Today I thought I’d look at outlining why I think Bitcoin will be the primary vehicle for wealth creation going forward. Followers and subscribers of mine are no doubt familiar with my long-held thesis that Bitcoin is to be bought [at the more opportune times on the basis of the LGC - Logarithmic Growth Curve] for a longer-term hold by investors. It has always been my aim to provide a rational and pragmatic model for the more cautious investor, not to mention institutional money, to buy into. Even the most fervent of Bitcoiners, focused more enthusiastically on the fundamentals, have recognized the need for institutional and more conservative money to come in at some time in order to push the market cap higher. The LGC model, often criticized for being too conservative, has always sought to meet that need.
In the following, I’ll look at the current trend, the reducing returns in the BTC chart, BTC compared to a legacy market, the reducing macro volatility of BTC, and finally an example of a hedging trade [due to this reducing volatility].
The Current Trend
Today, as compared to the relatively recent past, we can see that price has held up well for over a year now with a classic technical series of higher highs and higher lows subsequent to the previous extended correction over the course of 2022. Of course, the savvy investor, well aware of the nature of investing in the future, is never looking for a complete certainty… but they are looking for a long-term trend. That trend is clearly discernible in the charts below for those who are open-minded to the possibility of Bitcoin on the one hand, on to those that can settle with a more realistic view of price trajectory on the other.
Of course, readers will be familiar with my many articles and posts about the ‘buy zone’, about the more opportune times to buy, and yet I’ve also remained silent about a ‘sell zone’ as I’ve taken an investment approach here [buy and sit]. The point of this particular article is to focus on the longer-term and how sitting on Bitcoin [while also hedging if you wanted to in other vehicles as the investor is prone to do] may be the best option as conducive to the building of longer-term wealth.
Reducing Returns in the BTC Chart
We all know that the market price of Bitcoin is extremely volatile, but this price volatility is also relative. Zooming out on the chart we can see that the peaks and corrections are compressing as measured on the vertical y axis. This axis is the measure of ROI [return on investment] that the investor is always interested in.
Though the exponential moves are reducing, as the currency of Bitcoin becomes increasingly capitalized, future exponential gains are still to be had [on the basis of the LGC model] though just not on the same scale as previously. Future gains, as relative to legacy markets, is well depicted on a chart comparing the DJI [Dow Jones Industrial Average] to Bitcoin as follows below. This truly helps to put things in perspective for the conventional investor. All is relative, and if one simply compared potential future gains to previous stupendous moves, in a previously less mature market, the picture may get distorted somewhat. Though future gains might not be ‘astronomical’ [as compared to previous moves] they are still likely to be very stratospheric.
Comparing BTC to a Legacy Market
Taking say a ten year time-line for our investment, you can still see massive gains on the LGC going forward [solid line in the chart being base prices, dashed line being more a median price]. Here we see something like a 31x return as compared to a more conventional 4x if one bought and sat on the DJI instead, which would really just reflect the compounded debasement of USD over the years.
Where the conventional investment in DJI looks to preserve wealth, the investment into Bitcoin would actually create wealth with this still exponential return. The most significant takeaway of the LGC curve as depicted here is that price is still only half way through the curve on its path toward capitalization [some may be familiar with this chart that was posted on Twitter recently].
Readers may be objecting here that, on the one hand, a 30x over a ten year period is not the greatest return [as relative to previous returns] - tell that to the traditional investor. On the other hand, a sitting for ten years on a position still does not equate with the actual taking of profits.
To the first objection, I’d say that people need to get acquainted with a more realistic outlook on BTC going forward [my own realism has now stood the test of time over five years].
To the second objection, I’d reply that a complementary strategy can [or indeed should] be super-added to their investment in a solid core Bitcoin position. This diversified, hedged and strategic approach is something that seasoned investors are only too familiar with. They could keep an off-setting USD fund to counter-balance their exposure to BTC. Better yet, they could use a portion of that fund to actively trade the extra volatility of alts, in the medium-term [cyclical] to increase the odds, in order to take profits in USD. This in turn would function to not only build that counter-balancing USD fund [that off-sets their exposure to Bitcoin - all investment being built on the uncertainty principle], but also, and more importantly, serves as a profit-taking measure, where profit can be taken, skimmed off, and put into real assets. This would be in keeping with the very idea of a ‘vehicle for wealth creation’ - the journey or vehicle is not itself the destination. The destination being real wealth, which has to equate with the securing of assets in the material world.
