Value, Momentum, Quality and Growth stocks

Robinhood fact of the day

From the always excellent Token Economy newsletter:

There are currently almost 900,000 people in line to get early access to Robinhood Crypto.

If you don’t read it already, check out the Token Economy #33: Dogfooding at Token Economy

Shamcoin finds lots of similarities in ICO whitepapers

Interesting use of IA to analyze upcoming ICO whitepapers from Shamcoin.

It’s easy to find patterns from the matrix, and as next steps we would be adding more signals to make relative comparisons even more interesting.

Overall, there was a lot of homogeneity among this set of ICOs, which they also found when they looked at past ICO projects.  They are doing some impressive things to uncover fraud in ICOs.

Check out the charts and full post Whitepaper analysis of upcoming ICOs relative to existing coins at Shamcoin

The first rule to catching a bottom? Don’t try to catch a bottom

Michael Batnick, on attempting to catch a bottom, in a post from last July:

Nobody can actually buy low and sell high. Not consistently anyway. Successful traders typically buy high and sell higher, and successful investors buy low and sell rarely. But if you are tempted to catch bottoms, to be the investor who can recognize treasure where others find trash, there are some broad rules that I suggest you follow.

The first rule to catching a bottom? Don’t try to catch a bottom.

The first rule of catching a bottom is don’t try to catch a bottom. It’s one of the hardest things to do in all of investing. Macy’s has experienced three separate 30% rallies on its way to a 70% decline. None of them stuck. Quick traders made money. Bottom-fishing investors got filleted.

Here’s one way to do so:

Rule #4: Wait for a longer-term moving average to stabilize. Macy’s twelve-month moving-average, for example, is still crashing. If you wait for a long-term moving average to stabilize, you won’t buy at the bottom, but better safe than sorry. Falling knives are guilty until proven innocent.

Good reminders when instincts are telling you differently. Read his full post Ten Rules For Catching A Bottom at The Irrelevant Investor.

Blockchain’s pendulum of innovation

Crypto expert Jill Carlson on the pendulum of innovation, and where it lies in regards to blockchain currently.

Out of the altcoin wreckage, 2015 saw an awakening to the fact that infrastructure is a critical component of the promise of blockchain technology. While it looks very different this time around, a similar realization is emerging from the token mania of the last year. 2018 is witnessing the pendulum again swing back to innovation in infrastructure.

There is perhaps no better example of rearchitecting infrastructure around assets than the innovation currently happening with decentralized exchange. In the first few weeks of the year, 0x has already achieved more than $10 million worth of transactions in a single day.

Self-custody also looks poised to make huge strides. Private key management by individuals and institutions alike has long been a critical UX issue. Ledger’s fundraising round should position it to bring hardware wallets even more mainstream. Radar Relay’s integration with Ledger takes the market a long way in terms of balancing usability, access to liquidity, and secure self-custody. MobileCoin’s use of SGX and remote attestation, while perhaps not the ideal cypherpunk solution to key management, also marks an important experiment in private key custody.

Being too cautious can be costly in investing

Ben Carlson on the false narrative of all-time highs resulting in a crash. There’s a lot of talk about the market being ready for a correction simply because things are going well.

Here, Carlson quotes a myth from his own book, publishedin 2013:

Of course, stocks can fall from all-time highs, but hitting an all-time high isn’t necessarily the trigger that causes them to fall. Since 1950, there have been over 1,100 all-time highs reached on the S&P 500. That’s good enough for almost 7 percent of all trading days or roughly one out of every 15 days that the market is open. Here is the breakdown by decade that shows how often the S&P 500 hits a new high level:

He then goes on to give some numbers on what’s happened since then:

Since new highs were hit in 2013 there have been 201 new ATHs in total. This year alone there have already been 13 new all-time highs on the S&P 500, the same number that was seen in the entire decade of the 2000s. It’s not even the end of January.

Stocks are already up almost 8% this year and that’s after 9 straight years of gains (with 7 of those annual returns in double-digit territory). It’s been almost 20 months since we saw a 5% correction.

A good reminder that being cautious can be costly too. Rad his post All-Time Highs, Risk & Consequences at A Welath of Common Sense.

Brayton Williams on what to expect in crypto in 2018

Boost.vc cofounder Brayton Williams recapped some of teh mindboggling numbers for crypto in 2017 in a recent post:

2017 was certainly the year of cryptocurrencies. No one can doubt that.

  • Crypto market cap (from Coinmarketcap.com) went from $18.2B to $610B (33X).
  • Coinbase reached the #1 app on the IOS appstore.
  • Altcoins flourished as BTC dominance shrunk from 88% to 39%.
  • $3.7B was raised by ICOs.

And goes on to point out how the focus was alll about money.

However 2017 was all about the MONEY (and Cryptokitties). Crypto became a real asset class and money flew in. Why? The economy is strong, people have money and everyone is looking for new yields. Crypto was providing those yields and thus more and more money came flocking in. But the price of these assets has started to massively outgrow their true utility and fundamentals.

He cites Vitalik Buterin’s recent frustration with the fact that the rypto community has not yet produced even close to the value of money that has been poured in the market as a whole. However, he believe 2018 will attract a lot more talent:

The money inflow we saw in 2017 was almost necessary for our next step of fulfilling the real promise of cryptocurrency. People follow money. We are now seeing designers, UX experts and product people joining the space, which is what I think we were really missing. Cryptokitties was the first example of good UI meets blockchain and I think in 2018 that wave will hit us harder.

He then looks at why so many projects and teams are stuck at the building stage, rather than the shipping stage.

This brings up the question: Why aren’t projects shipping? Outside of normal product timelines (most projects are less than 6 months old and things take time), this is what I have come up thus far:

  1. The building blocks of the decentralized web are very new. Teams are building many things from scratch which takes time.
  2. The teams are highly technical but less product oriented. Thus many are building/experimenting with cool tech but these same people aren’t skilled in end user product development.
  3. What is the rush when you have 10+ years of runway.
  4. Token project market caps are EXTREMELY HIGH and are built on hopes and dreams. A mediocre product with minimal traction isn’t as alluring.
  5. Lambo. Scams. No intention from start to deliver.

Read the full post 2018 Crypto: The year of TALENT and SHIPPING – Brayton Williams – Medium at Medium