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People new to Bitcoin may want to consider the 3 Bitcoin Rule (3% of total), since investors unfamiliar with Bitcoin have many stories involving mistakes of selling too early, or jumping in at the wrong time due to the panic of missing a trend. Fear of missing out (FOMO) and fear of losing everything (FOLE) both destroy the success of most investors and at the heart of both lies a lack of discipline. In addition, seller’s remorse can give a person regret, even if they sensibly sold for something of value; it takes discipline to get the context of a situation. Most new investors won’t master discipline in a day, but there is a way in the case of Bitcoin and other crypto-tokens that new investors might minimize their potential to make mistakes: the 3 Bitcoin Rule. What is this rule and how might it help investors?

What Is the 3 Bitcoin Rule?

Suppose that Andrew has 100 Bitcoins and wants to make sure that he never gets caught up in FOMO or FOLE. Andrews decides that he will always keep three bitcoins no matter what. He won’t try to out-think himself here with these 3 Bitcoins; he will simply keep them forever in a combination of wallets. The other 97, he may sell, then buy back later, or use, but his 3 Bitcoins will never be touched.

The 3 Bitcoin Rule here is 3% of the total, though for some people this may be more or less, relative to the amount of Bitcoins that a person has. For a person with 1 Bitcoin, this would be 0.03 Bitcoins (examples with 100s make memory easy, so that’s why I use them). If a person wants to “automate” their discipline, this rule might make sense for them so that they avoid the rush of FOMO, FOLE and seller’s remorse. Some investors have mastered the timing of a buy or sell, but for new investors – especially new investors with Bitcoin – it helps to have some “stake” to avoid committing an error.

Why This Helps

I met one of the smartest bitcoinaires at a meetup in downtown Dallas, who interacted with Satoshi on the bitcoin forums and was one of the earliest adopters. He sold his bitcoins to pay for student loans and felt regret at selling the too early, even though I would argue he made a good trade. However, seller’s remorse can happen and we can mitigate it by simply following this 3 Bitcoin Rule. In our minds, we’ve “lost” these forever, so we don’t debate whether we made a mistake when we sold some or not. It also helps us avoid the “I’m missing out on a rapid increase in price right now” because we have some riding on the rise.

This is one of my favorite methodologies for stocks and it’s been effective at keeping me disciplined. Think of the example where Jason buys 15,000 shares of Dillards at $1.50 in 2009, and sells 10,000 shares when Dillards rises above $120. He makes over $1.2 million in his trade and he still has 5,000 long (which in this case of Dillards also pays dividends – $0.28 per year). Whether Dillards rises or falls is irrelevant to Jason; he has 5000 shares no matter what and he’s made bank on the majority of his position – he can have no regrets, as this was a winning trade (again, in this case, his 5,000 shares are also yielding him $1,400 a year, or 28% of his original principal). Since Bitcoin does not yield, the yield example does not apply in Bitcoin’s case.

The Drawbacks of This Technique

While this technique will help beginners, especially beginners who feel susceptible to FOMO, FOLE and seller’s remorse, advanced traders might view this as wasteful even if the original principal is green. Advanced traders like to think that they can understand and time markets perfectly, so this own’t resonate with them. The reason I trade so well is that I accept the fact that I will never be advanced; in fact, I think that humility is one of the most powerful of all trading tools, along with discipline. This techniques automates discipline by removing the decision making process.

Still, one could argue merit in liquidating an entire position, if the circumstance calls for it. A person should realize that if he chooses to never liquidate a position, it’s possible that he could see that position fall to zero, if a situation causes it. Provided that the person understands this risk (failure is guaranteed), the 3 Bitcoin Rule may have value for this particular trader.

Applicable To Other Tokens?

One can apply this same technique to other tokens as well. In addition, one can also apply this to stocks, ETFs, mutual funds, etc; this rule can make sense in any situation where FOMO, FOLE, or seller’s remorse might exist.

