Wednesday, 29 May 2019


Smug BTC owners post-USD8,000


If you had followed this blog from the beginning (you absolute weirdo), you may have caught a whiff of our pungent sentiment towards Bitcoin. Having missed out on the late 2017 rally, we anticipated a major fall in BTC prices. We pretty much equated that rally among the all-time historic bubbles.

We wrote all about that here. And you know what? We were right.. kind of. Having written about BTC when it was trading at around USD13,500, the cryptocurrency fell like a ton of bricks, losing about 77% of its value by the end of 2018.

Not that it mattered much to us. We couldn't exactly make money from this short selling angle (the only way to short BTC at the time was through CME BTC futures, which were too cumbersome for us to realistically deal with as a trade).

We took comfort from the fact that the whole thing really was a bubble - just another one in a long line of asset bubbles. But we were also crucially wrong on a few things; more on that later. This chart below clearly showed that 2018 was a soul-sucking year for BTC holders/traders/investors.

We've had a fair bit of experience with assets that experience unjustifiable and unsustainable rallies. In fact, we encounter bubbles all the time on Bursa Malaysia, whether it's a new sexy stock or a explosion of interest in previously unloved call warrants.

You know what else had 'done a Bitcoin'? How about HENGYUAN in 2017? The chart looked like this:

Not BTC.
Within two months (November 2017 to January 2018) the stock rose 156%. The next three months after that? It dropped by 66%.

At around the same time, BTC rose as much as 280%, before dropping by 63% over the same period. The buy-and-holders in either of these would have died.

Our point is that we have identified, seen and studied bubbles before; they happen more often than you might think. (Editor's Note : Unfortunately, we make no claims that we are better informed or smarter as a result of this)

More importantly, bubbles tend to share very clearly defined characteristics. That BTC price rally was simiar to any old stock bubble: not even Dutch Tulips, but the ones that occur on Bursa Malaysia a couple time a year (for another example of a swiftly burst stock bubble, check out DWL Resources).

So what are the characteristics? Well, for starters: all time high volumes, all time high trading values, prevalence in media, your auntie/uncle/Grab driver asking you whether it's a good long term investment, and most prominently, a complete mania-driven detachment from the fundamentals

When hype overcomes reason (as it most assuredly will), what you're left with is an unsustainable price rally. What goes up must come down; perhaps for a lot of people for whom cryptocurrency is their first trading venture, this was not apparent.

At the risk of sounding like bitter old fogeys, we wish to point out that we have experienced all this before. The highs of a bubble, easy money, feeling like geniuses. Conversely, we've also gone through the lows - indeed, we have been the bagholders during an asset bubble's last dying breath, suffering losses of money and dignity.

But enough about that. What we are exploring is this essential question: is it time to reconsider BTC as an investment proposition? The time is ripe for an evaluation; after all, the coin has already doubled in value this year as of May.


To do that, we suggest that you get acquainted with the following concepts. We strongly believe that if people don't realise these things, they're just buying cryptocurrencies blindly, with little to no justification. That's the last thing anyone should do. 

We are no experts in BTC or Blockchain tech. Our perspective is simply from a trader's point of view. But we are not going to bend over backwards to postulate some sort of fundamental justification for the direction of BTC prices; there really is none (Editor's Note : it's OK, there are tons of other assets with little to no fundamentals attached to their prices, like gold and diamonds. Don't worry about it :) ).

But is there a justification to actually buy BTC at the moment? There could very well be, with manageable downside risk for you. But first, a few fiery hoops for you to jump through.

#1 : A Lot of BTC-related Media Coverage is... Bullshit

So helpful wow.

Unfortunately, the worst time for you to buy into cryptos is when the media breathlessly reports on that new high price point since whenever. Even worse, the talking heads (or their online counterparts) would squeeze their precious brain matter into finding some sort of justification for BTC's price movements.

Better yet (or worse), you have biased 'experts' trying to sell their positions (if you had seen any of these people on CNBC or wherever else last year, rest assured that they had endured about 365 sleepless nights).

You will keep seeing unrealistic price predictions by people who are either too smart for their own good, or too stupid to tell the difference between expertise and utter fakery.

Please, buy all the BTC you want, just don't end up like this guy.

Read more here.

Excerpt from the article:

Fundstrat Global analyst Tom Lee explains to CNBC why the Consensus 2018 Conference did not spark a bitcoin price rally despite predictions that crypto prices will shoot up during the event.

In fact, crypto price dipped during the conference with the market losing $40B. Bitcoin dropped 3 percent. However, Tom Lee stands by his $25K end-of-year Bitcoin price forecast.

