Category Archives: Notes

The 4th Bitcoin and Crypto Portfolio Letter

Published / by kgao / Leave a Comment

Hi everyone, it’s been awhile since I sent an update. But if the crypto market continues to perform the way it has, I should probably just shut up ūüôā

The following assets represent >1% of my current portfolio:

  • Bitcoin: 57%
  • Ether: 23%
  • NEM / XEM: 6%
  • Dash: 4%
  • ZClassic: 1%
  • Pepecash: 1%
  • Monero: 1%

And these assets are sub-1%: Litecoin LTC, Ethereum Classic ETC, Zcash ZEC, Decred DCR, Emercoin EMC, Counterparty XCP, Aeon AEON, Storjcoin SJCX, Ripple XRP, and Bitshares BTS.

A few weeks ago I sent a summary of investment theses. Thanks to those who gave feedback and asked questions and challenged my thinking.

The crypto market is doing very well. My cautious prediction was $100B USD total market cap by 2020 but we may see that before this year is over! Regardless of whether or not this constitutes a “bubble”, I think the fundamentals of crypto are stronger than ever. Innovation. Experimentation. Talent. Growth in multiple use cases. Software is eating the world, and crypto is eating money.

My investment strategy is currently a mix of:

1. Hold big positions in the leading assets with the strongest fundamentals – eg, BTC and ETH. My target is probably closer to 50% BTC instead of the 57% today

2. Take sizable “flyer” bets on interesting assets that could see breakout price growth in the next 3-6 months – eg, ZCL and Pepecash (I’m writing a separate long essay on Pepecash to clarify my thinking and explain what the hell it’s all about, but it’s perhaps the only asset I actually enjoy following, as opposed to most of the rest in which greed now predominates)

3. Diversify into different use cases of coins and assets because long-term, we don’t know who will win and what use cases will prove popular – Dash for its marketing and self-funding and potential to cross the chasm, NEM for its Asia presence and hybrid of private + public chains and quietly competent development team

I still need to calculate my April returns versus benchmarks and will share that when it’s ready.

Two general interest links for you to read:

“We have the tech of 93 combined with the hype of 99.” – Sergej Kotliar



Notes from in-depth University of Cambridge study on the cryptocurrency ecosystem

Published / by kgao

Great report. Highly recommend reading the full PDF (116 pages but goes quick). In a nutshell:

First, the user adoption of various cryptocurrencies has really taken off, with billions in market cap and millions of wallets estimated to have been ‚Äėactive‚Äô in 2016. Second, the cryptocurrency industry is both globalised and localised, with borderless exchange operations, as well as geographically clustered mining activities. Third, the industry is becoming more fluid, as the lines between exchanges and wallets are increasingly ‚Äėblurred‚Äô and a multitude of cryptocurrencies, not just bitcoin, are now supported by a growing ecosystem, fulfilling an array of functions. Fourth, issues of security and regulatory compliance are likely to remain prevalent for years to come.

Here are my notes and takeaways:

  • crypto is worth¬†$27B = Airbnb
  • 3M to 6M active crypto wallets
  • 2K+ people working full-time in the industry
  • crypto exchanges (eg, Kraken, BitFlyer)¬†employ the most people
  • 70% of large miners say they have “high influence” on protocol development
  • report divides¬†industry players into #1 exchanges, #2 wallets, #3 payments, and #4 mining with growing levels of crossover
  • companies surveyed have 21 full-time employees on average (still early days)
  • “A 2016 joint report from Coinbase and ARK Invest estimates that 54% of Coinbase users use bitcoin strictly as an investment‚ÄĚ
  • “Non-monetary use of Bitcoin has also increased. For example, the use of the OP_RETURN feature in the bitcoin scripting language (frequently used for embedding metadata in bitcoin transactions, for enabling e.g., time-stamping services and overlay networks) has increased roughly 100x since January 2015‚ÄĚ
  • four currencies (USD, EUR, JPY and CNY) dominate trading
  • impression is that we’re still in very early days of proper security and auditing; as an investor, remember to turn on 2FA and only keep small amounts on exchanges
  • “The average business (B2B) payment has a transaction size of $1,878, whereas P2P transfers ($351) have higher average transaction sizes than consumer (C2B) payments ($210)”

3 important charts from the report

…Bitcoin dominates but Ethereum has shown impressive growth

…trading in Chinese RMB dropped precipitously after the government crackdown on margin accounts and no-fee trading

…Mining is now a multi-billion dollar industry!

