nrd525 Market Tracker

[nrd525]

I'm starting a market tracker and advice thread.  I'm by no means an expert in investment (in crypto-currencies or other).  Some of my qualifications
-bachelors in economics
-invested in the stock market in high school (did fine - would have done great if Nortel Networks didn't collapse)
-fascinated with statistics for 25 years
-bought a house in 2012 - pretty much at 1-2% from the bottom of the local housing market (and for $20k less than the neighbors bought their house)
-been active since June 2011
-several days after learning about it I wrote a blog post on June 3, 2011: Bitcoin - Libertarians, Techies and the Coming Bubble (price was $18.45). It crashed a couple days later.
-Shorted bitcoin from $7 to $2 in 2011.
-lost $450 on bitcoinica due to the hack and liquidation.
-early critic of the Pirate ponzi
-bought a couple bitcoins in 2013 at $120 - sold at $700 while on the way up to $1150
-made a lot of interest on Bitfinex swaps in 2013 - maybe 100% APR
-Dec 2013 - greatly increased my lending out of Bitfinex swaps
-2014 - lost a small amount of money on Dogecoin. I thought the creativity and friendliness of the community was a great asset (as Bitcoin's value is based on the community of users - not the algorithm).  But so far I've been very wrong.  On the plus side, I was smart enough to only risk a couple hundred dollars.
-2014 - went long on Bitcoin at an average price of $540
-2014 - made $25/BTC arbitraging Coinbase and Bitfinex
-2014 - still making a killing on Bitfinex swaps (mostly using the Flash Return Rate)

My general strategy is conservative by bitcoin standards, though not by traditional investment ones.  I'm very skeptical of new projects.  For instance, I was a Bitcoin bear up until mid 2013.  After trying it out, I'm planning on staying away from day trading as it is too unpredictable and I'm hoping to hold my bitcoins for a year and pay the US long term capital gains tax rate (which is 19% or more lower in my area).

I'm providing opinions about the price of Bitcoin and trying to identify positive or negative developments (eg. facts) that should correlate with the price.

Moderated thread: off-topic posts will be deleted as will personal attacks.

Disclaimer: as of July 2015, I've lost money on my net total investment in crypto-currencies and swaps.

Update: as of Dec 2017, like most people who have got involved in bitcoin, I'm up by a lot.  This does NOT mean that you should invest in Bitcoin as we are currently in a massive bull market and the price could fall 95%.

Update 2: As of Oct 2019, I bought in at the (so far) 3k-5k bottom, sold a bit, bought some more.  Did a pretty good job on calling 3k.  Currently have some money in Blockfi and Celsius Network getting interest.

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[nrd525]

Current recommendations

1) Medium risk - loan swap USD at Bitfinex at the flash return rate.  Expected 20-40% APR.  The current APR is much higher (0.14%/day after the fee - is 66% APR).  But I expect the APR to fall to 20% (or less) unless there are price shocks.  There is a chance you will lose all the money - but the chance is worth it.  My risk assessment of Bitfinex is that they are more reliable than most other bitcoin corporations.

2) High risk - go long on Bitcoin.  Hold for a year or more.  Do not day trade.


Negative Recommendations
Do not loan BTC at Bitfinex.   2% APR is not worth the risk.

Do not invest in altcoins.  Bitcoin is 90% of the market and shows signs of a natural monopoly due to the network effect.

Do not invest in mining. I'm very unqualified to evaluate this - but by all accounts difficulty is skyrocketing (up 20% each period) and miners are likely to lose money.

Do not invest in any business that offers shares for bitcoins.

[nrd525]

Not sure about
Icbit.se - you can buy a bitcoin now ($640), and sell it for 20% more in December ($769).  For the past month or so their October contract has been trading for 8-10% above market value, and the December one for 15-20%.

This seems great - it's a guaranteed return of 40% APR (minus any fees).  However I'm not sure I trust icbit.se.  I've got no experience dealing with them. They have been around for a year - so they might be worthy of trust.  Does anyone know?

I've been sticking with Bitfinex as they offer a roughly similar service and rate of return.

[nrd525]

Normally I don't buy into technical analysis.  But I think that something is going on at around 666.

[nrd525]

Dogecoin continues its fall.  Earlier I thought it might succeed due to the size, enthusiasm, and positivity of the community.  But the fact that it has fallen from 150 (or more) to as low as 31 satoshis is a good example of how difficult it is for alt-coins to succeed.

