Goomboo's Journal

[notme]

Only 21 million ever.  I'm investing for retirement with a 30+ year timeframe.  I doubt I'm the only one with such an attitude.  At that scale, BTC will either be worth 0 or at least 10.

Trust me, you have no idea what you may do with regard to accumulating wealth over a time frame like that. I seem to have missed the rise of a generation of one eyed mutants herding us all into stinking cattle pens so far, so that may be a consideration that you will want to incorporate in your careful planning 

The one thing I will say is that no strategy or approach lasts, I tend to follow The Church Of Whatever Works Right Now. For example what worked for me superbly in 2008 is a non-starter today.

I hear you... and every time my BTC holdings become significant, I diversify.  So far, I've funded a small IRA stock account and some physical gold with my BTC winnings.  But, I've sold everything I want to sell for now above 7.  My holdings are far from rigid, and even within BTC, most of them are working for me (interest and trading income).

[cypherdoc]

Only 21 million ever.  I'm investing for retirement with a 30+ year timeframe.  I doubt I'm the only one with such an attitude.  At that scale, BTC will either be worth 0 or at least 10.

You just revealed something about yourself - a tendency towards an upward bias.  The currency markets are unlike the stock markets in that there is no "upward" bias.  Stocks are driven by earnings, growth, developments, the economy, etc.  As an economy strengthens, so does its market.  This means that there is a bias towards the upside in the stock market - people believe that times may be better in the future and thus they invest in stocks (excluding dividends) for the long run.

The currency markets possess no upward bias.  The exchange rate of a currency fundamentally should be based on the relative demand for one currency and the willingness of the holders of another currency to sell their base currency for an alternative.

It makes very little sense to hold this for your retirement.  This shows that you believe it will appreciate over time against the dollar.  Fundamentally, this makes very little sense.  Who cares if there are 21 million bitcoin?  I can find stocks with 21 million or less shares - is that a justifiable reason for me to put it in my retirement?

$10 - where do you get this number?  What do you base this on?  Do you have some model which has worked in the past that validates your assumption?  See where I'm going here?  You need to question your decisions and find out why you actually made them in the first place.

i wrote this for my November 23, 2011 blog post:

http://www.hussmanfunds.com/wmc/wmc111121.htm


John Hussman is one of my favorite reads.  Aside from all the other great things he writes in this post, I wanted to point out this particular passage that rang true to me, especially as they apply to Bitcoins.  Anywhere you see "Bitcoin" inserted into this passage is from me:

"Why does a fiat currency (Bitcoin) have any value at all? The answer is that the value of a fiat currency (Bitcoin), like any other asset on the face of the earth, derives its value from the stream of benefits that it delivers to its holders over the life of the asset. Currencies get value because they serve as a means of payment and as a store of value. You can think of a dollar (Bitcoin), for example, as throwing off a little bit of "benefit" every day to its holder, either because it is useful to that holder as a store of value, or it is useful in making a transaction (in which case, a new holder will control the remaining stream of benefits provided by the dollar (Bitcoin)."

Note that he defines a currency as functioning as a means of payment AND a store of value unlike others have claimed on the Forum.  Now this definition does get a bit muddled as gold does not function as a means of payment for the most part in our modern society but is defined as true money by the gold advocates because of its store of value properties.

"One unit of a good provides a certain amount of benefit, or "marginal utility." One unit of a currency (Bitcoin) provides a stream of future benefits, that adds up to its own overall "marginal utility." The price of any good, in dollars (Bitcoins), is simply the marginal utility of that good, divided by the marginal utility of a dollar (Bitcoin). If a box of paper clips provides a total of six smiley faces of utility, and a dollar (Bitcoin) provides a total of two smiley faces of utility, a box of paper clips will trade for $3.

Value always lives at the intersection between scarcity and usefulness. What determines the overall marginal utility of the dollars (Bitcoins) in circulation? Well, if there is a great deal of financial uncertainty, so that the dollar (Bitcoin) is considered a "safe-haven," each dollar (Bitcoin) will have a little bit more value than it would otherwise. On the other hand, if the supply of dollars (Bitcoin) increases significantly, dollars (Bitcoins) are less scarce, and therefore less valuable. So credit crises tend to increase the marginal utility of dollars (as safe-havens) (Bitcoin), causing deflationary pressure on prices. Printing money reduces the marginal utility of dollars (Bitcoin), causing upward pressure on prices. Printing money  during a credit crisis - providing that people actually want to hold that currency (Bitcoin) as a safe haven - is fairly neutral for inflation."