“A large percentage of currency…is used precisely to hide transactions”

Published / by kgao

‚ÄúThere is nothing, however, in standard theories of money that requires transactions to be anonymous from tax-or law-enforcement authorities. And yet there is a significant body of evidence that a large percentage of currency in most countries, generally well over 50%, is used precisely to hide transactions.‚ÄĚ

From¬†Kenneth Rogoff’s ‚ÄúCosts and Benefits to Phasing Out Paper Currency.‚ÄĚ

Notes from Grayscale’s Ethereum Classic (ETC) investment thesis

Published / by kgao

I read through the¬†investment thesis PDF yesterday and wanted to share some relevant notes. I sold more than 90% of my ETC¬†a month after the hard fork, so I hold a negligible amount relative to my overall crypto portfolio¬†and¬†don’t have plans to increase my¬†ETC position. I am very bullish on¬†ETH even after its¬†recent price run-up.


  • concentrates on two aspects: store of value (ETC as silver / platinum to BTC’s gold) and¬†enabling¬†a payments and smart contracts layer for the IoT
  • liked this line: “Ethereum was designed to be the next iteration of operating systems like Apple iOS or Microsoft Windows, embedded with the enhanced capabilities of blockchain technology.”
  • they note, and I didn’t realize, that less than 6% of all ETH outstanding voted on the¬†hard fork issue
  • ETC strengths (relative to ETH):
    • truly trustless protocol (ie no hard fork)
    • no PoS risk, will wait until ETH¬†implements it first and then assess
    • hard cap on ETC supply; currently 89M outstanding, will never exceed 230M (likely closer to 210M)
    • more decentralized development process unlike Ethereum which is driven by Vitalik and the Ethereum Foundation
  • ETC risks:
    • the Ethereum Foundation sold 90% of their ETC but still hold a substantial amount
    • the DAO hacker still holds 4% of all ETC in a known wallet address

Interesting report and while I personally won’t invest in ETC, was good to understand¬†Barry and Grayscale’s perspective.

Portfolio Performance: February (+Monero, -Dash -Litecoin)

Published / by kgao

This continues a series of regular posts where I share the details of my crypto portfolio, trades, and observations on the market. Here’s¬†January.

In February 2017, the Bitcoin price increased 24%. My portfolio increased 29%, so I outperformed slightly, due to Dash’s price rocket and Ether’s rebound. Past¬†performance is at the bottom of this post.

Here’s what I currently own (also posted here):

  • Bitcoin: 75%
  • Ether: 13%
  • Dash: 9%
  • Monero: 3%


  • I sold¬†my small (~1%) position in Litecoin;¬†it finally hit me that I had no point holding¬†onto it even as a Bitcoin¬†catastrophe hedge and¬†the coin (wrt technology and community) is¬†going nowhere
  • It’s clear post-SEC denial of the COIN ETF that cryptoassets have begun¬†to shift from Bitcoin to altcoins and digital tokens. Perhaps for diversification reasons, perhaps because big investors are seeking the drug of ever-increasing returns. I expect Bitcoin market dominance to fall below¬†75%¬†before rebounding
  • Dash has been a huge beneficiary of this move away from Bitcoin. I purchased the bulk of my position around $17 and it’s currently trading at $78. I do believe Dash can become a $1B market cap coin but am skeptical of its long-term potential for a variety of reasons (quality¬†of team is the biggest). I sold 1/3 of¬†my position between $45-50 and may sell more in the coming days / weeks
  • In seeking even more upside (perhaps a dumb move) I’ve started to research¬†altcoins outside the top 10 by¬†market cap. I’m even looking at digital tokens although I still remain VERY skeptical of their average technological and network value

Portfolio benchmarks:

  • In calendar year 2016, Bitcoin increased 137%. My portfolio returned 107%, so I underperformed significantly largely because of Ether’s¬†performance
  • In January 2017, Bitcoin fell 5%. My portfolio lost 2%, so I outperformed slightly
  • In February 2017, Bitcoin increased 24%. My portfolio increased 29%, so I outperformed slightly, driven by Dash

I’ll publish at least one of these posts every month. If you want more frequent updates, subscribe to my investment newsletter below. Thanks, happy investing!

The COIN ETF decision: What’s next?

Published / by kgao

Now that the SEC has effectively denied the Winklevoss COIN ETF, what’s next for Bitcoin?

I wrote the below in reply to a friend and figured I may as well share it here. Much of it is inline with Vinny’s essay.