[bitcoinsrus]

The litecoin dump that recently happened was a little surprising. With all the scrypt miners that recently came out (as well as kncs litecoin miner coming in a few months) I thought scrypts might get more support (and higher price)

[adamstgBit]

The litecoin dump that recently happened was a little surprising. With all the scrypt miners that recently came out (as well as kncs litecoin miner coming in a few months) I thought scrypts might get more support (and higher price)

a good deal of the appeal of these coins was that it was "ASIC resistant", not anymore...

[nrd525]

Dogecoin has been mostly mined out.  Something like 85% mined.  So between the declining block reward and the ASICs, it is game over for what used to be very profitable mining.  I even mined a few Dogecoin with my GPU back in Jan/Feb.

A year or two ago, before they existed, I was worried that ASICs could cause havoc in Bitcoin by drastically decreasing the number of miners and by causing almost everyone mining to lose money.  I figured that a product with a high capital investment that had low marginal cost of production would cause the ASIC miners to get cheaper and cheaper.  Miners would continue to mine so long as the revenue was greater than the cost of electricity - but they wouldn't recuperate their investment.  Since miners were such a critical part of early Bitcoin, I thought that the economic loss to miners (and ASIC producers) could seriously impact the bitcoin economy.

Of course Bitcoin price went up by a factor of 50 to 100 and this wasn't a problem.

The early predictions of ASICs being 1000 times more efficient than GPUs are proving to be true.

[Hyena]

The litecoin dump that recently happened was a little surprising. With all the scrypt miners that recently came out (as well as kncs litecoin miner coming in a few months) I thought scrypts might get more support (and higher price)

a good deal of the appeal of these coins was that it was "ASIC resistant", not anymore...

It's a pity they don't allow altcoin speculation in this subforums. I sold 70% of my Litecoins yesterday and bought Peercoins. LTC has nothing to offer and is suffering from stagnation while Peercoin has some really promising projects under development (PeerShares and PeerUnity).

[RyNinDaCleM]

Not sure about
Icbit.se - you can buy a bitcoin now ($640), and sell it for 20% more in December ($769).  For the past month or so their October contract has been trading for 8-10% above market value, and the December one for 15-20%.

This seems great - it's a guaranteed return of 40% APR (minus any fees).  However I'm not sure I trust icbit.se.  I've got no experience dealing with them. They have been around for a year - so they might be worthy of trust.  Does anyone know?

I've been sticking with Bitfinex as they offer a roughly similar service and rate of return.

If those are contracts, then there is the chance the when you sell in December (for what seems like a profitable trade now), the price is higher than the contract price and you are selling way under spot then. Something to consider.

[nrd525]

Right, but it's a guaranteed profit if you invest money now and hold.  

So from a diversification point of view, if you are bullish it would make sense to put some of your money in BTC and some of the money in BTC but which will be redeemed by an icbit contract in December with a guaranteed profit (whether or not Bitcoin goes up or down).  So long as you trust Icbit.se...

[nrd525]

Bullish news
Dell accepts bitcoin.  Biggest business to do so by a factor of ten.  Some people think that businesses accepting bitcoin will not have an impact or even cause the price to decline as people use the opportunity to sell their bitcoins.  They are totally wrong.  I believe the value of bitcoin is based on the size of the bitcoin economy (money supply * velocity  + holders).

Coinsetter launches. First US exchange. Coinbase isn't a real exchange (no bids and asks).  Coinsetter also has lower fees (0.25% vs 1%).

OkCoin launches international service with US dollars. Hard to know the size of the impact.


Bearish news: proposed NY state regulations are tedious.  Though they are not final.


General trends: altcoins down. Bitcoin slightly down, but mostly very stable which is good for the longterm as stability promotes adoption.


Random: I joined the bitmixer signature campaign. I find it hilarious that my signature is worth 0.01 BTC/week.

Scams: URO alt coin continues to drop (thread is hilarious).  PBMiner is probably also a scam.

[Bitcopia]

.... I believe the value of bitcoin is based on the size of the bitcoin economy (money supply * velocity  + holders)....

Doesn't a higher velocity decrease the price? For example, a hypothetical currency that has instant velocity needs much fewer units to provide the same amount of value transfer as a currency with a sluggish velocity. The less units you need to keep the flow going, the less demand there is for that purpose. I'm no professional economist, but that is my amateur understanding.

