Mike Novogratz Is Set for Comeback With Cryptocurrency Hedge Fund
bloomberg.com
bloomberg.com
>“I sold at $5,000 or $4,980,” he said. “Then three weeks later I’m trying to buy it in the low $3,000s. If you’re good at that and you’re a trading junkie, it’s a lot of fun.”
My guess is that this is not going to end well for him or his fund.
If you want to read a similar story read this twitter feed [0]: it's from a very confident trader who probably lost around 1-2M. We will probably not know the exact number because he stopped tweeting.
The article leaves out that it has come back up to $4k right now.
Since so many traders are following stock oriented trading strategies the market dynamics end up being a lot like stocks with sentiment driving direction, which is probably not super hard to trade (though I'm not good at it.)
So much of the stocks value and future depends on regulatory environment and stocks are located in one jurisdiction... meanwhile bitcoin global.
So as time goes on, any one jurisdiction making scary noises has less effect on bitcoin.
The drop to $3k was due to china "banning bitcoin" (for like the 8th time this year) and it was quickly shrugged off... I remember china "banning bitcoin" back in January taking us from $1,200 to $800.
This speaks like someone who hasn't traded bitcoin, at least recently. I'll tell you that the non-stop jump from 900 to 3.000 hit very bad the very best of traders. That's an event where you lose money even though we are still in a bull-market. Now think how much you'll lose when the tables turn (bull market to bear market).
Trading is hard business.
WHY would he be doing this?
Quoting from the OP, here's his answer:
"This is going to be the largest bubble of our lifetimes, and so .. remember, bubbles happen around things that fundamentally change the way we live. The railroad bubble, railroads really fundamentally changed the way we live; the Internet bubble changed the way we live. And so, prices are gonna get way ahead of what they should be. You can make a whole lotta money on the way up. And we plan on it. At one point you're going to have to sell."
Was the dot-com bubble of the late 1990's [2] a Ponzi scheme?
Were the electricity, automobile, aviation, radio, and television bubbles of the "Roaring 20's" [3] Ponzi schemes?
Just because something is in an asset-price bubble doesn't necessarily mean it's a Ponzi scheme. Yes, many if not most investors ultimately lost money in the electricity, automobile, aviation, radio, television, railroad, and dot-com bubbles, but those bubbles left behind an enormous amount of investment in infrastructure from which we are benefiting to this day.[4]
[1] https://en.wikipedia.org/wiki/Railway_Mania
[2] https://en.wikipedia.org/wiki/Dot-com_bubble
[3] https://en.wikipedia.org/wiki/Roaring_Twenties#Economy
[4] Buffett wrote a great article touching on this in 1999, at the peak of the dot-com bubble: http://archive.fortune.com/magazines/fortune/fortune_archive...
Possibly, maybe, with a lot of luck.
Likewise, I don't doubt digital currencies will end up being bigger than they are today, I just don't see a way of investing in them at the moment that will survive the likely implosion of the bubble.
but SEC wasn't even founded til 1934, which makes that point only apply to the dotcom bubble.
If you're doing a Ponzi scheme, don't use a platform where you can track every transaction.
"people bought early and profited" is not the definition of a ponzi scheme, or Picassos are a ponzi scheme as is anything where the value has gone up over time.
And he might actually believe it's a bubble, but that just means that it will grow quickly then burst.
I'm no expert, and honestly, I don't even get what BTC actually is, nor do I care about it, so I look at it simply as a commodity.
And I see the phenomenon of BTC trading more as a lot of little bubbles. Each time it bursts, you get a lot of new guys coming in at the lower price thinking it will go back up, and when it does, either someone hacks something to steal money, or people get cold feet and start selling, bursting that bubble, bringing the cost back down for more people to in on it. It is a vicious cycle that keeps happening, and people keep buying.
eg: he thinks the bubble hasn't started.
There's some support for that-- bitcoin is not widely held, most people are still in the denial stage ("it can't work") and it's not really something that has "crossed the chasm" yet.
This is the first time a new, global form of money has been invented and it's going thru the technology adoption life cycle. But it's not a stock. It's not something that pays profits, so people aren't sure how to value it. It's not fiat which is relatively stable in price because it's a new technology whose price will have to rise to allow everyone who wants some to have some (assuming large numbers of people want some) so it doesn't fit the traditional paradigms.
Comparing it to stock or money markets is going to risk making some false equivalencies or assumptions.
I doubt it. If you follow the Bitcoin price you'll know that a lot of indices reported the price hit over $5,000 but that was because the Chinese exchanges were trading at a premium (up to $5,150 on OKCoin) which dragged it up.
It didn't actually hit $5,000 on Coinbase, Bitfinex and Bitstamp - and when it did trade at high $4900s it was for low volume for a very short period of time
The reason why the price delta between the USD and CNY exchanges is high is because of how difficult it is to trade between the two (also because of restrictions on CNY)
So he's either trading on Chinese exchanges and figured that out, or ..
1 - Where can you spend Bitcoin?
2 - What percentage of outstanding Bitcoins are used for trade? i.e. exchanging currency for a good
3 - People have been saying it could be used for illegal activities. I understand each transaction is recorded in the global public ledger using the ID. Is it possible to trace who is behind each transaction? Can it be used for illegal activities? If so what percentage of Bitcoin does this make up?
2) Hard to tell because of (3). But you can approximate it using the exchange volumes: https://bitcoinaverage.com/
3) Unless you are doing a targeted search, mapping an individual to one of his addresses, it is very difficult to run an analysis. This makes it hard to answer (2). It successfully used for illegal activities.
