Category Archives: Portfolio

My Bitcoin and Crypto Portfolio: the 5th issue

Published / by kgao / Leave a Comment

Things just get crazier, don’t they? Here’s my April performance against benchmarks:​

Currently these assets are more than 1% of my portfolio:

  • BTC: 50%
  • ETH: 19%
  • XEM: 11%
  • DASH: 3%
  • ZCL: 3%
  • PEPECASH: 2%
  • XMR: 2%
  • XRP: 1%
  • BTS: 1%

I like to review my investment theses and see what needs an update. The success of Ripple is the biggest outlier. It’s currently #2 on CMC and has gone up 10x in just the last month. Whether a pump or playing catchup, XRP’s performance makes me question two price drivers I used to deem important:

1. Token supply mechanics (percent of supply issued, predictability of the issuance rate, current and expected inflation)

2. Degree of decentralization (with respect to the team, to its sources of funding, to its transparency in everything from source code to operations). Perhaps in these times of continued Bitcoin scaling uncertainty, the market is moving to centralized assets (in addition to XRP, other examples include XEM, DASH, assets like FACTOM and STEEM)

Then again the Ripple bubble could soon burst and upend these observations.

Recommended reads:

  • My Medium essay on how Pepe the frog became a very interesting cryptocurrency and trading card community [link]
  • Token sales / ICOs and their pros and cons [link]
  • The Siacoin team explains why the cryptocurrency market cap indicator is misleading [link]. Jimmy Song shares a related perspective on Bitcoin’s dominance index [link]
  • One person’s thoughtful and balanced story of how they got into cryptocurrency investing and lessons learned [link]

Thanks for reading!

Kevin (@kgao)

3 branches of BTC “governance”:
–Full Nodes (can veto miners & devs)
–Miners (can veto devs)
–Devs (can help others bypass some vetoes)
-Jameson Lopp (@lopp)

Why I own each cryptoasset in a few words

Published / by kgao / Leave a Comment

I find it helpful to try and get my investment rationale into as few words as possible. Ideally I would review these (along with my investment theses) from time to time to determine if I should increase, maintain, or decrease a position.

As you can tell my portfolio is steadily expanding, though BTC + ETH still remains ~70% of my holdings.

Cryptocurrency Investment Theses

Published / by kgao / Leave a Comment

Hi everyone – I spent a few hours to write a running list of the observations and theses that inform my investment decisions these days. To the extent I have explicit heuristics for investment, these are it. Given how quickly this market moves, I’ll probably need to rewrite them in 3 months. So take what I’m saying as a snapshot of what I believe at this very moment, but like a banana, they’ll ripen fast.

Wanted to share a working draft so I can get your feedback and further sharpen and refine thinking. These are raw so my advance apologies for anything too unsubstantiated or grossly generalized. Each day adds more questions and I’m excited to continue learning and investing and reading.

I may or may not send a portfolio update this week. The portfolio has expanded quite a bit. If not this week then definitely next. Look forward to hearing from you!

