Down Multiple Six Figures
Confessions of a Bitcoin Bagholder
I learned about Bitcoin back in 2015. I’d just finished reading Dominic Frisby’s book Life After the State, in which he mentioned an alternative to state money in the form of Bitcoin, and mentioned he had written a book on the subject of Bitcoin. I subsequently read Dominic’s book Bitcoin the future of money? (Note the question mark!) and feeling buoyed up following reading the book, logged into the internet and swapped real money in return for some magic beans.
The appeals of Bitcoin were twofold:
- Libertarian anti-establishment money and
2. 1,000x returns if successfully adopted as money.
I chucked what little cash I had lying around into it (and I mean a hundred odd pounds) and set a five year time horizon. If only I’d come across the concept of DCA back in the day, I wouldn’t be writing this confessional. But as the one armed alligator wrangler says, “We learn as we go”
I also remember when Ethereum came onto the Coinbase app a couple of years later. I think the price was $10. I bought 10, but later sold them and bought bitcoin as there was no fixed supply.
What I should have realised is that the adoption curve is what matters when the world is a casino and money is looking for the next bubble to ‘invest’ in. With a price now at $1,000 and likely 10x higher in the next bull market, this was an opportunity missed for a 1000x return.
Savings? What are Savings?
I’d never been good at saving money, it’s not that I was a profligate spender, I wasn’t. I’ve never really been interested in money, more in what that money could do for me. I’d wanted things and got them, and I realised that what I wanted was better feeling experiences.
I am an air type personality, interested in ideas, technology, with a profound interest in understanding the world around me, and how different often disparate parts relate to each other. With this in mind I definitely like to try new things. I don’t always master them, but I like to get to a level where I understand what’s involved.
I wanted to live life as fully as I could afford to, so my short-term mindset meant I would spend my money as soon as it landed in my bank account. So much fun to have in the playground of life, so many bright shiny things to buy.
So, I was living paycheque to paycheque, spending money on rent, experiences, gadgets and hobbies Investing, as a concept, was completely alien to me. A classic air head.
After reading Fred Harrison’s book Boom Bust: House Prices, Banking and the Depression of 2010, back in 2007, I realised that housing market is just another scam, basically blown up in value by low interest rates and the flood of newly created money from private banks.
I didn’t want to be a part of such a scheme, so I didn’t save a deposit or consider buying a house. I had no interest in perpetuating such a rotten system. How altruistic!
What I gradually came to realise was that I couldn’t escape the folly of the system even if I had the foresight to exclude myself from it prior to a collapse.
This tallies with the sentiment that the Alpha generators get wiped out in a Ponzi type financial system where 99% of participants are Beta trend followers, and central banks always come to the rescue like a knight on a white horse.
Index funds work great when you’re blowing up a bubble, but when the bubble pops, you’re going to get wrecked.
As long as I lived in the UK, I would be paying a large chunk of my income to the private bankers – who are endowed with the privilege of creating money at zero cost, and lending it to others at interest – there’s no escape from the scam.
So I could either be paying off my own mortgage, or someone else’s. I gradually came to see two things that I wish I’d recognised earlier in my adult life.
- When the money supply is inflated by whatever means – QE or private bank lending, you need to be ‘invested’ (hilarious isn’t it?) in whatever that money is flowing into. In the case of QE it’s the stock market, in the case of private bank lending it’s the property market, if you are going to hedge yourself against that inflation, you need to be a property owner, with varying amounts of leverage.
- In a debt based monetary system, don’t try to beat the system, go with it. Don’t fight the fed. Follow the government’s lead, take on as much debt as you can and ride that bubble as high as you can.
Sure, there are better and more liquid investments than property (which is very slow to get out of) but I worked with many people whose side gig was managing a property portfolio, and I saw how these people had surfed the wave of money creation caused by low interest rates over the previous decades.
They were driving Porsches and I wasn’t. The sad news is that these people will need to come back into the workplace as the value of their property portfolios gets crushed as the bubble blown up over the last 20 years, bursts. But that’s another story for another day.
Bitcoin the Saviour
It wasn’t until I encountered Bitcoin that my mindset started. to change. Like some kind of damascene conversion, Bitcoin awoke me to the realisation that you can take a small initial stake, invest it in the right place, and see 100x your initial investment. In the early days, $1,000 invested became $100,000. Only then did I have a little bit more to play with, and could start to contemplate the notion of becoming an investor and growing my wealth.