Warning

The following article covers a token or element in the cryptosphere. The cryptosphere is new and exciting, but changes rapidly and often in ways that do not benefit users. By the time this article is published, changes may have already occurred. Most tokens in the cryptosphere are complete scams that are get-rich-quick-schemes for insiders. Often, we cannot know this beforehand and only later discover this. A person should only trade with money that they’re willing to lose because losses are guaranteed. If you choose to participate in purchasing a token in the cryptosphere, you should do so with the full expectation of a loss and you should also expect it to change in a manner that does not benefit you. There are very few good ideas in the cryptosphere. Finally, by reading this post, you agree that you’ve read our disclosure.


If you’ve interacted in the cryptosphere for a few years, you’ve probably heard about Tezos. Last year, a Monero miner at a blockchain meetup here mentioned Tezos as a project that addressed the governance concerns we’re now seeing play out in bitcoin and other projects that rely purely on a decentralized model. In addition, Tezos features privacy – which was one of the hottest features in 2016. The billionaire, Tim Draper, supports Tezos and is an early adopter of it.

Quick Highlights

Tezos will launch a delegated proof-of-stake consensus system that will allow any token holder to participate in this ecosystem. The ecosystem features privacy, governance, smart contracts, and an economic model designed to provide incentives to those staking; the proof-of-stake system will pay these staking nodes through nominal inflation with new tokens.

For people unfamiliar with these concepts of privacy, governance, smart contracts can look at other projects in the cryptosphere to see what concerns these features address. Last year, we saw a big push in privacy crypto-tokens, which are as private as a person’s computer system. Ethereum is the first top 5 crypto-platform to produce smart contracts and these have allowed other projects on top of its platform, such as Augur, Gnosis, Golem, and other projects. While Ethereum uses Solidity as its programming language (JS derivative) and Stratis uses .NET, Tezos will use OCaml. Finally, governance is an issue that has arisen this year due to conflicts in bitcoin, which addresses how to solve problems. Bitcoin’s decentralized nature, like Ancient Greece, has led to many challenges regarding its future, both on the technical and economic side.

In the past, the Tezos team had considered re-issuing tokens if an address had gone dormant for a year, but after debate, this was negated. This would have meant that if you had held on to tokens for over a year without touching them, they would have been re-issued. However, they decided against this route. It should be of note that a few in the bitcoin community have seen unused bitcoins for many years as a problem.

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Crowdsale Highlights

Due to launch on May 22nd 2017 for a time of 2000 bitcoin blocks, the Tezos’ crowdsale features the following highlights:

  1. No cap in funding, only time
  2. Private individuals and hedge funds had first bidding between September 2016 and March 2017
  3. This crowdsale will fund engineering, research, legal services, communications and marketing, business development

Following the example set by the Ethereum Foundation, there is no cap on the amount of contributions that will be accepted by the Foundation. This is done in order to ensure that participation is not limited only to insiders or the “fast-fingered”. The Tezos development team believes that an un-capped crowdsale will promote a widespread distribution of the tokens, a necessary prerequisite to launching a robust network.

In addition:

The crowdsale will last for a period of 2,000 Bitcoin blocks. Throughout this period, a contribution of one bitcoin (1 XBT) will lead to an allocation of five-thousand tezzies (5,000 XTZ) plus a time dependent bonus. This bonus is meant to incentivize contributors not to delay their participation. The bonus starts at 20%, meaning that a contribution of 1 XBT will yield an allocation of 5,000 X (1 + 20%) = 6,000 XTZ and decreases progressively to 0% over 5 periods lasting 400 Bitcoin blocks each.

Finally, they’ve already sold tokens to hedge funds, private individuals, and other institutions; this sale was not open to the public:

In order to fund the last phases of Tezos’ development, the DLS team sold tokens at a discount to ten entities from September 2016 through March 2017. Three of these entities were hedge funds with a specific focus on tokens. The other seven purchasers were high net worth individuals, or federations thereof, many of whom were also LPs of the hedge funds. Total proceeds of these sales came to $612,000 at an average discount of 31.48% over the crowdsale price for a total of $893,200.77 in outstanding obligations. No single purchaser represented more than 33% of the total amount.