It is my contention that if Bitcoin maintains at least some USD price exchange level in perpetuity, then it IS a currency simply via the fact that it will be a store of value.  In fact, I will go as far to say that we may already be at that level as $2.00 has proven to be a hard floor for at least a month now after a precipitous decline.  I also contend that any price in the $1 range would have to imply equal value to other fiat currencies including the USD which in my mind is ludicrous given all the fundamental advantages that Bitcoin has introduced to our modern digital age.  In other words, I think Bitcoin is fairly valued at the present time and will not go lower.  If an economy does continue to build up around Bitcoin, then the price will go even higher as it assumes the "method of payment" function.  This whole "fair value" claim of mine at the current price level, however, ignores the future recognition by speculators like Keiser and Prechter, etal who when they recognize the gold/silver equivalent properties of Bitcoin will surely flood the Bitcoin landscape like cockroaches over dead meat.

"Here's something to think about. When we look at any stream of payments, the value is based on the whole long-term stream, not just the benefits received in the first few years. Those of you that are familiar with the dividend discount model, for example, know that the bulk of the "value" of a stock is not in the near-term cash flows the stock will throw off in the first few years, but in the very long-term "tail" of those cash flows (or equivalently, the terminal value expected in a buyout). Well, the same is true for a currency (Bitcoin).Even if the Federal Reserve creates a massive amount of currency (Bitcoin), it will not be inflationary provided people are absolutely convinced that the dollars (Bitcoins) will only hang around for a short period of time. If they ever become convinced that the new dollars (Bitcoin)are permanent (and especially if there is not an ongoing credit crisis to create safe-haven demand), the marginal value of each individual dollar(Bitcoin)would decline, and inflationary pressures would emerge."


Fit the concepts behind that paragraph around the fact that the Bitcoin "printing" curve is asymptotic and will go to zero in perpetuity somewhere around 2040 with a halving of introduction just next year.  Also, note that Hussman draws a parallel between currency and a stock if that currency can be viewed as having "future value".  So I can argue that despite the current inflationary "printing" of Bitcoins and the fact that the price has stabilized implies that as the "printing" subsides the value will go up.  This concept is directly contradictory to several of the Bitcoin skeptics.

This is why we invest in Bitcoin NOW.

[vokain]

All the reasons Cypherdoc cited to invest in bitcoins are the same reasons why I'm bullish on the bitcoin market. I really don't care what it is today, the big money is in the long term trend. I believe the fundamentals of BTCs point upwards. Yes, there's a finite amount of them, but it's more than that. Its utility even exceeds cash in certain cases, but the best part is that ANYONE can use them for ANYTHING, as long as they're accepted somewhere. What I'm betting on is market proliferation, and the way things are panning out.....it's definitely proliferating.

Another thing is that even though there's a slight difficulty gradient in acquiring the bitcoins, and at the same time there's a slight gradient withdrawing from BTC's store of value. This goes both ways IMO: when people put money into BTC, more will stay in than pulled out just because it's more convenient...over time. Reasons that would cause the depression of BTC pricec I can't imagine being able to hold back bullish pressures for too long.

Additional last thoughts: It is my hope that there are too many people heavily vested into this to not see a stronger, better diversified and more resilient BTC market in the mid- to long-term. Manage your risks correctly, like Goomboo is trying so hard to impart to us, so that everyone here can do their part to contribute to this fledgling, yet very exciting maturation of a new type of economy.

[Goomboo]

i wrote this for my November 23, 2011 blog post:

Thank you for contributing to the thread - very well-written and informative,

Two of my favorite quotes from this book:

http://www.amazon.com/Technical-Analysis-Using-Multiple-Timeframes/dp/1598795805/ref=sr_1_1?ie=UTF8&qid=1327372543&sr=8-1

"The market is a leading indicator of the economy.  Economists would be the best traders if a strong understanding of the economy was necessary to trade successfully"

"Do not force your opinions on the markets.  The market doesn't care what you or I think should happen.  Trade what you see, not what you think."

I agree that BTC is a currency and a method of exchange.  I think that $2.00 was a temporary floor because there were so many bids that sellers simply couldn't overwhelm them.  I think that it rallied because many people were looking for "a bargain" and purchased because it was at new lows.  I  believe that this current rally was caused by the positive reinforcement of fresh profits for those who purchased at $2 - $6.