Pension fund managers
I’ve always held the pension industry in the very lowest regard, but being employed and having additional contributions from my employer has meant that I’ve chosen to invest.
Pensions are great for one class of individuals, pension fund managers. These lackeys are basically like the folk I used to work with, they feed off a clientele which is forced to use their services. In a free market, would people use their services? I doubt it.
Log into your pension, and see if you can see over the last 10 years, how much your pension has grown, and how much your fund manager has taken in fees. I doubt you’ll even be able to find this information, so opaque is the industry. If you knew that the FTSE has basically been flat since the late 90s, and that your pension has grown because you’ve been putting money into a pot, tax free, minus the fees for your fund to be ‘managed’.
The only people making any money out of pensions are the pension managers. They may only make 0.09% but when the fund is worth £500m, that’s an annual fee of £450,000. Money for old rope if you ask me. There has to be a better way.
As the saying goes, you need money to make money. But you don’t actually need that much. You can start to invest, to trade if you will, and manage your own money, and leave these leeches in the city to drink someone else’s blood.
A £1,000 investment can become £2,000, which can become £4,000 and then £8,000 and then £16,000. Then you’re really in a place where you can start to weigh into trades and make some decent returns. It’s not uncommon for a stock to 10x. If it does you’re looking at paying off a good chunk of your mortgage.
I remember looking at the price when Bitcoin was at $68,000 and like many hodlers, I just thought Bitcoin would continue to go to the moon.
I listened to lots and lots of Bitcoin podcasts, I guess you could say I drank the cool-aid. I was emotionally invested with the Hodl gang. Bitcoin podcasts are generally hosted by maximalists who promote hodling and DCA over other investment strategies.
I suppose this is fair as they can’t offer financial advice, but if you’re – like me – one of the bagholders who saw the value of their stash reduce by 70%, you might be left wondering whether there’s a better way to play these inevitable market cycles?
The fundamentals haven’t changed. The proposition is just as good, if not better than it was, but the price has tanked. A lot of DCA proponents point out that if you sell part of your stash, you never get back in. You spend the money or whatever. Like this is a bad thing?
If you sell $100k worth of Bitcoin, pay some capital gains taxes to benefit society, and pay off a big chunk of your mortgage, that can reduce your mortgage term by years, you’re basically divesting into property. If you pay off your mortgage, that’s giving you an income stream from your salary that you can now benefit your life positively.
Imagine you can take $3k, invest it and get a 100x return and thus pays off your mortgage. You’ve saved yourself, over 25 years (at current 5.29%) total interest payable of $242k. That’s got to be worth something to somebody living now.
Market Top Indicators
Back in 2021, when Bitcoin hit $68k, pseudonymous Dutch prop trader PlanB was the talk of the town with his stock to flow (S2F) model, appearing on every Bitcoin podcast going, and amassing millions of followers on Twitter.
Willy Woo was another popular ‘expert’ on the circuit with his Bitcoin metrics analysis and price prediction.
When Bitcoin came down to $35k Woo’s thoughts were that it was a good time to buy the dip. What did he know? Not very much it turns out.
There are people who foresaw the fall back to $20k. They had no doubt. They study price in markets and they saw the patterns in the price chart, led by the collective behaviour of the marketplace. I wish I’d been listening to them rather than to Willy and PlanB and the podcasters who extract bullish sentiment from them.
Even Peter McCormack has stopped bleating on about us being in a bull market, when we’ve been bear market for 2 years. These people are entertaining but basically don’t know their arse from their elbow when it comes to trading price.
I’d have paid off a decent chunk of my mortgage by now, and my wife wouldn’t need to work.
[Follow the series, and I’ll share more about my findings in future posts.]
By the way, both PlanB and Willy Woo have been conspicuous by their absence from the podcast circuit since Bitcoin corrected down below $20k. Go on, call them what they are, Bitcoin market top indicators
Even very simple technical analysis of the price would have got you out around $40k (we’re currently sitting at $17k)
Bitcoin maximalism has a place
Firstly, can I say that I recognise and applaud the maximalist zeal. It’s just not for me. Were I a younger man without a family and a huge mortgage to service, I’d definitely be one of those ‘I’m going down with the ship’ types.
Idealism is great when you’re young and you have the energy to fight for these kinds of causes. I’m glad Bitcoin exists, as the alternative is Socialism which is destructive whichever way you cut it. It is good that people are prepared to die on these hills, but I’ve given up all of these kinds of struggles, I’m not interested in fighting the system, I just want to do what I can to work within its dysfunctional nature and to get rich as I can whilst the insanity is playing out all around me. Don’t get even, get rich.