Theses / Observations

  • Crypto will go from a $30B market today to $100B by 2020
    • Current drivers
      • Large hedge funds and institutional investors investing in the space
      • Continued growth in “Bitcoin as digital gold” storyline
      • Cryptocurrencies as both a comparatively volatile asset class, a historically high performing one, and one whose price performance is uncorrelated with equities, currencies, and commodities
      • Crypto investment is a closed loop; profits are re-invested right back in the system, into more altcoins and ICOs and coin launches; it’s no accident one of the largest if not the largest crypto exchange is Poloniex which doesn’t accept fiat; the feedback loop is both faster and stronger than eg the standard startup creation wealth cycle where ex-Google millionaires start companies and make angel investments
    • Future drivers
      • Development of real derivatives and futures exchanges
      • Regulated investment vehicles eg ETFs
      • Growth in cryptocurrencies for transactions, remittances, and payments
      • Growth in usage of products backed by tokens eg Storj SJCX, Golem GNT, Factom FCT
      • Growth in usage of blockchains backed by tokens eg Ethereum ETH, Stratis STRAT (question: will individual or enterprise oriented blockchains do better?)
      • Growth in ICOs as a fundraising method (projected $400M raised in 2017, with Bitcoin and Ether as the two most widely accepted currencies to participate)
      • Internationalization – today if you live outside of the US, Japan, and Europe, it is hard to purchase and securely store any cryptocurrencies other than Bitcoin
  • PoS assets will outperform PoW assets in the near term
    • This includes PoS like assets such as NEM XEM and Dash DASH and Decred DCR
    • These assets are more compelling for the average investor because #1 they reduce supply and #2 they offer an interest-like return for staking which is rarely worth the opportunity cost but promotes hype and fomo
    • Ethereum’s transition to Casper / hybrid PoW-PoS will be an interesting data point
  • Coins with low or zero inflation will outperform coins with high inflation or unknown supply dynamics
    • Low or zero inflation: NEM XEM, Monero XMR, Bitcoin BTC
    • High inflation or unknown supply schedule: Zcash ZEC, Ripple XRP, MaidSafeCoin MAID
  • BTC price will continue to underperform “high-quality altcoins” until there is some broadly accepted resolution to the blocksize debate
    • The likely timetable for this resolution could be anywhere from 3 months (unlikely) to 12 months
    • There is a low double digit percentage chance of a hardfork
  • What is a high quality altcoin?
    • General investment principle is to avoid SCAMS and avoid any coins that have recently been pumped (eg, any coin that has seen 3-5x price increase in a month)
    • An engaged and knowledgeable community whose interests are beyond simple price chatter and trading speculation; activity on Slack and Reddit are proxies
    • A strong team is valuable, but more important imo is a single visible technical leader with a pronounced vision (eg, Vitalik and ETH, Jake and DCR, Riccardo and XMR even if he may not consider himself thus); this leader can be anonymous (eg, NEM XEM, AEON); other proxies include Github activity (stars and commits and followers) and degree of interaction between team and community in primary communication channels
    • While it may be a good idea to avoid a team or founder with a questionable past, it’s unclear whether the market penalizes this (e.g., Jed McCaleb with MtGox and Ripple and Stellar)
    • Any asset that started as an ICO requires more diligence: look at how well the ICO process was communicated and managed; quality and reliability of roadmap and deliverables; whether best practices were implemented for ICO sale (eg, cap on raise, some sort of vesting schedule, a comparatively modest % of founder owned coins); in my opinion WeTrust and Melonport are examples of ICOs done well
  • Privacy coins are presently overvalued
    • Comparatively low transaction activity and growth (eg, Monero XMR, Zcash ZEC)
    • When privacy feature is optional, the majority of users choose the less private method (or default method) due to cost and convenience and lack of education (eg, Dash PrivateSend)
  • Some ICOs / asset tokens are remarkably high performing despite no real usage or even the existence of a functioning public product). Why?
    • Examples include Golem GNT, Augur REP, MaidSafeCoin MAID