This is an age-old debate we could go into - what caused the price to move: economics or market psychology.  Rather than getting tied up in a debate, my goal is to reach a common ground and that is that we are all seeking profit.  Often in the academic world I see people desiring to be "right" in diagnosing the economy rather than actually making money.  My goal here is that people be intensely rational about how they pursue it and protect their grandchildren's inheritance.

I do believe that BTC is in a highly-speculative bubble and that just like the traditional spot FX markets, >95% of the volume is done purely by speculators.  Additionally, from the knowledge that the majority of individuals are wrong and lose money when they trade, this furthers my belief when I look at the * on Bitcoinica.  However, all this aside, I will not force this belief on my trading.  If a long signal is generated, I will take it because the market can stay "irrational" a whole lot longer than I can stay solvent.

[notme]

...snip...
If a long signal is generated, I will take it because the market can stay "irrational" a whole lot longer than I can stay solvent.

Bingo... We're all nuts here.

[Goomboo]

All the reasons Cypherdoc cited to invest in bitcoins are the same reasons why I'm bullish on the bitcoin market. I really don't care what it is today, the big money is in the long term trend. I believe the fundamentals of BTCs point upwards. Yes, there's a finite amount of them, but it's more than that. Its utility even exceeds cash in certain cases, but the best part is that ANYONE can use them for ANYTHING, as long as they're accepted somewhere. What I'm betting on is market proliferation, and the way things are panning out.....it's definitely proliferating.

Another thing is that even though there's a slight difficulty gradient in acquiring the bitcoins, and at the same time there's a slight gradient withdrawing from BTC's store of value. This goes both ways IMO: when people put money into BTC, more will stay in than pulled out just because it's more convenient...over time. Reasons that would cause the depression of BTC pricec I can't imagine being able to hold back bullish pressures for too long.

Additional last thoughts: It is my hope that there are too many people heavily vested into this to not see a stronger, better diversified and more resilient BTC market in the mid- to long-term. Manage your risks correctly, like Goomboo is trying so hard to impart to us, so that everyone here can do their part to contribute to this fledgling, yet very exciting maturation of a new type of economy.

Thanks for the thought Vokain,

That's my goal - try to help people manage risk so that they don't lose the shirt they couldn't afford to lose.  Often people become enamored with an idea / concept / stock / etc. to the point that they ignore what is actually happening in the market.  If someone were simply following the trend throughout the life of BTC, they could have earned a hansom profit during the bubble, protected it nicely during the decline, and reinvested for continued growth - all of this while being enthusiastic and enamored with the idea.

[Goomboo]

Trading update:

-I don't have time to trade hourly candles in the BTC market right now, so I am moving to daily.

-Exited the trade at $6.33 - a loss of $.02 per BTC or .3% pre-commission.

-Short signal generated at current prices on daily charts using 21/10 (SMA)

-Short at $6.28 (Low leverage - the higher the timeframe, the more wiggle room you need to allow)

[StewartJ]

I do believe that BTC is in a highly-speculative bubble and that just like the traditional spot FX markets, >95% of the volume is done purely by speculators.  Additionally, from the knowledge that the majority of individuals are wrong and lose money when they trade, this furthers my belief when I look at the * on Bitcoinica.  However, all this aside, I will not force this belief on my trading. If a long signal is generated, I will take it because the market can stay "irrational" a whole lot longer than I can stay solvent.

I believe that the $6.xx price of BTC as it stands now, is based on pure speculation.

Trading inside this highly speculative bubble is feasible to the extent that as you say "...the market can stay "irrational" a whole lot longer than I can stay solvent."  

[Qoheleth]

-I don't have time to trade hourly candles in the BTC market right now, so I am moving to daily.

Have you considered automation?

I mean, if you're a proponent of using truly deterministic strategies for trading, it seems like a logical way to keep those strategies running without having to babysit them 24/7.

[vokain]

yeah, screw subjectivism

[Sargasm]

Wealth of information in this thread!

Totally digging it.  Have to sleep and spend some time reading it tomorrow.

I am a little unsure as to whether or not BTC has a 'real value'.  IMO BTC isn't like a currency exactly.  It's somewhere between a currency and commodity.  The fact that there are only such and such a number of coins and that people might find utility in holding them or exchanging them exerts price pressure upon them.

Especially as the currency stabilizes I expect to see the utility increase, adoption to increase and relative price to go up.

At the same time, I appreciate the sentiment, because the only thing really propping up the price of BTC at this point is speculation because consumption is a relatively small amount of use for it.  

