Is Bitcoin Going To Zero?

Checking on the cryptocurrency mania.

It has been a while since we last checked in on Bitcoin. Here's what it's done in the first three months of 2018;

It's obviously down more from the early January peak (down about 66%), does this mean it is over? Should investors run screaming from the room, waving their arms frantically above their heads? If you bought way too much at much higher prices, I have no idea what the best thing to do is.

I've written about Bitcoin a few times (including here, here, here). My take all along has been there will be huge price swings, the underlying concept of fast and more secure financial transactions is going to happen but we aren't there yet, getting there doesn't have to include Bitcoin (the internet is a pretty big thing with out Netscape or AOL) and that position sizing should be small.

I had a very quick trade in Bitcoin last fall using the Grayscale Bitcoin Trust (GBTC), it was the middle of the frenzy, I only had it two and a half weeks and although I had intended to keep it, it went up too much too quickly for me to think HODL made sense.

Mark Yusko from Morgan Creek Capital is a huge believer in what Bitcoin can be come including the price going to $400,000. As I said a couple time before, Yusko might turn out to be right but the path to any of those high price targets could come via much lower levels. As I write this post it is around $7000, there is no reason the path back to $20,000 (if it it happens) is via a sub-$1000 figure. That is not an attempt to make a prediction but to reiterate the potential volatility that is taken on by investing/speculating on Bitcoin or the other cryptocurrencies.

There is nothing wrong with speculating with a couple of percent of your portfolio on one of the cryptos, the only real risk in that case is simply a bad trade. To my comment above, the person who put half his portfolio into Bitcoin at $15,000; what if it does keep going down? How likely is this person to hold on if it drops $2500? If Yusko is correct, $15,000 would be a phenomenal entry point but with too much allocated to it, it becomes easy to lose perspective on the thesis that led you to buy in the first place.

To say whether $7000 is a good entry point relative to the next few months would be guess. Where an executive at Grayscale once referred to Bitcoin as uncorrelated alpha I would tell you it is more like unanalyzable beta. $5000 from here in either direction over the next three months would not be a surprise.

At this level I don't think that timing is the most important thing (unless you've figured out how to analyze that beta), I think position sizing is the most important thing. If Yusko is correct, a 2% portfolio weighting here would turn into a life-changing piece of money and if he is wrong...it's a bad trade with no genuinely adverse effect on your life.

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