Warning

The following article covers a token or element in the cryptosphere. The cryptosphere is new and exciting, but changes rapidly and often in ways that do not benefit users. By the time this article is published, changes may have already occurred. Most tokens in the cryptosphere are complete scams that are get-rich-quick-schemes for insiders. Often, we cannot know this beforehand and only later discover this. A person should only trade with money that they’re willing to lose because losses are guaranteed. If you choose to participate in purchasing a token in the cryptosphere, you should do so with the full expectation of a loss and you should also expect it to change in a manner that does not benefit you. There are very few good ideas in the cryptosphere. Finally, by reading this post, you agree that you’ve read our disclosure.


One of the most over-looked topics in Ethereum is its inflation rate. You almost never hear people talk about this or see people post about this, though I will show a few exceptions to this later in this post. I find it interesting that people are dollar-cost averaging into Ether, even though most of these same people have no idea what the inflation rate is of Ether.

“You Don’t Know Or You Can’t Say?”

Below are some links where this topic is discussed, which are rare finds in general:

  1. This question from the user Brian Armstrong, which might actually be Brian, though you never know on the internet.
  2. This revealing question on Ethereum’s Reddit page, though how much of this has changed?
  3. Finally, this post at the beginning which clearly states, “Every year, in perpetuity, 18,000,000 ETH will be issued though the mining process.”

Note that on the last post – which is before Ethereum officially existed – the assertions appear to no longer carry weight. We should also realize that initially, Ether would inflate, but Ether would also burn, so in theory, the original intent would have achieved a balance or deflationary status at some point, assuming mass adoption.

The reality is that no one actually knows what Ethereum’s inflation rate is: not only has the intent since the original post changed, we must realize that any change means that a future change is possible. In a sense, Ethereum is flexible if you’re a glass-is-half-full kind of guy, or unpredictable if you’re a glass-is-half-empty kind of guy.

One Thing We Know (Now): Ether Inflates

Like George Soros, I grasp that inflation is an expectation phenomena, not a fundamental phenomena. This means that bitcoin does not have an inflation rate, but an emission rate because rational market players have already priced the max supply since the beginning. If one does not know what the max supply will be in the long run, then the project is inflationary with the exception of deflationary projects, like Counterparty or Bitcrystals – both which permanently reduce their supply. I do not expect many in the cryptosphere to grasp this because many traders do not understand human behavior and inflation is a human reaction to events involving supply – this is why you don’t see people dumping the US Dollar, even though the US can’t control it’s money supply and it constantly increases.

Because we don’t know what Ether’s supply will be in the future, it inflates. Until this is changed, whether it’s changed to a fixed supply, or a burned supply-reduction, we can assume there will be more Ether.

We’re Talking Apples and Uranium

Ether and bitcoin differ significantly, though you will see them thrown together often. You must realize that when people compare these, they are demonstrating how absolutely clueless they are. Comparing Ether to bitcoin is like comparing gold to Visual Studio. Huh?

My point exactly.

I’m not complaining here: one of the many reasons for receiving disproportionate results in markets is people’s misunderstanding of reality. In some cases – like Ether and bitcoin – this is self-inflicted. People are making a choice to follow people who don’t grasp the differences. Is a financial analyst a developer? In many cases, they see the world very differently. This is one of many reasons why people are confused about these projects: the “experts” don’t really understand how different bitcoin and Ether are.

Because Ether intends to be a platform, it must be adaptable to an extent, in the same manner that you must sharpen your saw from time to time, or even adjust it according to your needs. Inflexibility for something designed for architecture could be a disaster waiting to happen. One might state that an adaptable token may not be a good investment and they may be correct. Ether is a token for the platform Ethereum and that comes before anything. Weighing Ether as an investment misses this. This is a choice some make because they continue to listen to people who do not grasp the difference. On the other hand, if a person is an entrepreneur, developer or engineer with an idea for Ethereum and they look at Ether (correctly) as fuel for their idea, they will win because of their idea.

