https://cryptomode.com/internet-computer-icp-has-retraced-96-since-its-all-time-high/ ICP (The internet computer) seems to fail the legitimacy by fairness test https://vitalik.ca/general/2021/03/23/legitimacy.html I was considering putting a small position on it but the more I think about legitimacy the more I think ICP is doomed because they only focused on tech, and not on legitimacy. If that is incorrect, then eventually we will see some traction, users, network effects, etc. But with so many bagholders I'm inclined to sit out of this one
I have been running some backtests on Bitcoin and asset allocation and found this A 60/40 Bond/Stock portfolio from 2012 to 2021 would have had the following risk adjusted returns (with monthly rebalancing) Sortino ratio 0.4273 MAR Ratio (CAGR/Max DD) 1.24 MaxDD -4.22% CAGR 0.43% (monthly real return) Gain to Pain Ratio (From Jack Schwager): 1.47 K-Ratio 1.09 With 5% less in stocks and in Bitcoin instead, the numbers go to: Sortino 1.055 MAR Ratio 1.52 CAGR 1.03% (monthly real return) MaxDD -8.14% Gain to Pain Ratio (From Jack Schwager): 2.25 K-Ratio: 1.53 So, effectively adding Bitcoin to an asset allocation strategy is a way to improve risk adjusted returns, increasing total return by increasing max DD. Lots of asset managers are paid incentive fees to produce returns and they also like the idea of better risk adjusted returns. But if the fund blows up, its not their money anyway (the agency problem). So call me crazy but even if one were to concede the point, for argument sake, that BTC is a 100% completely worthless asset, why wouldn't this "bubble" continue? Its reflexivity at work, the "bubble" created stats and stories that will draw more managers in, which will improve stats, and on and on. All until hell breaks loose, but that usually goes one much further than people think, institutions only own 10% of BTC according to Bridgewater. But given the global flight from fiat/bonds/cash (which gets bigger everytime there is more QE), I have a hard time seeing asset managers resisting the temptation. Stats like these are like crack cocaine for them
I also did the following backtest, I locked the stock allocation at 30% and of bonds at 50% and asked Excel Solver to tell me what was the ideal allocation between T-Bills, Gold and Bitcoin that maximized the MAR Ratio (CAGR/Max DD, my favorite metric). It was Bills at 11%, Bitcoin at 9% and Gold at 0%. If I allow total freedom to Solver to allocate whatever it wants to maximize the MAR, it goes very stock market heavy but it still limits BTC to 10%. So that is very interesting I also run a bunch of random tests, of BTC, Stocks, bonds, bills and it seems that at around 10% BTC starts to have negative effects on risk adjusted returns. But it is interesting that the number is higher than the typical recommended 2-3% allocation or the more recent 5% recommendation So that raises the following realization -Rebalancing is coming big time to the Bitcoin world. There is just no way that asset managers are going to let BTC become much higher than 10% because they will be running these same backtests or research firms will be running for them. This will impact how BTC trades, it should help to decrease its volatility -There is more room for current asset managers adopters to buy more if they get more comfortable and are bellow the 10% threashold. Perhaps 8-10% will be the next recommendation once people get comfortable with the 5% and start to drink the kool aid more
These asset managers will continue to look for alternative currencies in order to hedge the fiat debasement that is going on, they might face the following choices -Bitcoin, that could bring the benefits mentioned above -Gold, that has been langlishing despite all the debt and fiat issuance that is going on -Another fiat currency Human nature being what it is, I bet lots will choose the first option. They have financial incentives for doing so (the prospects of earning more fees). Bitcoin is a very skewed asset, and incentive structures tend to encourage risk taking in a lot of cases, so its a more attractive option. "Show me the incentive and I will show you the outcome"
They could also buy ETH but ETH suffers from some issues that makes it less attractive then BTC for this particular purpose. Its less liquid and its more volatile, its also hasn't been around as long and its harder to understand. BTC is the least volatile (other than stablecoins) and most liquid cryptocurrency so unless that gets flippened, its hard to see ETH winning the store of value battle even though I do think it is superior techwise
Eth-maxi’s seem to think eip1559 will shift the narrative for ETH to being one of ‘ultra-sound’ money. I think the 2 main weaknesses for ETH is; 1) how MEV is manipulated to censor/re-order ‘must complete’ transactions. ie adding collateral to keep from being liquidated during periods of high volatility 2) how one must ‘trust’ a DAO to coordinate monetary policy which implies that it can change.
