intrinsic alpha january 2013 - fancy a punt?
TRANSCRIPT
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7/27/2019 Intrinsic Alpha January 2013 - Fancy a Punt?
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Intrinsic Alpha Note February 2014
"What happens to us in the future? Do we become
assholes or something?" Marty, Back to the Future
(film)
"Expecting something for nothing is the most popular
form of hope." Arnold H. Glasow
"Hope is the overdraft on reality." Team Macro Man
"Youth is easily deceived because it is quick to hope." -
Aristotle
Greed is goodGordon Gekko
Fancy a punt?
Welcome to 2014. Its been an interesting start to the year,
however, I find myself at a quandary equities and
bonds arent that interesting these days, we know
equities are going up and bonds are going down, at least
in the long run. Maximum gains there sit somewhere in
the high single digits for the 11 months remaining of
2014. In the hunt for something sexier, something that
could really get your pulse racing, Ive decided to hurt
the voices in my head. Ive decided to make them cry.
What have I done? Ive decided to buy some Bitcoin. Yes,
you are correct in thinking this diametrically opposes
everything I believe in.
Before you get too excited, let me reaffirm my stance on
the Bitcoin:
1. It will be stamped on by governments in the long-run.
2. It is not a currency and never will be.
3. The only thing impressive about it is its speculative
potential.
4. It is not finite because anyone can make their own
crypto-currency.
5. Nothing backs a Bitcoin whereas at least fiat
currencies issued by central banks are backed by the
future tax revenues of their governments.
6. Bitcoin is not like gold or silver, its more like tulips or
South Sea stock.
So why am I doing this? What is going on inside my
head? The answer: pure speculative greed. My New
Years resolution is to make money. I have 11 months to
show that I can. Here goes. Before I continue, I must
warn you, that if you are a bitcoin bug, you should stop
reading here, because I will most likely offend you. It s
nothing personal, just business.
If I had a (random name here)-coin every time I heard
that!
The first thing you have to accept is that the 1000% return
days of bitcoin are over. Sorry, you missed that boat (or
punt). Thats not necessarily a problem, because given
the interesting nature of the bitcoin speculative bubble,
many people have jumped on the bandwagon of creating
alternative crypto-currencies which aim to supplant or
complement bitcoin. The problem however is, as of
today, I count around 80 of these. It seems one needs to
exercise some coin-selection when deciding which of
these to back.
Figure 1 depicts an interesting visualisation of the
marketcap split of the ones Ive come across. With
interesting names like Primecoin, Feathercoin, Dogecoin,
Sexcoin (ooh lala), Casino Coin (vegas baby!), you cant
help but think people are frankly taking the piss. In my
view, they are not taking the piss. What theyre doing
is quite simply jumping on the bandwagon and trying to
get something for nothing.
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Intrinsic Alpha Note February 2014
Figure 1: Source - coinmarketcap.com
Needless to say, most of the altcoins out there arepointless. They have been created for the sole purpose of
filling the pockets of their creators, who no doubt were
jealous of the handsome returns bitcoin early adopters
received. Thats fair enough, in any bubble with near
zero entry cost, you can expect new entrants. The funny
thing about this list, is that each of these (bitcoin
included) is said to have a market capthe number of
coins in circulation multiplied by the price. I find that
quite funny. Lets get one thing straight, if everyone sold
their bitcoin in one go, the market cap would be zero.
Thats because these assets have no intrinsic value only
hype value. What Im getting to is that the only way to
valuethese things is to attempt to estimate which coins
are most likely to get hyped up and to what extent that
might affect the price.
Discounted insanity?
I have taken the liberty to examine each of the altcoins in
the above list and filter it down to a select few which I
believe are most likely to experience surges in hype, and
hence price. The criteria I used are as follows:
Remove any coins which are simple bitcoin
clones.
Remove any coins which are simple litecoin
clones.
Include coins which have some identifiable
feature that differentiates them from bitcoin or
litecoin.
Include coins which have shown some signs of
hype.
Exclude coins with less than $1m market cap.
My list is shown below, and I include a brief sentence for
the rationale behind my selection. All comparisons are
made with respect to bitcoin.
Peercoin apparently less vulnerable to a proof-of-stake
attack and more energy efficient to mine.
DogeCoin pure ability to get hype, it was in the media
recently for a donation made to the Jamaican bobsled
team.
Quark apparently far more secure than bitcoin and
wide distribution.
Namecoin acts as a decentralised domain name service,
so people can register domains in the blockchain.
Mastercoin so many things here and very complicated
to understand, hence why it could be hyped easily as
people will buy what they dont understand.
ProtoShares Like Mastercoin in terms of complexity
and allegedly entitles the holder to a fraction of
ownership in something called a DAC (Distributed
Autonomous Community).