According to Lee, crypto experts believed the large turnout at the conference and the crypto players banding together will help re-energize confidence in the market. 

Permit us to say this : that last, highlighted line was just about the dumbest thing we've ever heard.

Then this happened:

 Fresh BS. Source.

 Then this. Well, you know how it goes. We don't think we even need to attach the link to the article.

Our message is simple : "Hey Tom, while you clearly look like you could have a future career as Jho Low's stunt double in an upcoming Hollywood production, predicting is a fool's errand. You are clearly out of your depth but the media doesn't know any better, so they will keep inviting you to comment on cryptos. You're simply hyping up a market in which you have a vested interest in, with no understanding of the asset. You'd be better off in the multi-level marketing industry."

 "There's still time to sail away, Tom". Source.

#2 : Be Wary of Dumb Reasoning, or ANY Reasoning, on why BTC prices are moving 

Let's stick to our boy Tom Lee. Might be a tad unfair to keep on harping about him, but his views are illustrative of a very simple but widespread phenomenon that everyone commits, from superstitious peasant to the well-traveled burgeoisie : confirmation bias.

Simply put, most of us try, and are desperate, to explain unexplainable things. Worse yet, we would throw in our pre-existing biases into this un-testable theory for added comfort. Clutching straws are always preferable to admitting that by nature, we have zero clue why things are the way they are.

Half the time, BTC's price movement is clearly sentiment based. Yet another crypto exchange hack would see prices plummet, while positive regulatory developments could drive it another way. The other half is where there is no discernible reason at all. Any attempts to explain are just guesses.

Here's some choice commentary espoused by Tom in the same article. Read it; it's filled with groundless conjecture and straw-clutching. It borders on parody, and we would have treated it as such, had it not been a serious market conversation on freaking CNBC.

Our comment: Millennials will use their salary to buy BTC, thus supporting the market and bringing it up to USD25,000? How many milennials? From where? Why would they chose BTC over gold? It's like saying milennials will work and generate income to buy stocks, so the S&P will triple in 5 years. Doesn't make sense at all? Yeah, we thought so.

Our comment: wha? Where's the proof? Are you saying that millennials already own a pile of gold (equivalent to several units of BTC per millennial, at least)? They are not remotely the same asset class; why the direct comparison?

If durian prices surge 200% within a year while toothpaste prices remain the same, is it correct to say that Malaysians prefer the sweet, sweet taste of durian over rotting teeth? It's a stupid comparison - same as the one in the above statement.

And why would (or should) BTC directly capture market share from gold? It's hardly a like-for-like, other than a 'storer of value' as Tom so eloquently puts it. He said 5% of the gold market is worth this much if they all go into the BTC market, yet he goes on to predict a suitable price point for BTC (USD50,000!) were this to happen.

Here's the thing : nothing of this sort is happening, and there's no reason to suggest that it's happening, or ever will. Nobody's transferring tens of billions of dollars out of gold into BTC, as far as anybody knows.

Our comment : Now you're just talking like you're CEO of TalkCock Industries.  This entire statement is rubbish.


We can only offer a stock trader's perspective as to why you should relook into BTC. We are not promoting widespread blockchain tech adoption, we don't think people are going to pay for their apam balik with BTC anytime soon, and we are not contemplating the revival of the scam-filled, and scum-filled, ICO industry.

These look great. Source.

These are essentially the same points to justify buying BTC that you may have read about a year ago, or two years ago. But now they have an extra appeal since the first phase of the bubble is already over. In classic trader's parlance, there is an opportunity to own a valuable asset with great upside potential and low downside risk.

To cut down on the BS, we won't share any unqualified price predictions for BTC over any timeline. But, assuming you're willing to pump in the cash for the medium-to-long term, there's a chance to realise yields of 20% or more within a year.

So should you buy now, as the coin looks set to breach USD10,000 sometime soon? Even after nearly tripling in value since the start of the year?

The answer is : sure, but do so for the right reasons. The least important reason is to make quick cash; instead, contrary to everything we usually stand for as short term stock traders, we urge you to look at BTC as a viable long term investment for the right reasons (and making quick cash is the wrong-est reason of them all). 

One thing that Tom Lee neglected to mention is that at the moment, cryptos are a great hedge against currency depreciation. Not all millennials have the capacity to convert their ringgit and stash their foreign currencies in a safe. Obviously this may not even be a preferred option as we increasingly move towards cashlessness / digital payment solutions.

The ability to buy fraction(s) of BTC, a USD-denominated crypto, allows buyers to transfer smaller portions of their hard earned money into something that is accessible.

