The Bitcoin lottery or hedge (Part 2)

image by Elena Mozhvilo

This is a follow on article, I’d highly recommend that you first read - How do the top 1% stay in the top 1%?

In that article, to summarise, we cover:

• highlevel Credit Suisse global wealth report numbers

• pyramid of 4 global wealth categories

• how the top top category, 1.1% of the population controls 45.8% of the global wealth and top 2 combined - 12.2% of the population controls a staggering 84.9% of all the global wealth

• how the top 1% stay in the top 1% - they hedge for all outcomes

• how many oz of gold are required to remain in the top 1% should we go back to a gold like or sound money standard when our fiat systems fail (why - because they always do fail in the end)

If you missed it - the magic number is 14oz of gold (per adult) to stay in the top 1%.

This got me thinking about Bitcoin, which is often compared to gold as a store of value type asset and I’m sure you will see from previous blogs, post and tweets - both are equally important as a hedge against:

• money printing (or what ever you want to call it - same outcome)

• inflation targeting (policies designed to destroy your wealth over a short period of time)

• negative yielding bonds (more theft and logically it’s nonsensical - no sane person would ever lend money to others and pay them interest too).

So the question I’m going to try and answer here is how many bitcoin (BTC) would you need to stay in (or join) the top 1%?

Obviously the assumption is that neither fiat money or a gold standard survive and we move to a pure bitcoin standard where all the world’s wealth is backed by BTC.

This article is not about getting the exact mix of fiat, gold and bitcoin - its more about what the 100% BTC hedge would look like. At some point in the future, I will do a part 3 to this series with some calculations based on different probabilities i.e. 50/50 mix of gold and BTC or a 33% mix of Fiat, Gold and BTC.

When it comes to gold this is a moving target as more gold is mined each year, however the amounts we are talking about would not be material and when performing the same calculations for BTC, there are important points to factor in:

• not all 21 million coins are available at present (i.e. not all have been mined)

• and some are lost forever (approx 3.7 million) - more of this here if you are interested

So with this in mind we have done the calculations based on 17.3m Bitcoin in total. If you take all the adults in the world (5.23 billion), that comes to only 0.0033 BTC available per adult. If you divide the total world’s wealth ($418 trillion) by 17.3m BTC - that a staggering $24.16million per coin.

To either stay or join the top 1% you will need to own 0.0414 Bitcoin (per adult)

At todays price (~$33.4k) thats about $1383 (1164 Euro or £995) worth of BTC per adult to hedge yourself against FIAT. Put differently, you could see it as a lottery ticket to join the world’s elite. The question for you is if you think its worth taking the hedge or ticket for 0.0414 BTC - I know what I’d do.

DISCLAIMER:

This publication is general in nature and is not intended to constitute any professional advice or an offer or solicitation to buy or sell any financial or investment products. You should seek separate professional advice before taking any action in relation to the matters dealt with in this publication. Please also note our disclosure here

How do the top 1% stay in the top 1%?

image by Geoff Brooks

I recently came across a very good video on YouTube put together by “belangp” titled “How Much Gold do you Need to Protect Your Wealth?”. I have included a link to the video below this article if you are interested.

The video basically explains how the world’s wealth is distributed among the world’s population. The analysis is based on the Credit Suisse global wealth report numbers published in June 2021. Global wealth is split into a pyramid of 4 categories:

• Greater $1m

• Between $100k and $1m

• Between $10k and $100k

• Less $10k

What is amazing is how much wealth is in the top category (45.8% - $191 trillion) and how few people there are in that category (1.1% of population or about 56m adults).

The top 2 categories combined, 12.2% of the global adult population (639m of 5.24b) control a staggering 84.9% of all the global wealth.

Here is a view of the pyramid:

So back to the title of our blog - How do the top 1% stay in the top 1%? The answer is -

“They manage risk better and they cover their bases. In other words they hedge themselves for different outcomes”

The second part of the video explains how the wealthiest people in the world calculate how much gold they would need to stay in the top 1% should fiat currency fail.

I’ll let you watch the video on your own, but based on the total global gold (approx 6 billion oz) it would require ~14oz to stay in the top 1%. At today’s prices (~1800/oz) that’s about $25200 which will be revalued to $1million should we go back to a gold like or sound money standard. The secret is, the top 1% have taken this hedge for themselves and their partners to ensure that should things change, they are perfectly positioned.