Good to keep my heels cool.  

Also... if you're shorting do you only short if you are just in time when the lines cross?  Will you short any time after the indication, or would your risk increase and reward decrease pretty quickly if you were slow to pull the trigger?

[kangasbros]

It makes very little sense to hold this for your retirement.  This shows that you believe it will appreciate over time against the dollar.  Fundamentally, this makes very little sense.  Who cares if there are 21 million bitcoin?  I can find stocks with 21 million or less shares - is that a justifiable reason for me to put it in my retirement?

The stock analogy doesn't work. Stocks are not easily transferable, in fact stocks are heavily regulated. And companies can decide to launch new stock to the market.

[dooglus]

Trading update:

-I don't have time to trade hourly candles in the BTC market right now, so I am moving to daily.

-Exited the trade at $6.33 - a loss of $.02 per BTC or .3% pre-commission.

-Short signal generated at current prices on daily charts using 21/10 (SMA)

-Short at $6.28 (Low leverage - the higher the timeframe, the more wiggle room you need to allow)

I'm not seeing it.  Are you saying there was a crossing while today's candlestick was still forming?  Do you not wait for each candlestick to complete before looking for crossings?  Either way, it doesn't look like the price has been low enough at any point today for the moving averages to have crossed:

[tulkos]

Trading update:

-I don't have time to trade hourly candles in the BTC market right now, so I am moving to daily.

-Exited the trade at $6.33 - a loss of $.02 per BTC or .3% pre-commission.

-Short signal generated at current prices on daily charts using 21/10 (SMA)

-Short at $6.28 (Low leverage - the higher the timeframe, the more wiggle room you need to allow)

I'm not seeing it.  Are you saying there was a crossing while today's candlestick was still forming?  Do you not wait for each candlestick to complete before looking for crossings?  Either way, it doesn't look like the price has been low enough at any point today for the moving averages to have crossed:

You're using Exponential Averages, switch to Simple Averages.

[RyNinDaCleM]

Trading update:

-I don't have time to trade hourly candles in the BTC market right now, so I am moving to daily.

-Exited the trade at $6.33 - a loss of $.02 per BTC or .3% pre-commission.

-Short signal generated at current prices on daily charts using 21/10 (SMA)

-Short at $6.28 (Low leverage - the higher the timeframe, the more wiggle room you need to allow)

I'm not seeing it.  Are you saying there was a crossing while today's candlestick was still forming?  Do you not wait for each candlestick to complete before looking for crossings?  Either way, it doesn't look like the price has been low enough at any point today for the moving averages to have crossed:

You're using Exponential Averages, switch to Simple Averages.

From the OP...

The system I use for Bitcoin is very, very simple and straight forward.

I trade a 10 and 21 exponential moving average crossover.  

[piotr_n]

I'm not seeing it.  Are you saying there was a crossing while today's candlestick was still forming?  Do you not wait for each candlestick to complete before looking for crossings?  Either way, it doesn't look like the price has been low enough at any point today for the moving averages to have crossed:

Change it from Daily to Hourly - then you will see it


Thx, @Goomboo - it's a very nice topic!

But what do you do when it looks like this?


It doesn't seem like crossing, yet - does it?
You wait - or you sell?

[vokain]

I'm not seeing it.  Are you saying there was a crossing while today's candlestick was still forming?  Do you not wait for each candlestick to complete before looking for crossings?  Either way, it doesn't look like the price has been low enough at any point today for the moving averages to have crossed:

Change it from Daily to Hourly - then you will see it


Thx, @Goomboo - it's a very nice topic!

But what do you do when it looks like this?


It doesn't seem like crossing, yet - does it?
You wait - or you sell?

"It's a bull market you know!"  
that's probably one of my favorite parts of the story haha

[StewartJ]

Well have gone in and out with the crossovers, and lost just a tiny bit

Refreshing to maintain the discipline by following a trading system. Now on to the next cross-over!

[Timbo925]

Well have gone in and out with the crossovers, and lost just a tiny bit

Refreshing to maintain the discipline by following a trading system. Now on to the next cross-over!

Where are you trading? Seems like when I trade on bitcoinica the margins just kill all my profits.

[proudhon]

Well have gone in and out with the crossovers, and lost just a tiny bit

Refreshing to maintain the discipline by following a trading system. Now on to the next cross-over!

Where are you trading? Seems like when I trade on bitcoinica the margins just kill all my profits.

MtGox?