Sunday, 29 December 2013 19:00

Bitcoin Trading & Investment: Risk vs Return Analysis

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This article showases my 3rd installment of Bitcoin analysis, explanation and investment opportunities. As a quick recap of the 12 minute video, I reviewed:

Bitcoin's dramatic and near unprecendented run and generation of 6 digit gross returns...

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The definition of Alpha and its Bitcoin's historical generation of Alpha over the last 3 years.

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Risk, risk vs. reward and the application of said idealogies to true risk adjusted investment returns as compared to fiat currencies...

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Arbitrage opportunities available through Bitcoin and Litecoin trading....

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A comparison of daily returns between Bitcoin and high beta emerging market currencies...

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And last but not least, the innovative, unique and unprecendented finanical products we're looking to launch in the beginning of the new year, starting with digital currency to fiat swaps, avaible from any smartphone, PC or even Google Glass...

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chocomalk  +Stephen Pettyjohn  What you are saying is that the cost/price of any real world currency should not matter either?
".After all it is infinitely divisible"
Isn't that one of the arguments of bitcoin? That it fixes the problem of over printing by limiting the issuance to a finite amount? So we see now the people did not understand monetary theory since issuance is only one factor in the inflation/deflation cycle of circulating currency.
Because of price fluctuation and its divisible nature, there is in effect an infinite amount of bitcoin in circulation. There is a plus side to this but that is not the point. As I stated there are flaws in the system.
And I understand why the energy cost is high but I also understand that any competing currency will outdo Bitcoin by not only matching or exceeding its security but doing so more EFFICIENTLY. Some smart developer will write a more efficient code or better way of managing the overall system and that will pop bitcoin.
Anyway my argument was not to disparage cryptos but to point out the flaws and the flawed logic presented here. If anything bitcoin has shown the worth of the underlying structure that caused the other internet bubble and that is the internet itself. The most valuable and one of the greatest inventions ever.
The internet is the road. Show less Reply  • 

 

Stephen Pettyjohn   8 hours ago     Sorry, I suppose I should clarify my first statement. The value of the currency (call it a relative CPI) impacts those who own it, but the actual utility of the currency and its demand is controlled by market cap (which is why the market cap for the dollar is so high, when we print money the price per dollar drops proportionally or close to it). 

The raw cost of the network is the barrier to obtaining a large share. For instance, the switch from GPUs to ASICs (Im throwing out FPGAs here because that was a very short phase) reduced the cost per GH from about $270 to $5 with a subsequent reduction in power cost of about 25X. This only made it easier for mining pools like cxe.io to take over larger market shares because they were able to gain an efficiency edge. Increases in efficiency do not yield increases in security. The only thing that blocks people from obtaining a larger mining share is the cost of obtaining that share. The only thing that could "pop" bitcoin at this point is a new form of the dirty pool attack, which is arguably not effective or a method of breaking the 256k1 eliptic coding, which is not used outside of bitcoin (or rather is used infrequently) and thus very little work has been done on this front.  Show less Reply  • 
 

chocomalk   8 hours ago     +Stephen Pettyjohn
 As I stated, printing(issuance) and deflation(withdrawing from circulation) is only one way this cycle can happen.
Imagine if the dollar went from 1 - 1000 in a year and then tell me why it was a good thing outside of the investment potential.
I didn't say efficiency leads to security but it can, the efficncy will lead to less power consumption.
Sorry but a united front of world governments could halt bitcoins advance. Even the US alone could provide the pressure needed. That would relegate bitcoin to the black market and if they ever decide to stop the war on drugs lol Show less Reply  • 
 

chocomalk   8 hours ago     +Stephen Pettyjohn
 As a side note to my last comment, there used to be smaller increments of the dollar than the penny. It is as divisible as bitcoin, it all relies on the system itself.   Reply  • 
 

Stephen Pettyjohn   8 hours ago     +chocomalk India is openly arresting individuals operating exchanges (http://www.dnaindia.com/india/report-first-time-in-the-country-ed-raids-a-bitcoin-seller-in-ahmedabad-1941187) and it's citizens still take part in the currency. In addition, one or two EU countries treat it as a good and tax a massive VAT on it's exchange. All that happens is the population is less likely to transact with it. Considering less than 10% of BTC exchange happens in the US (and even that number is suspect given that a large portion of that exchange is done via brokers to exchanges in Slovenia and Russia) I doubt the US could control the currency significantly. As long as some governments are willing to open their doors (Cyprus, Sweden, Spain, Singapore) then I am relatively certain regulation will not kill the currency. Now, current value is obviously in jeopardy (China's recent regulatory stance) but in terms of long term prospects I think we are relatively safe.