With the above in mind, let’s look at the chart as to why it may be a better option to just sit on BTC as your primary vehicle for wealth creation [while leaving open the option to trade alt/ USD should you wish to as a secondary vehicle].
Reducing Macro Volatility of BTC/ USD
The prime consideration for BTC investment going forward, according to the LGC model, is that while on the one hand great returns are still to be expected, on the other hand those returns are reducing. Add to this that price, from the macro perspective, is increasingly stabilizing and less volatile, a long-term investment in core BTC begins to make more sense. In my opinion, this adds some weight against the idea of looking to trade the cycles [which will be further substantiated in the final section].
If one thing has been made clear over the course of BTC market history, this trading of the cycles in real time is not so simple as it looks in hindsight. Though BTC price will no doubt continue to be volatile, which brings further market participants in, and future corrections will not doubt still be severe, they should not be quite so severe as is seen in the following chart based on possible price movement within the projected LGC channel:
Obviously, the above chart is very speculative as far as future price action is traced, but it does have something to go on - the five year performance of the LGC. Also, it’s the general idea that is important here… as opposed to the specifics of particular price levels. There are a few points of this chart that are significant:
Cyclical price movement, while yet showing massive volatility, is not on the same magnitude as previously
Though the peaks may show good returns [and how we focus on the peak] the following corrections still remain solid [why not a focus on the base… especially for buying, and also a focus on median price]
The huge gains come with time, with an investment mindset, where BTC is increasingly capitalized and price stabilized
Even though buying an investment position in BTC [at more opportune moments within the LGC] may eventuate to be the more lucrative and realistic option, there remains a criticism. Dave, the reader might ask, why would you sit on BTC in a ‘bear market’/ correction? And this is where a cyclical trade in the more volatile alt/ USD market comes into play. For here the investor/ trader may be able to have their cake and eat it too; that is, maintain possession of BTC while also taking profits in the material world.
Example of a Hedging alt/ USD Trade Hedging a Long Term BTC Investment
Given that continued volatility to both sides are to be expected on BTC’s path to eventual price discovery, a trade of volatility to both hedge and complement one’s BTC investment makes perfect sense from the hedged investor’s perspective. However, rather than trading BTC, a more major alt would be the vehicle of choice for this as USD volatility there is magnified as compared to BTC’s.
For the trade, where profit is to be taken in USD, where that USD fund off-sets one’s exposure to BTC [the hedge], volatility is the primary consideration, NOT long-term price performance, which would be a complete distraction. The obvious example to use here is ETH/ USD.
One has only to briefly look at the comparative returns to see that ETH is more volatile than BTC - a 55x peak compared to a 21x. It’s this kind of volatility you’re looking for if you want to sell something on [or near] the peak of a bull market. Of course I doubt we will see exactly those kinds of returns in a maturing market. What matters here is the relative proportion of those returns - where BTC might do a 6x from here [a 10x from the bottom], ETH may do more. Even if ETH also only did a 10x off the bottom, this would still give you something you’ve every incentive to sell.
A solid cyclical trade such as this would give you the luxury of keeping your position in BTC while taking actual profits and thereby converting some of your financial assets into real assets, whether that be the likes of a lambo, boat, world travel, property or the sharing of wealth. Pursuing such a strategy would enable one to balance out the desire to stay liquid on the one hand [in BTC.. and other currencies if wanted] with the desire to ‘level up’ in terms of real wealth in terms of the acquisition of real assets in the material world [remember being completely liquid in your currency of choice equates to abstract wealth].
A final point. Given the above chart, there is the likelihood that the market has bottomed in the macro. This is the time to be strategically and pragmatically positioning yourself for the future, not to be worrying about such abstract propositions about what BTC dominance might be doing, or whether you could achieve a most perfect and ideal entry point in Bitcoin. Indeed, from this hedging and strategic perspective, BTC dominance, beyond a curiosity, becomes almost irrelevant. And so accordingly what matters most from the hedged trader/ investor’s perspective, are the BTC/ USD and alt/ USD charts.