Daily Trade Ideas & Trends

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23 May 2020

Doc's Daily Commentary

Checkmate's Corner

Hedging Crypto Part 1

 

We all know that the cryptocurrency market is volatile, high risk and fundamentally speculative. Blockchain assets are a new technology with immense disruptive potential and even within the market, we have see a massive number of projects rise and fall from grace.

 

How many of the top 20 assets from Jan 2018 are still ranking up there? Almost half of them (9 out of 20) no longer rank top 20 and only three assets managed to hold or gain rank.

 

Clearly, this market is very competitive and full of garbage and it takes an impressive balance of fundamental and technical strength to maintain rank through a bear market. There is no doubt that the shiny new toys and flashy project whitepapers and websites can be tempting as speculative bets, but as many of us know, the bear market exposes all the flaws.

 

At RSC, we have all learned a lot through this bear market, both about blockchain mechanics, the narratives that surrounds the assets and where the true value is being created. As we have seen in our V4 Project top 10 rankings sheet, as a community, we are actually converging on a fairly consistent message.

 

Blockchains are all about disrupting Money and finance.

 

If you recall about 12 months ago, we narrowed in the RSC focus on three key areas:

 

Cryptocurrency as Money and Stores of Value

Decentralised Finance

Security Tokens.

 

After all we have been through in 2018 to 2020, the ups, downs and lessons learned, our community view remains largely unchanged. This is extremely cool and for the most part, you will notice that RSC has picked the majority of the strong assets that did survive the bear market and hold their ranking.

Journey so far

For those of you who have followed my journey, I have gone through several phases of how I think about the cryptocurrency markets:

 

Phase 1 – Multi-coiner

** Starry eyed multi-coiner seeking GAINZZ in speculative ICOs and altcoins

** Losing a fortune

** Learning to trade from Doc’s videos and classes

** Losing another fortune in 2018 capitulation (everyone pays their trading tuition fee)

** Finding and studying Bitcoin in depth…every day

 

Phase 2 – Bitcoin Rationalist

** Becoming a Bitcoin only advocate from start of 2019 (for about 2 months)

** Losing all faith in Ethereum due to its design and technical constraints

** Involvement in On-chain analytics as a high signal toolkit

** Finding Decred

** Realising Bitcoin is not perfect either

** Realising that Bitcoin maximalism is extremely limited in scope and there can’t possibly be only one asset to come out of this revolution

 

Phase 3 – Macro Thinking

** Renaissance in understanding of game theory, cryptocurrency design and consensus mechanisms

** Core focus shifts to macro-economic study and developing framework for the long term view of cryptocurrencies

** Crystalising some of the flaws in Bitcoin’s design such as privacy, governance, balance of fee markets and vested interests of developers, miners and maximalists

** Becoming Decred contractor and dedicated On-chain analyst

** Begin to develop a strategy to own and hedge for the biggest risks with the strongest assets

** Shitposting on Twitter…Where all good ideas go to die….

 

This has been my framework and it has been a process of building a strong filter. The core concepts I have taken away has been that cryptocurrencies have an unbelievably important role to play in our future economy. They exist in a macro framework and to fully appreciate it, one must study everything from economics, trading markets, game theory, technical design of distributed networks and even biology (if you believe these are digital organisms).

 

Nobody can absorb all that information, but collectively and in the people we follow, we can absorb ideas bit by bit.

 

This week, I wanted to provide an overview of my current thinking regarding which coins I believe are the fundamental strong holds. Many of you will have heard snippets of this before, but I have started to really close in on a framework around which assets I feel are here to stay and why.

Category 1 – Stores of Trust

Unprecedented times call for unprecedented measures. The monetary and fiscal stimulus being injected by Central Banks is just the tip of the iceberg and many smart analysts believe the true risk of insolvency remains below the surface.

 

As markets move into a likely Deflationary environment, there will be strength in the USD dollar as the scramble for USD liquidity continues to repay debts. In response, Central Banks are likely to continue to print money in a desperate attempt to find inflation. In the recent podcast with Travis Kling and Pomp, they discuss how this is like switching on a firehose to fill a bucket after the eye dropper failed to fill it fast enough.

 

What happens is that the bucket fills too fast and overflows, leading to an over-printing and too high inflation down the line. At the same time, the notion of Unlimited money printing makes people question the nature of money and why they are living paycheck to paycheck when money can be created by changing a number on the banks’ balance sheet.

