How I learnt to stop worrying and love the crypto bomb. Part 1.
But the bubble…
Are often the first words you will hear out of someone’s mouth who has heard of your ‘fool-hardy’ crypto investments, and smugly informs you that it's all just a fad, and will quote tulip bulbs and over simplistic comparisons to the dotcom bubble. They will probably also snort in derision and say things like, "that’s not investing, it’s gambling".
Well first off, gambling by its definition requires something called consideration. Which if you know anything about contract law means that putting money into a coin, no matter how much of a shill it might appear, can never be determined a gamble in the purest sense of the word if you haven’t engaged in this aspect of contract. Its an investment. Put people don’t like to hear that because it lends credence to your actions. They are also the ones who like to make offhanded predictions about multiple events, and then do this…
Well done genius, in a highly volatile market, you either predicted the price would go up or down. Mind blown. Let’s get one thing straight, humans like putting things in boxes. We like labelling and categorising events, that by their very nature are anything but simplistic. We are especially good at failing to comprehend qualitative variables that do not conform to neat and precise mathematical functions, such as the probability density function for example.
We are also not good with large numbers, and by large, I mean trying to comprehend how many stars there are in the universe type numbers. Our brains evolved to track herds across the East African rift Basin, and to maintain social structures that involve ten to hundreds of individuals. What’s the largest number you can commit to memory by the way? Now think of a trillion, the number we are fast approaching as the combined total of the crypto market cap:
https://coinmarketcap.com/charts/
We as a species inherently don’t like change, and the unfamiliar scares us. So, what has this got to do with cryptocurrencies?
A little bit of knowledge is a dangerous thing
Here is my favourite image of all time. It’s the one to keep in the back of your head every time you read something that sounds like they know what they are talking about. Particularly on forums. Indeed, apply it to me and this blog, I will profess I am very new to crypto and understanding the intricacies, and scale, of what it might one day become.
Right now, I believe that the vast majority of so called crypto experts are firmly in the hazard phase. So, back to the bubble. Take a look at this post: http://uk.businessinsider.com/global-market-cap-is-about-to-hit-100-trillion-2017-12
What interests you the most about it? If it was the fear of an imminent dip, and the big drop in the graph. Then stop looking at the tree, and try and zoom out to the big picture.
Which is? Read the first line of this post: http://www.businessinsider.com/world-stock-market-capitalizations-2016-11?IR=T
In fact, go and do some research into the decoupling of fiat currencies to the gold standard and their depreciation over time, and the general increase in wealth generation. Our generation in all likelihood being the first to see a trillionaire. The decline in people owning stocks: http://news.gallup.com/poll/190883/half-americans-own-stocks-matching-record-low.aspx
Yes, granted a very rough figure would say that individual investment in the stock market probably only accounts for 10-15% of its total value. Which is a good thing for crypro: https://www.caseyresearch.com/teeka-tiwari-on-how-i-vastly-underestimated-bitcoin/
The futures market was only the beginning, and if you are short sighted enough to think that this will only impact on Bitcoin. Remember that institutional money is very much risk averse, which in layman’s terms means diversification. It might flood into Bitcoin and the bigger coins at first but it will reach all coins in the very near future, except for those shytcoins of course 😊.
There are a few people who describe this quite well: https://decentralize.today/dont-fall-for-the-hype-why-bitcoin-s-10-000-price-doesn-t-reflect-its-true-value-6b42a59fce0a
In particular, the Amazon and Googles dotcom crashes.
And yes, these represent the top companies to come out of that era. But then you have to be asking yourself when investing in your own future cryptos. If I don’t believe they can do the same, that they don’t have any real intrinsic value, then why are you holding them at all?
https://www.xrpchat.com/topic/10366-the-myth-of-market-cap/ Take this last one loosely. I’ve posted it as it’s a step in the right direction compared to what most people can comprehend. The best way to describe this is a sprinter who is on the verge of tripping forwards, but whose momentum just keeps him going until he crosses the finish line.
Flipping is a whole other dynamic, and one I am largely not interested in. I don’t want this post to become too cumbersome. So, I won’t go into the inherently incorrect assumptions I have seen out there with respect to the application of Monte Carlo simulations on crypto model predictions. But I will leave you with a paper for those of you who are interested: www.mdpi.com/1911-8074/10/2/12/pdf
The one thing you should take from this is the best fitting distributions in table 3 on page 11.
If the theoretical model behind your financial software cannot be adjusted to account for the distribution of your sample data, then the adage, garbage in = garbage out, applies. Most financial modelling tools use Brownian motion btw. You can transform and back transform datasets before and after estimation, but this to carries inherent risks.
The warning here is be sceptical of anyone claiming to have a one size fits all predictive tool that you to can use to make 10,000% gains, for the low low price off…
Also ignore people who want you to sign up and pay for tips. If you have a coin that you own a significant stake in and you believe in it, you don’t hoard that information. You share it freely, such as the good folks of peculiar monkeys, or Noam Levenson of hackernoon:
I should state that I am not a financial model expert. I have a background in Resource Estimation in the mining industry. And we come across this all the time with poor application of Ordinary Kriging, Log normal Kriging, mIK and MIK, and Conditionally Simulated models to datasets that bear no resemblance to the underlying assumptions required for correct application of the model.
Stating standard deviations etc, is no substitute for proper model validations, and true quantification of risk. In short, unless you know what you are doing, stay away from those selling snake oil, and read your ass off instead.
And so, the bubble bursts
Big deal. If you go an educate yourself on what the global market capitalisation of all assets (and not just crypto) might be in 2025, 2030, even with a correction. And then read about the number of initiatives to make crypto market penetration even easier, then figures like those released by Cambridge University, should get you really excited about future potential:
http://www.cam.ac.uk/research/news/study-highlights-growing-significance-of-cryptocurrencies
As for that bubble people are so afraid about. Let it pop, we are due a cull. And those coins with a purpose won’t go under. It will be akin to a volcanic eruption. Catastrophic yes. But volcanic islands have some of the most fertile soil on the planet.
