Titan’s Performance Report
Reflecting back on January of this year, it was an incredibly tough month for the #Hodlers. The top ten crypto assets lost nearly 50% of their market cap in just 27 days. Leading the charge downwards has been bitcoin, which is down over 66% since its December 17th high of $20,089.
In this note, we’re going to look back on some previous calls we made and see how we’ve done. We’re then going to tell you a bit about what we’ve learned.
Analysis of Bitcoin Futures: A-
Our December 10th, 2017 article on bitcoin futures made the below (bolded) predictions. How did we do? Read below.
Not as much (will happen once bitcoin futures are launched) as you think, at least not right away. Despite predictions for the market to immediately crash once bearish views could be expressed, that was hardly the case.
More institutional money will flow in. Headlines discussing the number of derivatives traders who have left sell-side banks to start crypto funds would suggest this is true. However, that has not manifested itself in a bullish market for crypto.
… and retail money will follow. This was true, until it wasn’t. We feel a lot of the “fun money” that millennials were throwing in to bitcoin has been pulled out. The “weak hands” invested in the markets are withdrawing one-by-one.
Bearish views can now be expressed. Nothing to brag about here, it was merely a statement of fact.
Mining will be more competitive. I’ll give us half credit on this. While plans were announced by several large manufacturers to expand mining operations and Samsung announcing it would enter crypto mining, the majority of mining is still concentrated.
Regulation is coming. Yup! Regulation has been the name of the game this January, and has been the primary concern of investors in crypto assets broadly.
MOST IMPORTANTLY… IF BITCOIN IS A BUBBLE, it will expand considerably with the introduction of futures because now speculators can invest with borrowed money… we expect the price of BTC to continue rising through Sunday. However, through the second half of December, we expect some meaningful volatility. Honestly, we nailed this one (“I don’t mean to toot my own horn but… toot”). If you don’t believe us, please check the medium post. Bitcoin increased until it crashed midway through the month. After recovering a bit in early January, it’s been in free fall.
Our conclusion, recommending that investors diversify crypto holdings into LTC, DASH, ETH, XMR, XRP would have helped ease the pain of January. Those assets have outperformed BTC by 2%, 4%, 61%, 15%, and 59%, respectively.
The Case for Crypto Diversification: B+
The premise of our previous article on Steem was to advise crypto investors to diversify their portfolios to include ETH, XRP, and IOTA rather than just BTC. Since that article, see below for the performance of these, BTC has lost 64% of its value, ETH is down 3%, XRP is down 5%, and IOTA is down 63%. We feel somewhat good about advising you to invest in assets that have significantly outperformed bitcoin (on average). That said, we refuse to give ourselves an A because diversification didn’t really do the job we thought it would have. To explain, the purpose of diversifying is to have protection for when any given one of the assets under-performs. Despite the fact that this basket performed far better than bitcoin, when the landscape was stressed, they all sold off in tandem. In the spirit of intellectual honesty, we must admit that we did not think that “all ships would sink in an outgoing tide” quite as much as they have done since early Jan.
What can we make of this? There are several possibilities to explain January:
Macro risks may continue to trump the potential of any individual project. The influence of government regulators may overpower exciting innovation in any one asset (as it relates to the price of the crypto).
The space had significantly more speculative money than we thought, and projects were not being valued for their individual potential so much as individuals were investing blindly across the landscape. We hope this kind of investor has vacated after the losses this January.
Going forward, here’s what we’re doing:
Staying diversified. Diversification still pays. It may not protect as much on the downside (though it can, as demonstrated by bitcoin), but it certainly benefits on the upside. Furthermore, concentrated portfolios in bitcoin are going to continue to suffer. Bitcoin feels the brunt of all the headwinds coming from the regulatory space, and is plagued by the continued debate over scalability. As other cryptos arise to solve some of the problems brought to the fore by BTC, we would expect it to continue to slide in market share to other, nimbler projects (see chart below for bitcoin’s slide as a % of the cumulative top-10 crypto market cap).
Implementing risk controls. If the intrinsic value of a crypto can be trumped by a crypto-wide selloff, certain risk controls are needed to protect portfolios. We have experimented with “stop-loss” sell protocols to trigger automatic sales should assets sell off by more than a certain amount in a given amount of time. We realize this is sacrilege to the #Hodlers out there, but if we can identify the days that will be -30% or -40%, we may be able to protect from significant downside volatility moving forward, and catch the swings back upwards. If you decide to do that, it’s also important to implement “stop-losses” on the way up as well. By that I mean, when a crypto has had an extraordinary run, you should maintain discipline and rebalance your portfolios accordingly (amirite XRP holders??).