    • Speculation fever, the same trends that are driving altcoins
    • Ethereum ETH fanboys (value of building on the ERC20 standard)
    • Early winners putting their winnings back into the system (eg, early Bitcoin BTC investors, Ethereum ETH ICO investors)
    • VC and angel FOMO on the potential appearance of a whole new startup equity asset class (similar to USV’s fat protocols thesis)
    • Market size if the products are built and executed to their original vision(s)
  • Marketing coins are undervalued and may continue to be
    • Marketing coins are any coins whose founders or users do a good job of promotion and marketing (eg, Dash DASH, anything Barry Silbert, PIVX, Dogecoin DOGE, Steemit STEEM)
    • Some hire a PR or marketing agency; some (beware scams) are even more aggressive, using bots and shills and hired accounts to astroturf social media channels
    • Self promotion is frowned upon (in part for good reasons e.g. to avoid scams) but can be effective for increasing short-to-medium term price
  • Enterprise focused coins which have a good team and develop solid technology are good performers but this may be temporary. Two risks:
    • One, enterprises may succumb to the same network effects as individual users (one enterprise coin e.g. Ethereum to rule them all)
    • Two, enterprises may finally realize blockchain technology and public chains are overhyped
    • Until that happens, enterprise focused coins (eg, Stratis STRAT, NEM XEM, Emercoin EMC) will continue to do well, despite the large number of them with questionable differences
    • The question is, how many of these enterprise coins can reach the $1B market cap level? So far only two have: Ethereum ETH and Ripple XRP (and the latter I am highly skeptical of, from faux decentralization to large outstanding company-controlled supply to conflicting internal business models)
  • Pump and dumps will continue as:
    • Crypto as an asset class continues to grow and lots of money enters the system, most of which is chasing returns or uninformed
    • Risk is asymmetric; purely anecdotal but it seems that far more coins experience large and sudden price pumps (e.g., 3-5x or more over 4 weeks) but very few experience comparable price crashes (unless it’s off the back of a pump)
    • Early adopters take profits (e.g., early investors in Bitcoin and Ethereum’s ICO) and invest back into system to diversify investments and seek continued high returns and because exiting into fiat is unattractive and inefficient
    • There is overlap with sketchy and scammy audiences and projects. This may always be a part of crypto, e.g., MLM schemes, penny stocks, dark net markets
    • Despite blockchain’s supposed transparency, teams and products and technology can be even harder to understand and verify than your typical startup
    • Markets are small and illiquid for all but the top coins which make them easy targets for price and volume manipulation
    • Exchanges rely on volume and speculation revenues in the absence of large lending and derivatives markets, and the simple act of listing or delisting a midsize coin can cause large price fluctuations. Thus, any coin which has yet to be listed on one of the major altcoin exchanges (e.g., Polo) has pump potential both in the run-up to a potential listing and after listing
  • Leading edge technology is getting harder to understand (eg, Segwit, Snarks) while simultaneously it’s become easier and easier to fork and create altcoins
    • Examples:
      • ZCash -> ZClassic (one developer didn’t like the 20% ZCash founders fee and in a few weeks had created his own which is now a $4M coin and growing, and will further fork into ZClassic and Zencoin)
      • Dash -> Pivx
      • Bitcoin -> Peercoin -> Novacoin -> Blackcoin
      • ETH -> ETC
      • BTC -> LTC
    • Number of developers who can do this is growing
    • Ecosystem itself is growing and thus can more easily support coin launches and forks and small coins (including miners, multi currency wallets, exchanges, marketers, and investors)
    • General direction is towards customized and personalized coins – one coin for everyone and every need – “YOU get a coin and YOU get a coin and YOU get a coin…”
  • REMEMBER: The market is “worth” $30B but this is not equivalent to $30B invested in the space. Even a 1% sell off ($300M) can crash the price of many assets and see the disappearance of many billions of value. This is particularly acute with altcoins whose daily volume may be, say, $10-50K USD

