Late to the Crypto Party, but In
Despite a few of the seemingly wisest posters on this site consistently recommending crypto, I have not jumped on board…until now. The biggest reason for my hesitancy have been my inability to truly understand what cryptocurrency is and why it could be considered valuable. That kept me from buying about one year ago, at 1/3 of today’s price. But I’ve continued to hear smart people make the case for crypto. The straw that broke this camel’s back came yesterday in the form of a video interview of Max Wright. I’d not previously heard of him but he made a very compelling argument for continued “money” printing and how that should keep inflating everything and that crypto is at the top of that heap. I opened a coin base account yesterday and set up a recurring small purchase of Bitcoin.
Admittedly, I’m violating one of my investment rules because I still can’t quite wrap my head around the technical qualities of crypto. But I’m not too proud to admit that I can follow the lead of people more knowledgeable than I. So I hope that you crypto-smarties will keep posting on that topic and helping people like me!
It looks like it is a good time to buy in.
I think I’ve decide upon a 30/60/10 asset allocation that I can live with for holding long term (2-4 years):
- 30% crypto (bubble assets)
- 60% gold, silver, and miners (anti-bubble assets)
- 10% call options on VIX (anti-bubble and deflationary crash asset)
Bitcoin and gold look like they might be an excellent trading pair over the years ahead, although I think you need twice as much gold to offset the volatility in bitcoin. Rebalancing once a year or longer should help with the taxes.
The VIX call options are essential for me. Insurance for the occasional deflationary flash crash.
You might be able to do better holding 100% crypto long term, but I need to be able to sleep.
Thanks, JAG. I certainly hope it’s a good time to buy in. Of course, a year ago would have been better!
I am definitely not 100% crypto. I have a fair amount of physical silver and stocks still make up the bulk of my portfolio. I don’t hold any physical gold but I do have a stake in GOLD. But, all new money is going into crypto for at least the next several months.
I am intrigued by your VIX options. I expect inflation but it would be nice to have a small hedge against deflation just in case TPTB come to their senses and stop printing. Would you mind further explaining your how and why of that approach?
Is there a cryptocurrency section on the discussion board? I can help facilitate technical questions. This area of development isn’t going away any time soon.
TWalker: I am intrigued by your VIX options. I expect inflation but it would be nice to have a small hedge against deflation just in case TPTB come to their senses and stop printing. Would you mind further explaining your how and why of that approach?
The VIX index basically measures fear in the markets. The VIX is a calculated variable and the higher its value, the more fear is being priced into the markets.
A VIX call option is a bet that the VIX Index will be higher at some point during a specific time period in the future.
In an “everything bubble” like this, that is (at least) caused by a psychological reaction by traders to Fed QE and fiscal stimulus, VIX call options are useful in two ways:
- During a market panic or flash crash, all assets will crash except for the dollar and VIX call options.
- During a market “melt-up”, the dollar would crash but VIX call options would rise as traders bet on much higher prices in deflated dollar terms.
My understanding of the VIX is that it measures the spread between the prices that the most bullish traders are willing to pay versus the most bearish trader’s prices. Most of the time the difference between the bullish and the bearish bets is not that much, so the VIX is low. But if the bears are betting on much lower prices (deflationary crash) or the bulls are betting on really high prices (inflationary melt-up or currency crash), the spread increases and the VIX rises.
So VIX call options protect against both inflationary and deflationary market extremes.
However, during normal market conditions, you will lose 100% of the money that you put into buying the VIX call options, over time. It is like paying an insurance premium, you expect to lose that money.
But when there is fear in the markets, the insurance premium pays off and you are able to sell your VIX call options to fearful traders looking to hedge their portfolio.
During the COVID crash last year I sold the last 10 of my VIX call options at a 50X profit. Of course you never know when to sell, so in hindsight, I sold all of them too early, lol.
I learned how to buy and sell options on YouTube, and I also learned about the VIX call option strategy on YouTube. Also, DaveF also helped me a lot. Thanks DF.
Thank you so much, JAG, for taking the time to explain that. Your thesis seems prudent. I’m positioning myself mostly with the expectation of inflation, but having a little hedge to protect me if we get a crash (or melt up) instead makes sense. And options allow us to do this with only a small investment.
No interesting properties in Catalunya for a small budget of 40 000. Possible? yes, but there are too many things lacking or wrong. It could be a great vacation home after lots of work and spending, but not as a permanent home.
After my vacation, I decided to park my budget in crypto. I am now accumulating.
60 % Cardano, 30 % Etherium and 10 % altcoin plankton. It is supposed to be medium term (6 months – 3 years), hoping it will go up 2-4x. I think it has that value and potential. In that case, I would come out with a more serious budget.
(I am not gambling my life savings, just accessible money)