Asymmetric RISK

Bitcoin speculators feeling the risk.

In the last few months, longer maybe, I've written quite a few posts about the asymmetric risk potential from Bitcoin. The last few months have been more about risk than potential as the price has dropped considerably. As I write this post a few minutes after the equity market close on Monday it was at $7154, down a little more than 50% since July.

I bought a few shares of the Grayscale Bitcoin Trust (GBTC) last December thinking that if any of the crazy high price targets pan out my small gamble would grow to be large enough to have a meaningful impact on our lives and if it went bust, the loss would be inconsequential. I did not sell when it was at $14,000 and I am not a seller here. My hope is that I have the fortitude to hold on if someone like John McAfee turns out to be right (Google it, if you don't know where he fits in).

When taking on asymmetric risk it is important to accept that the road to a gajillion will include a lot of very large declines. This decline will either be one of the large ones before starting higher or it will go to zero, I have no idea, but that is the asymmetry. My friend and Bitcoin proponent Mark Yusko (we know each other from AdvisorShares) is fond of saying risk happens fast and that applies to the price of Bitcoin in both directions. My intention is to simply let zero or a gajillion happen without trying to trade it. The volatility is such that I think it would be very easy to get whipsawed.

One fly in the ointment for GBTC would be if an ETF gets approved. While the premium to NAV has come in a bit, it should be expected that an ETF would cause the premium to implode. I might sell at any time based on that news. Not sure if this needs to be disclosed but I recently funded about half of my solo 401k for the year and I allocated 5% of that contribution to GBTC as well.

If you think asymmetric risk is right for you then you need to think of it in different terms than a typical investment. This is more about speculating than investing. With Bitcoin, you're not investing in anything (no plants, equipment or IP). How much of your money do you want to speculate on nothing? Selling it after a 100% gain probably doesn't make sense either. If you go in small, which is the appropriate sizing, then a double doesn't do much for you. You also can't be surprised if it goes bust. Bitcoinzero would hardly be a black swan. I think zero is unlikely but it absolutely is plausible.

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