Cryptocurrency Investment Decisions: What I own, won’t buy, and need to research

Published / by kgao

This page is out of date and won’t be updated anytime soon. For the latest assets that I own and my approach to investing, refer to the investment theses and my occasional portfolio letters. Thank you!

Here is a running list of cryptocurrencies (including digital tokens and ICOs) that I have researched and made a decision about whether to invest or not. The list will grow and change over time.

Assets I currently own:

  • Bitcoin BTC
  • Ethereum ETH
  • Dash DASH
  • Monero XMR
  • NEM XEM
  • Pepecash PEPECASH
  • Zclassic ZCL

I also own small (sub 1%) amounts of Litecoin LTC, Ethereum Classic ETC, Zcash ZEC, Decred DCR, Emercoin EMC, Counterparty XCP, Aeon AEON, Storjcoin X SJCX, Ripple XRP, and Bitshares BTS.

Assets I need to research and/or may invest in:

  • Factom FCT
  • Stratis STRAT
  • DigixDAO DGD
  • Ark ARK
  • Peercoin PPC

Assets I won’t invest in for now:

  • BlackCoin BLK
  • MaidSafe MAID
  • Antshares ANS
  • Huntercoin HUC
  • Augur REP
  • ShadowCash SDC

Bitcoin Portfolio Letter: Taking altcoin profits and buying back into Bitcoin

Published / by kgao

Hi everyone, here is my second Bitcoin Portfolio Letter where I share my exact crypto investment portfolio, what trades I’ve made, and which assets I’m looking at. Each week I alternate between a portfolio letter like this one and a news letter.

Thanks!

Kevin (@kgao)

Performance relative to Bitcoin price benchmark:

I’ll release March performance results in the next letter. Probably outperformed Bitcoin due to the strong run-up of Ethereum and Dash. In January Bitcoin fell 5% and my portfolio fell 2.5%. In February Bitcoin gained 24% and my portfolio gained 29%.

Trades this month

  • Sold 5% of my Bitcoin BTC holdings when the price passed $1200. Right now I’m buying a little each day, because I think it’s underpriced due to hard fork drama
  • Sold 5% of my Ethereum ETH holdings at $43
  • Sold 10% of my Dash DASH holdings at $73
  • My general philosophy is to take small profits when I’m seeing 300%+ price spikes. In the long run my goal is to be investing with the house’s money, so to speak
  • Invested 1% of portfolio into Decred DCR at $5, then sold 10% of that when it spiked to $15

What I got right and wrong since the last Portfolio letter

  • Right that Decred DCR was a good investment – was trading at $5, now trading at $12
  • Right that Shadowcash SDC was crap – was trading at $3.50, now trading at $1.50
  • Verdict still out on Augur REP – was trading at $8.50, now trading at $10
  • Wrong on Zcash ZEC – was trading at $45, now trading at $69. I still suspect the issuance rate / mining-driven inflation is too high to be a good near-term investment but may take a small position

What I’m looking at now

  • NEM / XEM – what I like: no inflation, no PoW (blockchain is secured by a PoS-like model), incentivized staking, geographic depth (the top altcoin in Japan), potential synergy with its private blockchain solution Mijin and early but promising enterprise use cases
  • Bitcoin BTC is underpriced despite HF risks and I’m buying small amounts daily. Right now Bitcoin is 63% of my portfolio and I’d like it to be 65-70%
  • The HF debate has me increasingly concerned about the long-term viability of PoW only blockchains. All this time we’ve been concerned about external 51% attacks without realizing, like all large systems, that corruption comes from within. PoS or at least hybrid PoS / PoW may be the future
  • While I still think Monero XMR will win the privacy coin war in the short-term, I’m questioning whether its price will reflect this victory. I may reduce my position
  • Published a Crypto Cheatsheet (screenshot below) which has key facts and concepts for most of the assets in my portfolio

That’s it. Thanks for reading! Hit ‘reply’ to contact me or find me on Twitter.

What I am doing during the hard fork drama

Published / by kgao

The possibility of a hard fork is on everyone’s minds. It’s reflected in Bitcoin’s price volatility, in the altcoin run-up, and in the toxic and sometimes panicked discussions on r/btc and r/bitcoin. Many great companies and thought leaders in the space have either taken positions or discussed what they have done / are planning to do in such an event. There’s never been more to read and analyze and for a text junkie like me it’s fantastic (in a way).

What should you do with your Bitcoin portfolio right now?

The safest answer is nothing. Just hold onto your Bitcoins and do nothing until (or if) a hard fork happens. I expect the community will come to a resolution by July or August, if not sooner. The price will continue to be volatile but in the long-run (1-year plus), there is no doubt in my mind Bitcoin is the cryptocurrency leader and won’t lose its position.

If you only hold Bitcoin, I recommend diversifying into altcoins in a rough index-like approach. For example Ethereum is roughly 1/4 of Bitcoin’s market cap, so it would be good to eventually have a comparable stake in ETH. You may not want to buy that position all at once, because I think altcoins are overvalued right now. Dollar cost average and invest weekly. My own portfolio right now contains BTC, ETH, DASH, XMR, and a little DCR.