NXT All coins are pre-mined, so very green and it uses
a completely different code base to bitcoin, also the
wallet requires a passphrase like a Swiss bank account so
no need to install special wallet software potentially.
42 Coin there are only 42 coins (of course divisible to 8
decimal places) and so a lot of hype potential.
Craftcoin the crypto-currency of choice for Minecraft
players and therefore speculators?
Datacoin so small and with a lot of potential for hype as
apparently you can store a limited amount of data in its
blockchain, like torrents or something else.
Bitcoin Ripples Litecoin Peercoin
Nxt DogeCoin MasterCoin Namecoin
Quark ProtoShares WorldCoin Megacoin
Primecoin Infinitecoin Feathercoin Novacoin
Kittehcoin Tickets YbCoin Devcoin
Digitalcoin Zetacoin Mooncoin Anoncoin
Copperlark Ixcoin Terracoin Particle
Freicoin FedoraCoin EarthCoin LottoCoin
GoldCoin TagCoin Cryptogenic Bullion Extremecoin
BBQCoin Sexcoin Dimecoin BitBar
Frozen MemoryCoin Fastcoin Vertcoin
Deutsche eMark Unobtanium Datacoin AsicCoin
RedCoin Junkcoin StableCoin I0Coin
Catcoin Grain FlorinCoin RonPaulCoin
42 Coin GrandCoin Bytecoin Philosopher Stones
Tigercoin Astrocoin QQCoin Franko
Argentum GlobalCoin Xivra BetaCoin
Luckycoin HoboNickels Diamond Elacoin
CasinoCoin Bitgem Phoenixcoin Noirbits
Joulecoin CraftCoin
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Intrinsic Alpha Note February 2014
Thats the list, and I advocate holding a portfolio of these.
Thats no easy task as each of these requires a wallet,
which can take some time to install. Furthermore, most of
these trade for bitcoin on exchanges, which means you
will need to first buy bitcoins and then the altcoins.
My conviction in each of these stands at:
Coin Weight
Peercoin 10%
DogeCoin 10%
Quark 10%
Namecoin 20%
Mastercoin 5%
ProtoShares 5%
NXT 25%
42 Coin 5%
Craftcoin 5%
Datacoin 5%
Not to get too scientific about the whole exercise, but if
the marketcapof each of these was 1% that of bitcoin,
you would generate a weighted return on investment of
8,787% and if the figure were 2%, you would generate
17,775% return. These numbers are too large to ignore,
infact so large that Ill take my investor hat off and put onmy evil speculator fake moustache.
Coin Market Cap $ Weight %Bitcoin
Mcap
Return
1%
Return
2%
Bitcoin 10,007,053,992 100.00%
Peercoin 112,202,364 10% 1.12% -11% 178%
DogeCoin 55,630,161 10% 0.56% 80% 360%
Quark 19,832,691 10% 0.20% 405% 1009%
Namecoin 42,176,095 20% 0.42% 137% 475%
Mastercoin 54,252,471 5% 0.54% 84% 369%
ProtoShares 15,473,573 5% 0.15% 547% 1293%
NXT 69,418,375 25% 0.69% 44% 288%
42Coin 296,246 5% 0.00% 33680% 67559%
Craftcoin 83,977 5% 0.00% 119064% 238328%
Datacoin 482,174 5% 0.00% 20654% 41508%
Of course a larger current market cap of each coin
implies that the return potential is lower. Under this kind
of outlandish scenario, a 100 investment would turn
into around 8,000 not bad. Imagine how much those
early adopters and early miners will make. I would give
the time horizon of this less than a year perfect timing
and something for nothing.
Back to the future
I could not let this note finish without a few updates on
the real markets. I provide an update of my favourite
chart of the S&P 500 Index:
I cant believe I still have to convince people that what
we are experiencing is a new secular bull-market in US
stocks, and as if to reinforce the correlation between the
1995 line and the 2013 line. It feels to me like we went to
the future in 1995, or that weve gone back to the past.
The sell-off this week (27January 2014) will provide a
great opportunity to those who listen to fill their
stockings. If anything the recent tones of caution at
Davos are a great indicator that we will experience a
near-term sell off in risk which will then be met with aferocious wave of buying risk.
I am pleased to report that the outlook has indeed turned
disinflationary in the US and Europe and even Emerging
markets are starting to stall and their currencies tremble.
Imagine what would happen if developed central banks
started to tighten outright. Remember, that any shock to
the system will be met with an even greater quantity of
easing, which will eventually enter the system as
inflation. We just need that extra bit of deflation to stokepolicymakers. In short, were in need of a correction Mr
Market deliver it.
Thats mostly it, nothing much has changed since my last
note.
May the gods of speculation look down kindly upon us
so that we may no longer have to hope.
The Actuary
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2013S&PIndex
1995S&P
Index
1995 Bull Run 2013 Bull Run