With the Ringgit hitting RM4.20 currently, and with its vulnerability to both the US Dollar inflationary pressure and lousy crude oil prices, keeping some of your money in BTC makes sense. It is a riskier option than owning US dollars outright, but think of it this way; the 'fiat' currency stands to gain perhaps 5% in a good year. With BTC, your holdings can either drop 20% or rise 50%.

Provided that your BTC stash is money you can afford to lose, and assuming you're not a 70-year-old retiree, the risk is worth taking. From a risk-adjusted returns standpoint, we are willing to buy BTC simply to protect against the Ringgit's decline, with the added bonus of possibly capturing the double digit upside. It is obviously not an asset for the conservative or defensive minds.

You'd own something that already has some utility from the very beginning, as opposed to a speculative instrument, which most people are treating it as.


Well that escalated quickly...

You can also frame the opportunity in a trading context.

BTC is a dollar-denominated asset with a growing global market, and growing support for regulatory standards, has undergone a historic decline. Things looked bleak - indeed, most who were burned have already sold off this asset. It went nowhere for a few months. Given the general skepticism and fear, it seems to be the best time to buy.

This asset is incredibly volatile - it's a bit like physical commodities like natural gas or cocoa, and the prices tumble around as much as they fly. Looking at its history, there's a possibility that this asset can drop by 40% in value within a year.

Perhaps you can buy it at around USD8,000. With a potential 40% decline, you're looking at a depreciation to USD5,000 at worst. Let's cap that downside and set a stop loss point. Perhaps a 20% maximum loss point - if you hit that, you exit no matter what. Of course, the asset can and might lose 20% overnight - you'll have to accept that risk.

So what can you get out of that asset? The chance to make 100%, if we're being super optimistic. Besides, you're not using margin finance, everything is paid for. You have the luxury of time.

The reward-to-risk ratio (5:1) makes it a good commitment. Consider it the riskiest part of your portfolio of assets. Your losses are capped, and your long term horizon is comfortable enough.

An upward movement of less than USD1,000 means that you'll already be 10% up. It's worth a shot - in a bad market such as the one we're going through, naturally there will be increased demand for a non-correlated asset. BTC's one of the more obvious choices.

And one last mea culpa...

In our previous post last year, we characterised the asset as a bubble. This view was flawed - it was the price movement that was the bubble. We think BTC is here to stay. Not so sure about the other coins; at the end of the day, BTC is the most followed, most traded, and most influential crypto benchmark. A fraction of BTC probably has better upside potential than an alternative crypto coin(s) of equal value.

It is futile to make predictions about BTC's prices 5 months, 1 year, or 2 years down the road - learn from Tom Lee. It is also futile to lean too much into blockchain tech as a positive catalyst for cryptocurrencies - that ship has passed, and you don't need to rely on coins to develop your blockchain tech.

We urge you not to play guessing games and make unproveable assertions like this dude here.

This is the failure of correlation and causation. As humans, we struggle to connect the dots sometimes, hence the reversion to lousy reasoning as well as dumb theories. Anything to avoid bruising our own ego. We tend to be wrong, and we tend to be clueless. Move beyond these realisations, and perhaps you'd feel better about cryptos.

Prices will go where they want to go. What you should focus on instead is a simple question : why would I own this thing?

Making money is the motivation of every investor buying into anything, but understand that it is the outcome, not the explanation.

We'd own BTC for clear-cut reasons:

1) It's the most accessible USD-denominated asset for, yes, Malaysian millennials who can't easily open foreign bank accounts to keep their foreign currency, or stash their piles of dollars under their beds. Digital beats physical.

2) It's a hedge against the worsening ringgit. Hell, even if the ringgit moves the opposite way, it hardly diminishes your yield potential from BTC. It's only USD denominated; its movement does not correlate with the currency.

3) Anything that offers a reward-to-risk ratio of 2:1 or higher is worth salivating over.

4) The downside risk sucks, and the potential for huge losses is real. But the best you can do is set a loss limit, or a signal to exit. At least the potential yields make it worth the trouble.

Nascent technologies tend to go through distinct phases. The first one is unbridled enthusiasm and an asset bubble - the heydays of the Internet and the late 90s dot-com boom are testament to that. A crash is inevitable, and from the dot-com wreckage emerged the titans. People started to tell apart the Amazons from the The bubble was real, yet so was the tech.

This is where unlike the Dutch tulips, or the South Seas Company, we think BTC is here to stay. People say that the worst thing that can happen to cryptos is if their prices become flat, or boring, unlike late 2017. We think it's the best thing that could happen: stability of prices lends the asset a degree of credibility. A lot more cash would flow into cryptos if they are no longer seen as a speculative instrument, and we do feel the wind is blowing that way.

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