Here’s what I’ve done:

I sold ~5% of my Bitcoin stash in early March when it hit the ATH, and then bought ~1% back after the dip to $1150 brought on by the SEC’s denial of the COIN ETF. Right now the price is trading around $950. It feels low, but it could go lower. I will probably dollar cost average and steadily buy more. Sub-$1000 Bitcoin just doesn’t reflect the value in the network and community and technology. This is more stark and apparent when you compare Bitcoin to the recent price performance of altcoins like Dash and Monero and even Ethereum. But because the next few weeks, maybe months, will continue to be volatile, dollar-cost-averaging seems a better strategy than a big one-time buy.

While altcoins hold promise and are good for portfolio diversification and network innovation and potential upside, Bitcoin is still the best bet in the cryptocurrency space and the network that’s likely to win. When the hard fork drama is resolved, the price will rebound too and probably with a vengeance. Once I figure out exactly how and what I’m doing to buy back in, I’ll share in the portfolio letter that I send around.

Let me know if you have any questions!

Bitcoin Portfolio Letter: -Dash -Litecoin +Bitcoin +Monero +Decred

Published / by kgao

Given how fast crypto moves, I’m switching to a weekly letter, with a caveat: I will alternate between a “portfolio letter” which shares what I’m buying and selling, and a “news letter” covering happenings in the space. Today is a “portfolio letter”.

Overall performance:

In February, the Bitcoin price increased 24%. My portfolio increased 29%, so I outperformed slightly, due to Dash’s price rocket and Ether’s rebound. In January the Bitcoin price dropped 5% and my portfolio dropped 2.5%.

Recent trades:

Sold all of my Litecoin for Bitcoin. It had consistently underperformed Bitcoin and it hit me I had no reason to continue holding. Was only a 1% position. Not a good hedge against Bitcoin due to its strong positive price correlation, and no demonstrable progress on either technology or community.

Sold 2/5 of my Dash position at prices ranging from $45 to $75. I still hold 3/5 of my original Dash position which was acquired around $17. Believe it can be a $1B market cap asset, but I took some profits because the pump happened too fast and I have real concerns about its long-term viability, foremost among them the depth of its team. At its current price of $86 I would only buy a very small position if any.

Increased my Monero position to 3% of the portfolio and believe it will be the leading privacy-first coin. I remain interested in Zcash as well, but believe its inflation rate is still too high and past price performance too anemic to justify an investment.

Bought a tiny amount of Bitcoin after the ETF denial when it had fallen to $1150, about 1% of my total Bitcoin holdings. I remain very bullish, but I also believe that on the back of the ETF denial and the ongoing hard fork risk that Bitcoin’s market dominance will drop below 75% of the total crypto market cap.

New assets I’m looking at:

Decred – I took a small position today at ~$5, about 1% of my total portfolio, and will watch it closely before investing more. They have a similar appeal to Dash: a more clearly delineated and decentralized governance model, and a self-funding block subsidy for development and marketing. Also like Dash, you can earn a return by staking your coins and I may do that.

ShadowCash – Pass for now. Despite its recent price increase, I have too many concerns about the team’s reliability, the quality of technology, lack of a rigorous 3rd party review, and the premine. When the ShadowMarket marketplace launches I’ll take a look at it. If privacy is your bugaboo, buy Monero.

Augur – Pass for now. I remain skeptical of decentralized prediction markets. If prediction markets are so useful, why haven’t centralized ones succeeded? Not sure decentralization brings enough value to suddenly make it work. At current market prices, what they raised in the crowdsale would be worth $50-60M, and the total market cap is $88M. Seems to me they *should* have plenty of runway and budget. I’d like to see some proven use cases or demonstrable growth in usage and engagement before investing.

What assets are you looking at? What should I investigate?