DISCLAIMER:

This publication is general in nature and is not intended to constitute any professional advice or an offer or solicitation to buy or sell any financial or investment products. You should seek separate professional advice before taking any action in relation to the matters dealt with in this publication. Please also note our disclosure here

How Much Gold do you Need to Protect Your Wealth?

Beware the Ides of March!

image by iam_os

I don’t often dedicate a blog, but this one is dedicated to Mr BB. Helping and educating others to see through the noise is the best gift a person can give. So here we go, what are “the ides” and why is it important?

The Ides of March is the 74th day in the Roman calendar, which corresponds to the 15th March. In 44 BC, it became notorious as the date Julius Caesar was assassinated.

Each day of a month from the first to the last day, was not numbered by the Romans, they counted back from three fixed points of the month:

• the Nones (the 5th or 7th, nine days inclusive before the Ides)

• the Ides (the 13th for most months, but the 15th in March, May, July, and October)

• the Kalends (1st of the following month).

The Ides were originally determined by the full moon which reflected the lunar origins of the Roman calendar and the Ides of March would have been the first full moon of the new year.

It was marked by several celebrations but most notable for the Romans as a deadline for settling debts.

So just like we set the last Friday of every month to get paid, the Romans set the first full moon of the new year (15 March) as the day that all debts should be settled.

You may now ask why this is important, well the answer might surprise you. Since these cycles have remained with us over the times, they are part of our DNA, and before every repayment of debt, people will generally have to either use saving or sell assets to repay. So it is not surprising then that over these times, “the ides”, that there is normally above average market volatility and can often be pivotal times for assets to reverse trend.

Paying off debt and market pivots aside, most put off dealing with their savings and investments after “the ides”. With the “decks cleared” it might just be the best time to look at our new offering:

Just as the Ides of March became a turning point in Roman history, marking the transition from the Roman Republic to the Roman Empire, make today a turning point in your financial future.

Feel free to send us an online enquiry if you want more information.

All circumstances are different, so individuals should always seek independent financial advice, please ensure you have read our disclosure.

An important part of investing - taking profits

Image by Ramiro Mendes

This is a follow on article from the one we published in June 2020: “So how much should you allocate to a crypto fund?”

Let’s be totally honest here, there are only a few industries that have and are having a truly fantastic year in 2020. If you had the foresight to participate in the crypto industry, you will now most likely be starting to feel rather uncomfortable. That is okay, its actually a nice problem to have!

So then, how do you solve the problem?

As called out in the title of this article, taking profits and having a plan on your exit is an important part of investing. The uncomfortable feelings experienced by investors during the selling process seem massively more amplified than when the original buying takes place. Fear and greed are powerful emotions, and those without a plan will often make the wrong decision.

1) Acknowledge that an exit strategy is needed

The key here is simply to acknowledge that when you put on a trade or make an investment you need to think about the exit too. Taking profit is a key element of investment success because it is the only moment when an investor actually realizes a profit. Any floating or paper profit from an open investment means nothing until it is closed and booked.

2) Identify your reward to risk (r:r) ratio

Your profit objective (exit price) is just as important as defining what you are risking (stop-loss placement). Both aspects are integral parts of the reward to risk (r:r) ratios. This ratio analyses and determines the balance between the potential profit and the potential loss of the trade. A conservative (r:r) ratio is 2:1 and an aggressive ratio is often north of 4:1

3) Set a target price (or multiple targets) and document what you are going to do when it’s hit

So now that you have decided on a (r:r) ratio and set your target or target prices, make sure that you document what you plan to do when these prices are hit. It is not unusual for investors to have multiple targets for one purchase. See our worked examples below

4) When your targets are hit, ACT as per your plan!

ACT, ACT ACT - Do not deviate from the plan, the plan was made when you were thinking clearly. Don’t let the extreme fear and greed emotions take over - follow the plan.

Please note the below is not investment advice

Example 1 - Simple (r:r) Ratio

From our earlier article, we worked on an allocation of 5% of our entire portfolio to crypto. We decided to invest 5k of our original 100k to crypto. We then decide that we will risk 50% of this (our risk is 2.5k) and we will take profit at 10k (5k profit) - our r:r is 2:1.