 

In such chaos, trust in institutions and money begins to erode at a much faster pace. With everything else going on, is it really that strange for a non-sovereign digital currency with pre-determined supply curves to become an investable asset?

 

Is that really the strangest thing that could happen after 2020?

 

In fact it almost sounds sensible amidst the chaos.

 

Cryptocurrencies can restore trust and that is something we sorely need these days.

 

Bitcoin is Top Dog

 

This is why Bitcoin is the most important asset in the cryptocurrency market. It is the simplest design, and yet the most likely to change the world. Bitcoin is the liquidity and reputation gorilla in the room and I fully believe it is going to stand up against governments as redefining the nature of money.

 

Bitcoin is __controlled by nobody__ and yet owned by many of us. It is freedom money which you can travel anywhere in the world with nothing but a 24 word seed phrase.

 

Bitcoin restores trust as it requires very little of it. This is a very reassuring proposition.

 

Now as mentioned earlier, Bitcoin is not perfect, but it is pretty damn good. Where it falls down is in the long term tail risks (some of which may never materialize). The biggest risks I see are:

 

** Miner Centralisation – This is inevitable in PoW due to economies of scale and may make nation state attacks easier to execute. It could also be that nation states become miners and their motivation is not always profit motivated.

 

** Governance Failure in rough consensus – Changes are hard (impossible?) to make and this may lead to splitting of the chain and most likely ossification too early. This is compounded by miner centralisation as miners have the ultimate final say and can become coopted.

 

** Privacy – Currently, Bitcoin privacy is horrible and the solutions available are unpalatable. As it gets wound tighter into financial infrastructure, surveillance only increases, never decrease. As both of the above risks come to fruition, it may prevent any workable privacy solution coming forward.

We’ll finish up with part 2 tomorrow! 

The ReadySetCrypto "Three Token Pillars" Community Portfolio (V3)

 

Add your vote to the V3 Portfolio (Phase 3) by clicking here.

View V3 Portfolio (Phase 2) by clicking here.

View V3 Portfolio (Phase 1) by clicking here.

Read the V3 Portfolio guide by clicking here.

What is the goal of this portfolio?

The “Three Token Pillars” portfolio is democratically proportioned between the Three Pillars of the Token Economy & Interchain:

CryptoCurreny – Security Tokens (STO) – Decentralized Finance (DeFi)

With this portfolio, we will identify and take advantage of the opportunities within the Three
Pillars of ReadySetCrypto. We aim to Capitalise on the collective knowledge and experience of the RSC
community & build model portfolios containing the premier companies and projects
in the industry and manage risk allocation suitable for as many people as
possible.

The Second Phase of the RSC Community Portfolio V3 was to give us a general idea of the weightings people desire in each of the three pillars and also member’s risk tolerance. The Third Phase of the RSC Community Portfolio V3 has us closing in on a finalized portfolio allocation before we consolidated onto the highest quality projects.

Our Current Allocation As Of Phase Three:

Move Your Mouse Over Charts Below For More Information

The ReadySetCrypto "Top Ten Crypto" Community Portfolio (V4)

 

Add your vote to the V4 Portfolio by clicking here.

Read about building Crypto Portfolio Diversity by clicking here.

What is the goal of this portfolio? 

The “Top Ten Crypto” portfolio is a democratically proportioned portfolio balanced based on votes from members of the RSC community as to what they believe are the top 10 projects by potential.
 
This portfolio should be much more useful given the ever-changing market dynamics. In short, you rank the projects you believe deserve a spot in the top 10. It should represent a portfolio and rank that you believe will stand the test of time. Once we have a good cross-section, we can study and make an assessment as to where we see value and perhaps where some diamonds in the rough opportunities exist. In a perfect world, we will end up with a Pareto-style distribution that describes the largest value capture in the market.
 
To give an update on the position, each one listed in low to high relative risk:
 
SoV/money == BTC, DCR
Platforms == ETH, XTZ
Private Money == XMR / ZEC / ZEN
DeFi == MKR / SNX and stablecoins
 
It is the most realistic way for us to distill the entirety of what we have learned (and that includes the RSC community opinion). We have an array of articles that have gradually picked off one by one different projects, some of which end up being many thousands of words to come to this conclusion. It is not capitulation because we all remain in the market. It is simply a consolidation of quality. We seek the cream of the crop as the milk turns sour on aggregate.

Current Top 10 Rankings:

 

 

Move Your Mouse Over Charts Below For More Information

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