I also agree though, that large companies accepting bitcoin are critical to its success and valuation.

[BTCtrader71]

.... I believe the value of bitcoin is based on the size of the bitcoin economy (money supply * velocity  + holders)....

Doesn't a higher velocity decrease the price? For example, a hypothetical currency that has instant velocity needs much fewer units to provide the same amount of value transfer as a currency with a sluggish velocity. The less units you need to keep the flow going, the less demand there is for that purpose. I'm no professional economist, but that is my amateur understanding.

Higher velocity does mean lower valuation, by my understanding of the quantity theory of money. Basically, what you said.

I think the question of the velocity of money in a bitcoin world is a vitally important one. The technology allows for a high maximum velocity, which is one thing that makes it more useful than the current system (e.g. no need to wait until tomorrow for a check to clear), although in practice, bitcoin's actual velocity will probably not be anywhere near the technologically-imposed limit. Unless you have cash flow problems, there's simply no incentive to move bitcoins around that fast. This is especially true for anyone who uses bitcoin as a currency and an investment.

So:
- higher max velocity will increase the value of bitcoin because it makes bitcoin a better system, attracts users, and thereby increases demand
but
- higher actual velocity will decrease the value of bitcoin because it effectively makes bitcoin less scarce (quantity theory of money)

[nrd525]

Good ideas. The impact on velocity could go either way.  And I agree that the velocity in bitcoin could technically be very high, but in practice isn't anywhere near what it could be - with the major exception of gambling (and notably people who do dice gambling with bots - where people can spend the same money 10 times in a day).  Does dice gambling count towards velocity if it is done off the chain?


I was primarily thinking about the

Size of the Economy = Money Supply * Velocity * BTC price.

 So I was commenting on how Dell's acceptance of bitcoin increases the size of the economy - and if the money supply and velocity are constant then this will increase the BTC price. 

[Bitcopia]

Good ideas. The impact on velocity could go either way.  And I agree that the velocity in bitcoin could technically be very high, but in practice isn't anywhere near what it could be - with the major exception of gambling (and notably people who do dice gambling with bots - where people can spend the same money 10 times in a day).  Does dice gambling count towards velocity if it is done off the chain?


I was primarily thinking about the

Size of the Economy = Money Supply * Velocity * BTC price.

 So I was commenting on how Dell's acceptance of bitcoin increases the size of the economy - and if the money supply and velocity are constant then this will increase the BTC price. 

My understanding is that even if it is done off chain, it still holds the same consideration regardless of how the transaction was processed.

And Dell's acceptance and advocation (giving 10% discounts and making video clips of how to pay with BTC) certainly increases the supply of the economy!

[nrd525]

I thought Coinsetter had setup ACH transfer for the US. But apparently they have either not done it or have only done it in some states.

So in this case it isn't as useful.  You can still put money into Coinbase via ACH and then get fees refunded at Coinsetter - but it is a bit of bother.

[nrd525]

Without a major market move up, I expect Bitfinex USD swap rates to plummet to 0.08% or lower.  It is very puzzling why this isn't happening give that there is an excess of supply of $6 million (and a total swaps of $29 million).  Normally it would take only 1/6th of that excess supply (as a fraction of total swaps) to crash the rate.

It should be falling by 0.01%/day or more - but it is only falling by 0.002%/day.

Maybe there are lenders who expect that they can get a 0.14-0.15% flash return rate and aren't prepared to settle for less.  And they might be hoping that a bubble will return the flash return rate to 0.20%/day.  After not lending out their money for a week, you think they'd realize that rates are on a long-term downward trend.

The Bitfinex swaps are slowly declining (probably due to a reduction in the effective leverage ratio and BTC price stability).  Lower flash return rates will reduce swap supply (or the speed at which it was increasing - it is hard to actually reverse the trend) and thus limit the impact of Bitfinex on the next bubble (if there is one).  This is slightly bearish for the next bubble - though it could reduce its wide-swings (and flash crashes).

[Chicowash]

Very interesting thread, thank you for sharing some of your experience.

[nrd525]

It's down a good bit (currently $562 at Bitstamp and Bitfinex) and I'm considering buying.

There doesn't appear to be much serious negative news other than the NY state Bitlicense rules which are only proposed and may change or be very different in other states (or maybe NY is a model for other states as they do have Wall Street and might have the most expertise when it comes to financial regulation).