The major push back on the above strategy is that if the asset goes higher to say 20k, people will always feel they have missed out. The reality is that they havnt’t missed out at all. They took a investment, and it made 100%** (5k Profit/5k Initial Investment) x 100 . With bonds yielding less that 1%, its more than you will earn in bonds in 100 years

Example 2 - Stay in the game, multiple targets

One very effective method used in venture capital is to sell half the position on a double. The remaining position is then halved again and sold when the price doubles, this continues until it is not practical to halve the asset. The strategy ensures that you always have skin in the game. From our original example of 5k investment into crypto, lets say the basket price was $5, you would have 1000 allocated to your account. When the asset reaches a value of 10k or a basket price of $10 you would sell 500 (half of your 1000) at 10$ for a profit of 5k.

The important thing here is that you will have 5k cash and 5k of crypto left (500 remaining x $10)

At this point, after your first target is hit, you are in a free position. Your next target is at $20 where you will sell 250 of your remaining 500 (ie sell half of your position). Notice once again that you will raise another 5k cash at this target price and your allocation is still worth 5k ($20 x remaining 250). Your next targets are:

• $40 selling 125 for 5k cash, 125 remaining valued at 5k

• $80 selling 62.5 for 5k cash, 62.5 remaining valued at 5k

• $160 selling 31.25 for 5k cash, 31.25 remaining valued at 5k

• and so on

Example 3 - Rebalance

If you ask Investopedia for a definition of portfolio rebalancing, you'll be served up the following: "Rebalancing is the process of realigning the weightings of a portfolio of assets. Rebalancing involves periodically buying or selling assets in a portfolio to maintain an original desired level of asset allocation."

Regular portfolio rebalancing takes investment decisions out of the investor's hands; allowing a suitable asset allocation to be maintained over the long-term, an acceptable level of risk to be maintained and improving the potential for long-term investment returns.

From our earlier article, we worked on an allocation of 5% of our entire portfolio to crypto. We decided to invest 5k of our original 100k to crypto. Lets now assume that the remaining allocation was 5% gold and 90% cash (this is a hypothetical example) and we plan to rebalance every 6 months. After the original 6 months, crypto has massively outperformed and is worth 10k with gold flat - what do you do?

Answer, apply your original percentages to the total pot and buy or sell each asset accordingly.

Total pot = 105k (gold flat at 5k, cash same at 90k, crypto up 5k to 10k)

Apply original allocation:

• Crypto 5% of 105k = 5.25k

• Cash 90% of 105k = 94.5k

• Gold 5% of 105k = 5.25k

So in this example you would sell 4.75k of your crypto to cash and buy 0.25k of gold to rebalance your portfolio.

We run a well balanced allocation of projects for your crypto allocation, be sure to check out our offering - Rational Active Allocation

All circumstances are different, so individuals should always seek independent financial advice.

** this is not an annual percentage. If the investment was concluded within 1 year the % return would be even higher

The Cypherpunk Movement

Fantastic production by NLW (Nathaniel Whittemore) who is “an independent strategy and communications consultant for leading crypto companies as well as host of The Breakdown – the fastest-growing podcast in crypto…”

Here he interviews Jim Epstein (executive editor of ReasonTV podcasts, producer of the recent documentary “Cypherpunks Write Code.” and he give NLW a behind the scenes look on the interviews and conversations that went into the documentary.

Watch “Cypherpunks Write Code” for how the cypherpunks started, schisms in the movement, and how the movement lives on today.

Part 1 - Before the Web

Part 2 - Cryptography vs. Big Brother

Part 3 - When Encryption Was a Crime

Part 4 - Bitcoin and the End of History

See also: Bitcoin and the Rise of the Cypherpunks, one thing that may surprise you are notable achievements by these massively brave and intelligent people: here’s a list from the article above:

• Jacob Appelbaum: Tor developer

• Julian Assange: Founder of WikiLeaks

• Dr Adam Back: Inventor of Hashcash, co-founder of Blockstream

• Bram Cohen: Creator of BitTorrent

• Hal Finney: Main author of PGP 2.0, creator of Reusable Proof of Work

• Tim Hudson: Co-author of SSLeay, the precursor to OpenSSL

• Paul Kocher: Co-author of SSL 3.0

• Moxie Marlinspike: Founder of Open Whisper Systems (developer of Signal)

• Steven Schear: Creator of the concept of the “warrant canary”

• Bruce Schneier: Well-known security author

• Zooko Wilcox-O’Hearn: DigiCash developer, Founder of Zcash

• Philip Zimmermann: Creator of PGP 1.0