On 2) could one strip out speculators from the exchange volumes?
The other 2 items are very difficult to quantify. Here's an anecdote from my personal experience:
I use Bitcoin to receive a salary for some development work I do every month. Our company pays some of our international developers in Bitcoin because international payments are much easier that way.
There is a lot of speculation for sure, but there is genuine real usage.
2- There was a detailed blog post analysis about movement of bitcoin. I can't find the link but you can Google it.
3- I'm pretty sure it is close to impossible to know. You can move your bitcoins to yourself. No one will be able to predict the nature of that transaction. It could have been a P2P transaction between you and a friend.
Crypto is a $100bn+ market at this point. It is really huge.
Why not make your trades public then? You can make them publicly encrypted and then publish the keys later if you want to brag.
And is he talking about a small trade here? 4980 was the maxima (the tip), so little money changed hand at that price.
I take any person who says that as a fraudster selling to the ignorant. If you can make, with persistence, 30% returns in a few days then why raise capital in the first place?
"It is a bubble. This is going to be the largest bubble of our lifetimes, and so .. remember, bubbles happen around things that fundamentally change the way we live. The railroad bubble, railroads really fundamentally changed the way we live; the Internet bubble changed the way we live. And so, prices are gonna get way ahead of what they should be. You can make a whole lotta money on the way up. And we plan on it. At one point you're going to have to sell."
Since we cannot really know, I will just use that number and gradually sell around it. Of course that might make me the dumb money but that's a risk I'm willing to take.
Approximately $10.5 trillion US dollars exists today. Some sources claim that the total value of all fiat currencies in circulation (or storage) in the world amounts to $75 trillion.
The total market cap of ALL cryptocurrencies today is less than $150 billion. This means that if cryptocurrencies replace traditional currencies, then you can expect a 500x increase in the total value of all cryptocurrencies. But it's not going to all go into Bitcoin; it's going to be spread across millions (if not billions) of unique cryptocurrencies and new ones are going to rise and fall all the time (like apps on the app store, except fairer). There will be exchanges to convert between any cryptocurrency immaginable; they will all communicate with exchanges via a standard protocol. So any new currency which implements the protocol will be immediately tradeable on any exchange.
Different groups of people will affiliate themselves with different cryptocurrencies and this will allow the combined net worth of different groups of people to float freely on the market based on how much the rest of society values their labor/output. To get rich, it will just be a matter of associating with the the right groups of people at the right time (by buying their currency). It will be the ultimate free market.
On the other hand, since the code is open source, then you can audit the code.
A crypto hedge fund that spends a lot of money actually auditing code might have great returns.
Beyond the valuation, the innovation behind Bitcoin and few others make sense taking into account scaling issues and security thresholds.
Sharing here [2] a work in progress about new insights in the field (e.g. Spectre).
[1] https://medium.com/@cburniske/cryptoasset-valuations-ac83479...
[2] https://docs.google.com/document/d/1VfvfAA2v7EhAaxKmw95GJ0pv...
There's a world of difference between academic peer review and adversarial code review.
Which project are you referring to? If you are referring to IOTA it is a preprint.
Also here we put a new link to the doc: https://docs.google.com/document/d/1J8hehbnZWzcIUMQcxMiGbjz8...
"if a bubble doesn't burst while you are in it (invested and cashed out), was it really a bubble?"
It's really, like, the platonic ideal of a bubble, perfect for separating fools from their money: slow growing, with no clear limit in site, but volatile, and decoupled from reality. It's beautiful, really.
Also, between SegWit, Lightning Network and side chains, the scalability is going to be nearly unlimited in about two years, so the idea that it's not a "viable transaction processing system" seems a bit silly. In fact it works now, globally, without serious problems.
Now security not just includes the quality of the cryptography but the quality of the network, and the design of the currency to allow it to be used reliably.
This factor is all about engineering. And the thing about cryptocurrencies is that they are so novel and so new that there are a really small number of good cryptocurrency engineers. I've worked with a lot of second raters (I'm maybe a third rater myself) and talked to the first rate people. This is not a skill people will be getting with a class or two at a MOOC. (Or I wouldn't be a 3rd rater)
On both measures: Security and Network Effects bitcoin is the king.
The second most popular is Ethereum which is starting to get a lot of holders but seems to be constantly engineering its way out of disaster (the blockchain is already bigger than bitcoins and it's growing faster and new code is being thrown in all the time.)
Move fast and break things makes sense for facebook- they can fix any problems trivially. This is not the case for blockchain systems and thus the risk for ethereum is pretty high. To their credit they have been able to avoid catastrophe so far, but it's a lot less safe in this regard than bitcoin. (And theres some fundamental problems with Proof of Stake that may be exploited when Ethereum goes to that mechanism.)
Right now there's money to be made trading between these alternatives to bitcoin and bitcoin, but that's mostly trading on hype, not utility.
Bitcoin itself isn't even yet having its value follow utility, though it's adoption in situations like Venezuela is starting to prove some of that utility (and here again Ethereum has done good by being GPU mineable, something you can do in probably any country, unlike Bitcoin which requires expensive and mostly-single sourced ASICs)
I don't see where Crypto hedge funds have any advantage. They can't engage in the kind of market manipulation or derivatives trading that typical hedge funds seem to make their money with.
Also lots of errors here like mistaking ICO for Internet Coin Offering instead of Initial Coin Offering.