Also, it is worth noting that the estimated cost of electricity for the current mining network is 1/30th the estimated hardware cost. As long as hardware is price competitive and will yield a return at current or short term predicted value people will buy it. Arguably Scrypt produces less waste by not leaving giant ASIC doorstops around, but I'm sure in a world where Litecoin or a Scrypt derivative is the prominent currency  FPGAs or ASICs will be built and well be back to the same point. 
 

chocomalk

+Stephen Pettyjohn

 But why are they investing? Because they are using it to transact or because of the profit potential? Hard to answer.

Bottom line here is the argument that it bypasses the system fails if the system it is bypassing decides to get involved. India might not be able to stop people from buying or using it in outside transactions but they can regulate he business end in India itself as can other countries, they just haven't yet.

Sure some may not make it illegal but they will want a cut of the action and if they can't get a cut they will make all effort to stamp it out I assure you.

So in the end will it be better than a central currency? Imagine if right now the entire world just adopted it and odd man out, if you didn't have the sense to get in early you are effectively screwed and poor as punch.

"current value is obviously in jeopardy"

This is really the basis of my entire argument, bitcoin is a great invention outside some flaws I listed and others outside my keen. Miners should receive compensation but the current system makes monopoly and overt profits way to easy.

Reply  • 
  

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chocomalk

False correlation. Bitcoin is not the internet, it's not a road either and we had an internet bubble anyway lol. You assume it's present unregulated state will continue.
And obviously you have not looked into the "fuel cost" of Bitcoin, it is actually quite high. Your analogy of a road can be used with the present regulated transfer system.
There is nothing Bitcoin can do that another more efficient(cheaper) CURRENCY can do and that is the point, at these price levels, bitcoin is an investment vehicle not a currency.
Is it a ponzi? I don't know but it could be.
It's a great idea with horrible implementation. Show less Reply  • 
  View all 9 replies    Stephen Pettyjohn 

+chocomalk India is openly arresting individuals operating exchanges (http://www.dnaindia.com/india/report-first-time-in-the-country-ed-raids-a-bitcoin-seller-in-ahmedabad-1941187) and it's citizens still take part in the currency. In addition, one or two EU countries treat it as a good and tax a massive VAT on it's exchange. All that happens is the population is less likely to transact with it. Considering less than 10% of BTC exchange happens in the US (and even that number is suspect given that a large portion of that exchange is done via brokers to exchanges in Slovenia and Russia) I doubt the US could control the currency significantly. As long as some governments are willing to open their doors (Cyprus, Sweden, Spain, Singapore) then I am relatively certain regulation will not kill the currency. Now, current value is obviously in jeopardy (China's recent regulatory stance) but in terms of long term prospects I think we are relatively safe.

Also, it is worth noting that the estimated cost of electricity for the current mining network is 1/30th the estimated hardware cost. As long as hardware is price competitive and will yield a return at current or short term predicted value people will buy it. Arguably Scrypt produces less waste by not leaving giant ASIC doorstops around, but I'm sure in a world where Litecoin or a Scrypt derivative is the prominent currency  FPGAs or ASICs will be built and well be back to the same point. 

Show less Reply  • 
 

chocomalk   16 hours ago     +Stephen Pettyjohn
 But why are they investing? Because they are using it to transact or because of the profit potential? Hard to answer.
Bottom line here is the argument that it bypasses the system fails if the system it is bypassing decides to get involved. India might not be able to stop people from buying or using it in outside transactions but they can regulate he business end in India itself as can other countries, they just haven't yet.
Sure some may not make it illegal but they will want a cut of the action and if they can't get a cut they will make all effort to stamp it out I assure you.
So in the end will it be better than a central currency? Imagine if right now the entire world just adopted it and odd man out, if you didn't have the sense to get in early you are effectively screwed and poor as punch.
"current value is obviously in jeopardy"
This is really the basis of my entire argument, bitcoin is a great invention outside some flaws I listed and others outside my keen. Miners should receive compensation but the current system makes monopoly and overt profits way to easy.
Last modified on Monday, 30 December 2013 14:43

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