Random fact
Robert J. Greer, a pioneer of asset class theory, defined 3 categories of assets:

  1. Capital assets (eg, equity, bonds)
  2. Consumable transformable assets (eg, grain)
  3. Store of value assets (eg, fiat currency, gold)

Assets can belong to more than one category. For example US Treasury Bonds are a capital asset, but also a store of value given its federal backing.

Take some profits now because you’re in the money

Published / by kgao

This is a cross-post of mine from reddit. I’ll occasionally post thoughts there, usually from an anonymous account, but sometimes from a more public / identifiable handle. Original post with discussion and comments here.

**

I know this isn’t popular opinion, but now that bitcoin has reached an undeniable ATH, I’d strongly advise you to take some profits off the table.

I’ve invested far too much of my money into bitcoin since mid-2013 and I’ve never been more confident than now. Yet precisely because of this optimism, and because of the price growth we’ve seen in recent months, I sold a small portion of my holdings. ~5%. And I will continue take small profits if the price continues to soar.

Why?

  1. It’s always good to take money off the table if you’re in the black. The best thing in the world is to be playing with the house’s money
  2. It increases endurance for the long-term. We’re all in it, I hope, for 2020, 2030, and beyond, and taking profits off the table when you’re doing well, like taking breaks during a marathon, will help you endure the next boom-and-bust cycle…and the next…and the next…
  3. I’m not so rich that my bitcoin investment is play money. It helps psychologically to feel like I have actually made money, not just on spreadsheets, and I can use this money to diversify into other investments like index funds. Yes, index funds might not be as exciting as crypto, but diversification is the cornerstone of solid long-term investing
  4. In the long-run, I don’t know if bitcoin will maintain its #1 position. And over time I’ve slowly increased my altcoin holdings and am roughly trying to “track” the cryptocurrency market by market cap (with some exceptions). So part of it is rebalancing as well
  5. As an example of how weak I am in my resolve: I had made a self-promise to sell 20% of my bitcoin holdings when it reached the ATH, and now the day’s here, and I could only bear to sell a quarter of that…

Portfolio Performance: January and February (increased Dash, exited Zcash)

Published / by kgao

This is the first in a series of regular posts where I plan to share the details of my portfolio, the trades I’ve made (if any), and observations on market performance.

Here’s what I currently own in the world of cryptoassets (a semi-regular update is also posted here):

  • Bitcoin: 87%
  • Ether: 7%
  • Dash: 4%
  • Monero: 1%
  • Litecoin: 1%

Here are the trades I made in January and February:

  • I sold my entire Zcash position – about 1% of my portfolio; it’s still a promising technology and team, but given coin inflation and past performance Zcash price is not likely to beat Bitcoin
  • I increased my Dash position from 1% to almost 4%; I also contributed some of my shares to a Dash Masternode share program and may even setup my own Dash Masternode at some point
  • When Bitcoin neared its all-time high at $1200 I sold less than 5% of my Bitcoin holdings. I did this because I had promised myself, during the long extended bear market, that if Bitcoin ever reached its ATH I would take some profits. Even then, I didn’t take as much off the table as past-me had promised myself. Funny how psychology works
  • I slightly increased my position in Monero although I am starting to suspect it won’t outperform Bitcoin in the next 12 months

Portfolio benchmarks:

  • In calendar year 2016, Bitcoin increased 137%. My portfolio returned 107%, so I underperformed significantly
  • In January 2017, Bitcoin fell 5%. My portfolio lost 2%, so I outperformed slightly

I’ll eventually draw up a table to compare my portfolio’s performance versus Bitcoin and other benchmarks, eg, the S&P 500 and a Gold ETF.

What I’ve learned:

I’m of the increasing suspicion that currencies favored for transactions (eg, Ethereum as gas, Monero, Zcash) will underperform currencies that exhibit store-of-value / buy-and-hold properties (eg, Bitcoin, Dash with its Masternode structure). It may be hard to predict ex-ante coin behavior. I will look at transaction metrics (volume and dollars moved) and measures of a currency’s velocity to see if there is some correlation

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!