Bitcoin newsletter: ICOs still red-hot and top-heavy; I increased Dash holdings and took some BTC profits

Here’s the email newsletter that I send out every two weeks. For now it’s just a bcc-ed email list, though I post it here a few days later.

Since these newsletters only get longer, here are the highlights:

  • In this author’s view the altcoins most likely to outperform Bitcoin in the near term are Ethereum and Dash (although since I took a big position in Dash @ $17, it has more than doubled to $44)
  • ICOs are still, on average, opportunistic grabs by questionable projects for dumb money, but the money is getting smarter, and the projects / teams are getting better
  • Blockchain tech enthusiasm is waning – as it should – even as the ecosystem and its demonstrable value are growing
  • China’s regulatory influence on bitcoin is waning even as it doubles down on its already leading position in mining

My portfolio: Increased Dash, took small Bitcoin profits

  • I increased my Dash position to 9% of my portfolio, and a portion of that to a Masternode share program, where you earn an estimated 10% annual return on your Dash holdings for providing a level of security and governance for the Dash blockchain. I was very bullish at $17 but it’s risen to $44 in less than a month. Would still recommend, in a balanced crypto portfolio, hodling a small stake in Dash
  • After bitcoin hit $1200, I sold 5% of my stake to take some profits. Had previously told myself that when bitcoin reached its ATH I would sell 20% of my portfolio, although I ended up only selling 5%
  • Here are my current holdings:
    • Bitcoin: 80%
    • Ether: 9%
    • Dash: 9%
    • Monero: 1%
    • Litecoin: 1%

Vinny thinks a bitcoin ETF is too early and not good for the ecosystem [source]. He thinks an ETF should wait until bitcoin’s price is in the $3-5K range. An ETF would cause a price bubble and these boom/bust cycles slow bitcoin’s adoption.

ICOs are still red hot, and unevenly distributed. Asset management platform Melonport raised $3M of tokens in under 15 minutes [source] and cloud computing network DFINITY raised almost $4M in a day [source]. 80% of ICOs are held on the Ethereum blockchain, and in 2016 there were 64 total ICOs raising $103M [source]. While ICOs are improving, I’d still avoid investing unless you have an insider’s edge or significant discount on the tokens.

The first-come first-serve frenzy of Melonport’s crowdfunding has resulted in a distribution to less than 150 Ethereum addresses with an average buy-in of over $15,000 — both numbers being extremes in recent crowdsale statistics. [source]

China’s regulatory influence wanes. The PBOC is running out of regulatory moves, and with each move the price of bitcoin falls less. The volume on LocalBitcoins (the peer to peer bitcoin trading platform) saw a surge in CNY volume from 2-3M per week to almost 60M ($8M USD) [source].

…while Chinese miners double down. Bitmain – the world’s leading producer of bitcoin mining rigs and currently its largest mining pool – built and sold what will become the largest bitcoin mine in the world, to be based in Xinjiang or possibly Szechuan. [source 1, 2] Would increase network hashrate by 25-33%. Bitmain’s CEO Jihan Wu is an outspoken supporter of Bitcoin Unlimited (BU) although Bitmain has explicitly stated it “has no say in what pool the users of that farm may choose to mine on.” [source] Business projects of this scale can’t go forward without the explicit approval of the Party organ at multiple levels

If you’re not reading Bitmex CEO Arthur Hayes’ notes, highly recommended. Here’s his analysis of the COIN ETF.

Blockchain is more hype than substance [source]. The author’s highest value use cases: #1 decentralized digital currencies, #2 micro payments, #3 proof of existence on blockchain. Quotes:

  • Lots of hype. Not many tangible solutions. But a foundation for opportunity exists. Add it to your innovation priority list.
  • I for one am for the government having the right level of visibility to keep us safe, however Blockchains present a very creepy possible future that I don’t like the feeling of. At all.

So, when IS a blockchain useful?
“Blockchains make sense for databases that are shared by multiple writers who don’t entirely trust each other, and who modify that database directly. But that’s still not enough. Blockchains truly shine where there is some interaction between the transactions created by these writers.” – Gideon Greenspan [source]

A simple breakdown of Segwit and Bitcoin Unlimited, the two competing poles of Bitcoin’s future [source]. In this author’s view, BU has a weaker technical team but more alignment with the broader Bitcoin community, while the team behind Segwit is second to none technically but has #1 conflicts of interest vis a vis Blockstream and #2 an operating style that resembles “my way or the highway”

I think a hard fork is likely. While a hard fork comes with significant risk, I do think the Ethereum / Ethereum Classic hard fork was not a disaster as some people made it out to be:

I do want to make the point that hard forks can be beneficial (both logically and empirically) when users have irreconcilable political differences that they are willing to leave the community over.  Existing holders have nothing to fear from a split: their value will continue to exist on both sides of the chains, and remains protected regardless of outcome. – Philip Daian [source]

If you invest in crypto, read Woobull! One of the smartest blogs specifically on crypto investing. Examples:

  • Even applying a $10m market cap filter which should bring us beyond scam-coins, to coin platforms that should promise higher returns from their new and untouched markets, these guys (well below 10 coins introduced per year) continue to be outperformed by bitcoin. [source]
  • For a currency with a tiny market cap of $10b, compared to say the Euro’s M1 money supply of $7.5t, bitcoin’s price stability is ridiculously good. [source]

Analysis: Bitcoin price most correlated with Litecoin [source 1 and 2]. Dash and Monero come next, then Ethereum. But these three pale in comparison to Litecoin.

More analysis: Gold now shows a strong negative correlation with Bitcoin price [source]. Prior research had shown a positive – albeit weak – correlation.

Crypto funds are growing and attracting Wall Street money [source]. An article I wrote that divides professional bitcoin funds into 3 categories: #1 public buy and hold funds (eg, GBTC); #2 private buy and hold funds (eg, Pantera); #3 hedge funds (eg, Metastable, Polychain).

Emin Gun Sirer’s State of the Bitcoin network [source]. Takeaways:

  • “…the provisioned bandwidth of a typical full node is now 1.7X of what it was in 2016. The network overall is 70% faster compared to last year.”
  • There are 5700 nodes on the Bitcoin network, with a 2.6% stale rate which the authors think is “unexpectedly high”

Enterprise Ethereum announced on February 28th. Ether’s price has risen ~75% in the 3 weeks surrounding the announcement [source]

  • Ethereum has a larger community of volunteer developers, and more computers on its network than Bitcoin. And the members of the new alliance — which include Banco Santander, BBVA, Credit Suisse, ING, Intel, Thomson Reuters and UBS — say the real-world testing of Ethereum makes it stronger than the alternatives.
  • “Ethereum has this massive advantage of having the public network that has been tested for two years,” Mr. Gray, of Microsoft, said.

What exactly is a smart contract?
Smart contracts were first defined in the early 1990s as “a computerized protocol that executes the terms of a contract” (Szabo, 1994). [source]

Quotes of the week

By contrast, the Chinese government hasn’t taken much action against bitcoin. They have put in a “kill switch” but they are not using it, because their main concern is to maintain China’s foreign exchange reserves, and moving money from bitcoin doesn’t negatively hit their reserves. The Chinese government has put in the ability to shut down bitcoin transfers if they want do, but right now they don’t want to. – Bitquant [source]

…WHEW THAT’S IT. THANKS FOR READING!

Hit ‘reply’, find me on Twitter @kgao, forward it along. Happy to add other emails to the distro list too.

Cheers and happy investing,

Kevin

If you enjoyed this essay, here’s a list of the assets I own and the ones I’ve researched. Find me on Twitter and signup on the right to receive an update when I publish a new essay.