I got this idea from a few people that I heard on the podcast circuit. Harris Kupperman aka ‘Kuppy’ was one. He said he looks at the lunacy of the financial world and thinks about how he can make money given the idiotic events taking place. Another is Dominic Frisby and his ‘Make Money and Stick it to the Man’ podcast.
In a Super Bubble, everything gets blown up, even Bitcoin
What I think a lot of the Bitcoin community is missing is that 2020 was a super bubble. House prices were blowing up, stoncks were blowing up, money printer went Brrrrrrr.
Inflation was everywhere before Putin did the dastardly.
There’s a notion in the Bitcoin space that you’re still really early, adoption is low, etc. I used to agree with this principle, but not any more.
There’s a rule in markets that the last big mover is never the next. Tech stocks, Bitcoin are not going to 10x or 100x from here. They’ve risen too precipitously. You need to look elsewhere for the big market movers in 2023–2024.
I think there will still be 1,000x moves for some Crypto currencies and tokens, but those kinds of moves are gone for Bitcoin. Bitcoin is a much more mature market with futures trading to balance volatility.
What we’re likely to see in Bitcoin is a digital gold scenario. This is of interest to sound money advocates, but how many of those are there? How many people own gold nowadays? Exactly. People put their money into property, and for good reason. It’s much harder to confiscate than gold.
I suspect the Bitcoin maximalists will become the goldbugs of their time. Maxis, we’ll call them. That’s not to say we won’t see unprintable stores of value like Bitcoin and precious metals soaring in coming months and years, it’s just that we’re talking about 5x returns rather than 100x returns from here on.
I am writing this piece to encourage maximalist Bitcoin bagholders to take profits and enjoy the fruits of your investments. Just as you DCA’d in, how about having a strategy to DCA out.
Either that or learn to study price action, and recognise when investment sentiment has turned, and cash out. It’s all there is the price charts, providing you know how to read them. The price of bitcoin goes down as well as up.
Don’t do what I do and bathe in the soothing voices of Bitcoin podcasts and just hodl your bags come what may. Unless you like losing hundreds of thousands of pounds, that it.
After the equities crash back to 2020 lows and then on to the 2000 bottom, what comes next? A stampede from the equities market into anything sound, so expect great returns from precious metals and Bitcoin and other premium cryptos, and we could see Bitcoin back up to $100,000.
Given the money printing that has gone on, this price will not be as high as the $68k top was in real terms, but it’s certainly better than $20k.
DCA in DCA out
There’s a general view to hodling which is that you save in the hardest money available. Your denominator is Bitcoin rather than dollars. I’d love to be so wealthy that I didn’t need to consider 75% losses, but I don’t work in the Bitcoin or Crypto industry- which funds these kinds of opinions- I live in a world where we have a mortgage, outgoings in fiat, and may need to rely on these savings.
Hold some cash
For example, instead of being all in, I could have cashed out some of my stash into cash as the bear market was unfolding. Even 100k would have funded the house works we later required. What happened? I ended up cashing in around the $20k price. Up from where I bought it, but giving up 3x more Bitcoin than I needed to. You never know what’s coming, so have 1/3 of your wealth in liquid cash. What happens if your car suddenly dies and you need a replacement? What happens if you need to find a few thousand to purchase a piece of land from your neighbour to stop house building next to your plot? What if you come across a great investment opportunity like Bitcoin, or better an investment in yourself? Give yourself some breathing room. You’re not Michael Saylor, sitting in hundreds of millions of dollars. If you are, hi Michael keep fighting the good fight.
Halving, S2F. All in the trash
Goodbye halving cycle, stock to flow and all the other alchemy. This is all bullshit and you should stop following PlanB for his S2F model, which is basically in the dustbin.
Learn about cycle analysis. Read books about trend following, moving average indicators, head and shoulders, right angle triangles and rising wedges, and do not invest (or sell) in a downtrend. If the price lies below the 200 day moving average, and if the 200DMA is declining, you should be OUT.
A quick look at the crypto market on TradingView shows only a few above their 200DMA. Bitcoin, Ethereum, XRP, Chainlink, Dogecoin. The rest are well below. Some way to go yet before altcoin resume. You should not be invested in anything but the above, as they are all either in a downtrend or trading sideways.
