Some Crypto Optimism

11 May, 2020 0 Comments

Written by Andrew Lee


There is a lot of speculation around how the halving event will affect prices and whether history will repeat itself. In my opinion, trying to use any event to predict the price in a short-term direction is not a sound strategy. Rather than trying to decide whether the price will go up because the “having event is/isn’t priced in,” or whether “Bakkt is priced in,” or whichever relevant event is “priced in,” is, in my opinion, is not a reliable strategy to predict the direction of the price. Bitcoin’s price and success depends on whether the world embraces it as a safe-haven asset, joining other safe-haven perceived assets such as gold. Bitcoin’s utility is unique in that it is anonymous and can be transacted with digitally in a relatively cheap and fast manner compared to wire transfers. I believe the appreciation of Bitcoin’s value depends on how society accepts Bitcoin as a safe-haven asset investment that can be added to a diversified portfolio strategy. Vitalik expanded on this concept here in 2017. Today, Bitcoin’s volatility hinders it from being adopted as spendable money and stable store of value, but I believe the creation of stablecoin tokens on Ethereum are filling that gap for usable crypto money, while Bitcoin diverges into becoming a save-haven asset investment. 

The Great Hodl Strategy: Zooming Out On Price Charts

From a statistical perspective, if you zoom out on the chart for Bitcoin on a 10+ year time scale, you will notice that for the most part, the price has been going up and the strategy that generally wins is being long Bitcoin. We have had very volatile years after the last ATH in 2017, but I don’t think selling to attempt to buy lower, is statistically a favored strategy. Most years were better suited as a buy and hold during the entire lifespan of the asset. Therefore, unless one is engaging in a statistically backtested short-term trading strategy, the odds for just buying and holding long-term are favored to win. And same goes for stocks, including the S&P 500 Index and the major tech stocks.

From a quantitative analysis perspective, crypto is very volatile as an asset class. Bitcoin on average has ~15-18% weekly volatility from its lows and highs per week. It’s important to note that with volatility, it can work in both directions. Just as we saw the big sell off in March, it’s very possible crypto can be volatile in an upwards direction. People watching the price everyday may build a bias for the volatility levels and might be tempted to react with buying or selling when the price moves out of the ordinary perceived volatility rhythm in the short-term, however, a deeper analysis would suggest that that price, as well as a volatility levels for crypto, can be all over the place. If the volatility of crypto continues to favor any direction a few times in a row, it’s very possible for BTC or ETH to hit 5x USD ROI or more, in a very short period of time, perhaps 1-2 months by estimate. While I fully want to acknowledge that this is not a prediction, but rather my own statistics-driven opinion for what is possible. 


Since most of my experience prior to being a long-term investor in crypto assets has been with building web and mobile apps, I personally resonate a lot with the potential of Ethereum as a new infrastructure platform for building decentralized finance applications. I do agree Bitcoin has tremendous potential as a new form of digital safe-haven asset, but what really excites me is the asymmetric investment opportunity in the world’s very first open-source dApp platform that has value-accrual mechanisms with adoption. The pioneering rollout of POS on a large community has yet-to-be-seen impact on supply. To me, this reads very much so as an asymmetric bet and definitely one that can potentially have a lot of upside potential. Ethereum might be the equivalent to investing Microsoft stock pre-Windows 95, or Amazon pre-AWS, or Apple pre-iPhone. For now, however, most of the highest-traded-volume crypto assets are correlated so there is not that much difference between whichever asset people hold, whether its Bitcoin, Ethereum or even Litecoin.