Bitcoin’s competitors are Monero, Dash, Zcash, and a whole range of other cryptocurrencies, while Ethereum’s competitors are Counterparty, Ethereum Classic, and other platforms. While I understand that most people like to look at a simple website that puts everything on the same page, you must realize that this website is actually misinforming you daily by implying these all belong on the same page together (or in the same category). They do not. This will only grow worse in time because we now see another range of ideas that also don’t belong in the same category, like bitcoin or Ethereum. Enjoy the misinformation – but you’ve been warned!

Those Are Your Experts, Not Mine

If I hosted an Ethereum conference – and luckily I won’t – I couldn’t invite a single “expert” on Ethereum as a whole because none exist. I’ve seen strong developers in Ethereum with ideas and I would invite them about their ideas and the practices they follow. I’ve seen strong companies in Ethereum, who see some applications with it, and I might invite them to share what gave them their ideas. I’ve also seen people who grasp where Ethereum may be applied in the future in other areas. But none of these are experts across the board on this platform (or other related platforms); people are choosing to have experts in something that will be deeper than they imagine because the applications are numerous.

That’s their choice. On my end, there is no “expert” in Ethereum – there are applications and I will listen to those as experts in their own application of the Ethereum platform. For this reason, I can read the Ethereum blog from early in its history and understand why Ethereum may differ now – it must be flexible and even the original designers must adjust accordingly.

So Why The Fight?

First, most bitcoinaires like Ether and they own both bitcoin and Ether. Bitcoin maximalists view Ether as a threat, which is a misguided view. We warned you in I Just Lost Everything that competition would begin to get nasty. We can explain part of this due to money, but some of it is due to the reality that people did not understand what was in front of them and they missed it. They can either eat their pride and admit they were wrong (very rare), or double down and continue wasting time by reflecting their misunderstanding of projects. This won’t just be true for Ethereum either; as ideas in the cryptosphere evolve, we will see many future misunderstandings of some projects. I can think of at least 6 projects right now that many misunderstand.

One final warning here: don’t mistake a correction for, “See the project failed!” This naive view is what Wired asserted when bitcoin fell from $32 to $10 and as we know, this view was incredibly inaccurate. Corrections happen and they do not mean a project is a failure.

Warning

The following article covers a token or element in the cryptosphere. The cryptosphere is new and exciting, but changes rapidly and often in ways that do not benefit users. By the time this article is published, changes may have already occurred. Most tokens in the cryptosphere are complete scams that are get-rich-quick-schemes for insiders. Often, we cannot know this beforehand and only later discover this. A person should only trade with money that they’re willing to lose because losses are guaranteed. If you choose to participate in purchasing a token in the cryptosphere, you should do so with the full expectation of a loss and you should also expect it to change in a manner that does not benefit you. There are very few good ideas in the cryptosphere. Finally, by reading this post, you agree that you’ve read our disclosure.


Yesterday, the cryptosphere neared $40 billion with over $1.5 billion in volume for the day with bitcoin leading the pack with over $750 million in volume. Early adopters will still remember the day when the bitcoin hitting $750 million in market cap was just a dream and now that was the volume of bitcoin in one day. Meanwhile, the entire cryptosphere saw a volume of over $1.5 billion and this is an industry that didn’t even exist a decade ago.

Ether and Dash Join Bitcoin: Mint Millionaires

Bitcoin minted the first round of millionaires as a crypto-token. This year, Dash and Ether have joined bitcoin, minting millionaires with graphs showing uptrends since their projects started. If they continue to innovate, they may remain serious players in the cryptosphere. Meanwhile, we’re beginning to see the evolution of ideas expand – like dot com stocks helped create the rise of other related industries, we’re seeing other ideas in the cryptosphere outside of tokens. For instance, BHP Billiton is using Ether for its supply chain and I know some other commodity giants are evaluating blockchain technology for this type of application.

Keep in mind that this is a new industry that’s budding and most people have no idea what bitcoin, a crypto-token, or the cryptosphere even is. As these projects innovate, they will know what all of those are. For the time being, I fully expect we’ll see a correction from this high market cap value, though timing tops is not something I’m interested in trading.