In the short term the price might go sideways or down but will rebound within a month or two. I’ve already bought some on this dip. I don’t expect the price to fall below $1K and it will likely return to its ATH by April or May

In the long run this won’t have much effect. I actually agree with the SEC that it’s too early for an ETF. I’d prefer to see Bitcoin trading at $3-5K per coin, a total crypto market cap of $50-100B. Once the ETF floodgate is open, there will be many approved ETFs in short order, for Bitcoin and possibly altcoins like Ethereum. From there it’s onto the regulated futures and forwards on exchanges like the CME. So can only be better when the ecosystem is deeper, more mature, more institutionalized and regulated.

I don’t see any near-term catalysts and I’m not on the lookout for one. The main story is a strong one: Bitcoin as digital gold. Bitcoin as an uncorrelated asset with equities, bonds, currencies, commodities. Bitcoin as the Internet of money / value. The big one on everyone’s minds is Segwit / possible hard fork which may happen later this year.

Bubble expert says Bitcoin not a bubble

Published / by kgao

Vikram wrote the book Boombustology on how to spot financial bubbles using five criteria, which are:

1. Are prices tending away from equilibrium?

He gives Bitcoin a half-check.

2. Is significant leverage supporting lofty prices?

Given the general absence of leverage in Bitcoin trading, no check here.

3. Is there a vibe of overconfidence, a belief that “this will change everything”?

He gives Bitcoin a clear check.

4. Are regulations or government intervention supporting prices?

Nope. If anything, governments like China are restraining Bitcoin’s price growth. No check.

5. Is the market of new users and potential investors saturated?

Not even close. Bitcoin still has plenty of room to grow. No check.

So according to Vikram’s framework, the current Bitcoin price rise gets a total of 1.5 checks. His verdict? Not a bubble.

So on my five point scale, with five being a ‚Äúvirtually certain bubble likely to burst imminently,‚ÄĚ bitcoin only registers one and half points. On the margin, this means that the stage may be set for it to become a bubble, but it doesn‚Äôt appear to be one yet.

Sounds like hedging to me ūüėČ

Full article here.

Japan is a growing hub of bitcoin activity

Published / by kgao

Japan seems to be gaining ground on China as a hub of bitcoin activity in Asia. Some signs this is happening:

The Japanese bitcoin exchange bitFlyer has raised north of $30M USD in multiple rounds of funding. Of particular note is the participation of japanese banking giants Mizuho, Sumitomo Mitsui, and Mitsubishi UFJ. bitFlyer is now one of the top 3 exchanges worldwide and by many measures the largest bitcoin exchange across all currencies [source].

Trezor recently announced that Japan is the country with the fastest growing demand for its hardware storage wallets [source].

A new regulatory framework which will make bitcoin legal tender in the country [source]. Although at least one Japanese bitcoin blogger is skeptical of its value, comparing its heavy requirements to the BitLicense [source].

Google trends data¬†shows¬†steady and rising growth in the search volume for “„Éď„ÉÉ„Éą„ā≥„ā§„É≥” (bitcoin in Japanese) [source].

But not all signs are positive – LocalBitcoins Japan doesn’t show¬†significant volume growth [source].

Legendary value investor Bill Miller’s case for investing in bitcoin

Published / by kgao

This was written back when Bitcoin was¬†trading at $241.¬†So it’s come a long way since then, and who knows if Bill still thinks the same way. But nonetheless a valuable read, simply to¬†understand how one of the industry’s most respected and consistently successful value investors¬†approaches this particular investment opportunity.

He uses three methods to triangulate a present value for Bitcoin. 

  • If Bitcoin¬†achieves the gold market cap, each coin would be worth $314K USD. Assume a 0.25% chance that this happens
  • If Bitcoin¬†replaces the 3¬†dominant payment processors Visa, MasterCard, and American Express, each coin would be worth $17K USD. Assume a 2.5% chance that this happens

Thus each coin has a probability weight value of $1210, which, interestingly, is equal to its current value as of March 2017.

And his third method?¬†Comparing Bitcoin’s potential and liquidity to fiat¬†currencies:

One other point of comparison may also suggest the currency is meaningfully undervalued. The total value of all outstanding Bitcoin is $3.4B, which puts the stock of the cryptocurrency between the total money supply of Fijian dollars ($3.1B) and Haitian gourdes ($3.5B)1. Bitcoin has far greater potential than either of these currencies, yet Bitcoin is valued similarly despite being much more liquid with a tighter bid/ask spread.