Bitcoin: An Asymmetric Trading Opportunity

Walter Morawa
· 5 min read
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(September 1st, 2019) Forbes has an excellent article out about the symmetric triangle forming around bitcoin’s price in the last 3 months, indicating a major breakout up or down. As Brendan Coffey points out, the technicals of this pattern suggest a price move should occur between 2/3rds to 3/4ths through the triangle, aka over the next 10 to 14 days.

He suggests waiting for the breakout before jumping in, but I’m not the patient type. I worked at Bitcoin Depot as a software developer for two years. While I have no particularly special insight into the world of bitcoin, I’m old enough to remember a bubble or two. I missed all of them (or worse). I’m not going to let that happen again.

In fact, I have put 100% of my $13k Robinhood portfolio into BTC. (Okay I have $2k more to put in tomorrow once my day trade limit allows me to purchase more, so I’m actually only at 85%). No leverage; thank God Robinhood isn’t stupid enough to offer margin on crypto trading.

As Coffey points out, when a bull run precedes asymmetric triangle, there’s a 54% chance the breakout goes up. That’s the only reason why I’ve put my life savings in this trade. Just kidding, I’m not that risk loving. But I do like being on the side of the house on this one. Plus, I’m not interested in diversifying for 10% passive returns year over year.

Here’s what I’ve learned about the crypto space from living in it. Crypto is not going to displace Visa, Libra, or some other centralized approach as a means of everyday transacting. Rates will fall to the cost of bits, and only a small set of transactions will benefit from decentralization. A decentralized cloud such as ethereum? Now that’s more interesting. But transactions? At $5 per transaction and 20 minutes per confirmation, bitcoin is worthless for micro-payments. We’ve already been able to Venmo or Paypal for free for years now.

Bitcoin (but not all cryptos) has the benefit of being like decentralized gold. An uncorrelated asset class, if you will. I could argue (against the Peter Schiffs of the world) that this is because bitcoin is programmatically scarce due to the large computing resources needed to transact, but really, the fact is that people believe it to be so. And belief is all that is necessary for trading (or money for that matter).

When people are fearful, that’s the time to make a contrarian call.

I’m not some die-hard belieber; I’m actually not nearly as pro-crypto as many of my coin brethren. But I do understand some of the dynamics, rational and irrational, of the crypto space. After bitcoin dropped 5% on Wednesday, many people assumed the symmetric triangle is now altogether broken, or at least in the bearish direction. This is where thinking too technically can hurt you. We still have strong support at the $9k level, so I don’t agree that we’ve left the triangle yet. So let’s look at the fundamentals.

We haven’t left the Illuminati triangle yet.

With the stock market up ~3% last week, it’s actually great news that bitcoin is down nearly 10%. This means it is trading more like gold, continuing an increased correlation that many have pointed out over the past six months. Keep in mind that both the broader market and crypto have traded with significantly lower volumes than average this past week, partially as a result of labor day. And with Trump’s tariff war going into effect today, I don’t expect the market to be very happy in the short term.

As a partial list of negative macro news, we have possible Germany and Italy recessions, worldwide bonds trading at negative values, global manufacturing down, housing market peaking, US consumer sentiment weakening, Japanese and South Korean trade wars, record levels of corporate and low grade debt, an inverted yield curve, an Argentinean financial crisis, Hong Kong protests becoming increasingly violent, auto sales peaking, cyclical and small caps under-performing, a hard Brexit, Fed cutting interest rates (best case scenario a short term boom as it almost always precedes a recession, not to mention causes inflation which is a plus for bitcoin), and the US election season barely starting. Oh, and did I mention the global trade wars?

Why might bitcoin be positively correlated with any one of these negative triggers? As a decentralized system, no government can outright ban worldwide trading, as China discovered over a year ago. The most important US government has more or less accepted the technology as long as KYC/AML regulations are followed. As a deflationary asset, bitcoin can be a hedge against worldwide money printing. And as a stateless commodity, it can provide hidden capital from Hong Kong and Shenzen to Venezuela and Iran. Whether Peter Schiff likes it or not, bitcoin is perceived as a safe haven.

Every bitcoin bull market to date has ended with a peak much higher than the previous one. Obviously, that doesn’t mean it will go on forever, but bitcoin is still relatively young. I mean, trying to replace the $5 trillion centuries-old gold market isn’t going to happen in one decade. Once bitcoin becomes 10% of the gold market, I warn caution until further maturity ($30k to $50k per coin). But for now, this would be the first bull market stopped cold in its tracks.

And why would bitcoin stop now? Because regulators are skeptical of Libra? Because the US is going to ban bitcoin? Because adoption rates are down quarter over quarter? Nay, bitcoin doesn’t trade per SEC regulations yet. These concerns are either false or peripheral. Bitcoin trades per human nature, and I just can’t help but see another irrational hype bubble from brewing again.

Why then do I call this an asymmetric trading opportunity? Because the world is on fire and I don’t see many good protections from a market crash. Shorting the market is notoriously difficult to time. So, if we’re still waiting for a breakout up or down, I think the odds are asymmetrically upwards. Also, I’m not planning on holding till the end of time. I see this as a short term play on market uncertainty. I’m looking to exit between $15k and $20k per coin.

Then again, I could be totally wrong, bitcoin could crash back down to $4k and poof goes half my trading account. That, I could live with. But missing another damn bubble. I couldn’t look myself in the mirror. Long live FOMO.


Disclaimer: The views and opinions expressed in the article belong solely to the author, and do not necessarily reflect the position of DDI. The article is not intended to be investment advice. We advise you to conduct your own independent research through multiple sources.

Data Driven Investor

from confusion to clarity, not insanity

Walter Morawa

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Data Driven Investor

from confusion to clarity, not insanity

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