Global Wealth

The cryptosphere makes up a total of 0.00019% of global wealth at the time of this writing, which means we aren’t even close to 1% of global wealth. I view that number growing as more people discover other ideas where this technology can be applied – and will be applied. For now, one could argue that we may see a limit of $100-300 billion in total mark cap over the next few years with the current set of ideas, until other applications are discovered.

As the industry as a whole continues to innovate, makes itself relevant as new challenges appear, and leverages existing ideas and new technology, the cryptosphere as an industry may grow into the trillions. Ether, Factom, Digix, and a few other projects have caught mainstream attention outside the cryptosphere this year. Companies are beginning to see value in this industry. Also, if you look at the Consensus 2017 speakers, you’ll realize that many major players now pay attention to this industry. When I first mentioned bitcoin and the blockchain while working for a Wall Street firm when it was less than $20, no one cared. Now, that same firm is paying attention.

Cryptosphere Expectations

As I type this, over 1,000 ideas exist and some of these ideas have become crowded – such as the cryptocurrency space, with new cryptocurrencies even though these have been overdone. I fully expect that the top projects will eventually command 80-90% of the total market cap in their idea. For the time being, we should expect people to debate what these top projects are and like the top companies of any industry, I fully expect these will change in time too.

Bubbles Validate Good Ideas

Bitcoin has validated Austrian economics, though I find it humorous that some of the beneficiaries of this want the industry regulated in the name of “preventing bubbles”, which will harm the industry (Mick Mulvaney agrees with me here). Bubbles happen whether you want them to or not, but the price of quality projects after a correction is still higher than when the bubble began. You can be wise like Vitalik Buterin and see this, or you can be ignorant like Wired and fail to see this reality. A correction destroys bad ideas, bad projects, and deceptive innovation; Americans would be extremely wealthy now if they let the S&P 500 experience a correction – which companies could survive? Which new companies would enter? Yet, Americans think stability is great, when several corrections would flush out the bad while creating room for the good with the index hovering at over 5,000 right now (if they allowed corrections).

Bubbles raise awareness, but they also flush out the incompetent. Prosperity destroys fools and a bubble makes people feel prosperous. Only the people who don’t trust prosperity and success survive: they were the ones from day one who were focused on their vision, not on the distraction of success. This is why I welcome bubbles and in the end, the quality projects (like the quality companies) will always reset at a higher price after the correction than their price before the bubble began.

Never forget that bitcoin’s most spectacular bubble – the 2011 bubble – saw a rise of bitcoin from less than $1 to over $32 with bitcoin experiencing a 93% drop in price, yet still above $1. Bitcoin never fell below $1 again and today bitcoin is over $1000. That is the power of allowing extreme prosperity so that we can all see who’s using it the best and who’s really fake, because when the chips fall – and they will – no faker can hide.

The Time To Leave

Last year, I created the course Retire Early With Cryptocurrencies and the material has been right on the money. Like many early industries, the students have won. As the industry evolves, obtaining disproportionate results becomes harder, since everything regresses to a mean. Still, I think we have some time and I think people are only on the tip of the iceberg when it comes to ideas – I can think of many ideas that people have missed for now, so there’s more room for growth.

You’re on the race, thinking you’ve almost won, then you may find, you’ve only begun.

Eventually, there will come a time to leave the cryptosphere, but that time is not yet. We should consider this perspective in everything though; we love seeing the growth and recognition of this industry, but we won’t be here forever.

Warning

The following article covers a token or element in the cryptosphere. The cryptosphere is new and exciting, but changes rapidly and often in ways that do not benefit users. By the time this article is published, changes may have already occurred. Most tokens in the cryptosphere are complete scams that are get-rich-quick-schemes for insiders. Often, we cannot know this beforehand and only later discover this. A person should only trade with money that they’re willing to lose because losses are guaranteed. If you choose to participate in purchasing a token in the cryptosphere, you should do so with the full expectation of a loss and you should also expect it to change in a manner that does not benefit you. There are very few good ideas in the cryptosphere. Finally, by reading this post, you agree that you’ve read our disclosure.


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