On 2) I think ETH's approach is better and BTC's 0% long-term inflation could actually be very problematic. ETH's approach is 'we dont know what is the right inflation rate for a crypto protocol over the long-term, so we will implement minimal viable issuance and change the inflation rate as needed, but issuing as little as possible'. BTC's is a dogmatic '0% inflation', never mind that this is a new technology and there is a lot that we dont know. They just assume that the hard money answer is the correct answer, but this is tech not a contest of austrian economics. In tech, optionality is worth a lot and being humble and open minded gives you free options to adapt to a changing world. Being closed minded and dogmatic gets hurt by uncertainty because its short optionality. That's why I dont like the BTC community and I like ETH's, the smartest people I know aren't dogmatic angry folks but rather humble open minded individuals. So ETH has better human capital But none of this matters in the coming years because BTC inflation will go on for couple decades before it becomes so small it can create problems. But I bet there will be unforseen problems. "Selfish mining" is one of them but there might be others
EIP1559 I think is fantastic because as the world gets tokenized and traded on a DEX in Ethereum, that will make the protocol more valuable. Even if people never hoard that much ETH. Imagine if the stocks traded on the NYSE and tokenized and traded on Uniswap, all that daily activity will generate fee burn that will directly impact the value of ETH. The more sucessful the protocol the more ETH is valuable They essentially solved the problem on how to capture value as a protocol token and how to avoid free riding by people using the protocol but not hoarding ETH. That also applies to using Ethereum for NFTs buying, remittances, smart contract creation, etc.
I would agree about the culture of maximalism being abrasive to newcomers. ETH could be interpreted as being more adaptable. How would you respond to the criticism of it’s just another ‘centralized’ approach to monetary policy not much different than the FED? The exciting thing about ETH is the innovation happening in DeFi, NFT’s and most likely further developments of the tech. However, with the scheduled rollout of ETH 2.0, the landscape is shifting to other solutions in that they are gaining marketshare. With the move to min viable issuance, and the low fee alternatives currently available, it seems that mining revenue from fees will take a substantial hit and also go though a period of substantial uncertainty as security through PoS goes through some growing pains.
In my mind they are very different. And BTC's and ETH's are very similar. In open source crypto currency projects monetary policy is held by a "social contract" https://vitalik.ca/general/2021/03/23/legitimacy.html BTC's 21M hard cap, is not really that hard, it can actually be modified by a soft fork (according to Andreas Antonoupolos). In any event, both BTC's 21M 'hard' cap and ETH's minimum viable issuance they are held by a social contract. If people feel cheated out of that contract (say, because ETH's all of the sudden start to print more and more ETH) they are not going to sit by, they can fork the code and remove all that issuance and continue the coin. But more importantly, both BTC and ETH dont have that much incentive to print coins and drop their value. Most developers on both coins own a lot of that coin and want to see it suceed. Central banks usually print a lot to accomodate the problems from the fallout of debt crisis, they also are appointed by people that want to be reelected and printing is a way to get there. In crypto currency, printing is a fast way to lost adoption and piss people off. So I see no reason why the Ethereum community would starting printing tons of ETH all of the sudden. And security wise, its probably a better choice rather than choosing the inflation rate and trying letting time tell you whether that is secure or not. BUT I do accept that BTC's story in a world of financial repression (cash is trash), flight from fiat, and currency debasement, BTC's is simpler, easier to understand and a more seductive story. And the problems associated with that are 10+ years in the future. So BTC's seems to have an advantage as a Store of Value that is hard for ETH to break