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Bitcoin is back, baby.
The decentralized digital currency ripped 20% over night and surpassed the $5,000 mark for the first time in months. This quick price action was met with exuberance and fanfare from crypto enthusiasts. There are very few assets in the world as volatile as Bitcoin, and when the volatility is playing out, there is a level of exhilaration that is hard to match.
Many times I hear people talk about Bitcoin’s volatility in a negative way, but I believes this is the wrong way to look at assets and their price movements. Volatility historically plays out in short time horizons, but investors focused on long time horizons actually want the short term volatility.
Why is this?
Long time horizon investors have the stomach for the volatility so it doesn’t tempt them to make short-term decisions that are driven by fear, greed, or other emotions. They also understand that volatility in new assets is necessary to create price appreciation over a long period of time.
Forget about Bitcoin and cryptocurrencies for a second. Amazon is one of the most valuable companies in the world. Nearly every investor owns a piece of it through various passive funds. However, it wasn’t always the big, steady blue chip stock that it is today. In fact, Jeff Bezos had to defend Amazon stock’s volatility in a 60 Minutes interview in 1999 (highly recommend watching this).
Since the company has gone public, Amazon has drawn down 90% or more twice. And the average intra-year drawdown for more than 20 years is 30%+. That makes Amazon stock the definition of volatile.
But it hasn’t mattered. If you bought Amazon on the day it went public and held till today, you would have received more than 120,000% on your investment. That means a small $100 investment would be worth more than $120,000 right now. Obviously, very few people bought the initial IPO and have held through the volatility. People need liquidity. They are emotional. They get nervous. And they make short term decisions.
Regardless, short-term volatility doesn’t matter to the long-term investor. Bitcoin will be no different. The digital currency is one of the most volatile assets we have seen in awhile, but that means there is incredible opportunity for investors who have the stomach to handle it.
As I have said many times, Bitcoin is a game of accumulation. If an investor has done their own research, understands the risks, believes in the system design, watches the fundamentals, and has a low time preference, they stand a chance to be rewarded handsomely. This doesn’t have to be accomplished over night either.
Many of the investors that have made the most money in Bitcoin didn’t buy a bunch of Bitcoin in a single slug. They slowly accumulated more and more over months or years. They took a long term outlook on the asset. Shockingly, many of them not only haven’t sold their positions after incredible gains, but are still buying more today.
The world of investing works in weird ways. The investors with patience, conviction, and courage look wrong for a long time….until they are right. Bitcoin’s recent move has brought back a level of excitement that the market hasn’t seen in over a year.
While fun, keep it in perspective. This is a long game and we haven’t even left warmups yet.
-Pomp
The “Off The Chain” podcast has been downloaded 800,000+ times in 160 countries. You can listen to the latest episode with Dan Zuller, Partner at Vision Hill Advisors here: Click here for Off The Chain podcast
THE RUNDOWN:
The SEC Wants to Hire a ‘Crypto Securities’ Advisor: The U.S. Securities and Exchange Commission is seeking to hire yet another “crypto specialist.” The SEC’s Division of Trading and Markets plans to hire the new legal expert in order to help develop a “comprehensive plan” to address crypto and digital asset securities. One of the key responsibilities of the new hire would be to apply their “knowledge of federal securities laws to digital asset securities and crypto matters, i.e., broker-dealer, exchange, clearing agency and transfer registrations, exchange product applications, sales and trading practices, etc.” Read more.
Canadian Police Freezes Assets of FUEL Token Issuers due to Alleged $22 Million Fraud: Canadian police have frozen assets of the founders of blockchain consulting firm Vanbex, which raised $22 million in an alleged fraudulent initial coin offering. The development was reported in a court document released on March 14. Vanbex founders Kevin Hobbs and Lisa Cheng claimed to the public that they operated a Vancouver-based cryptocurrency firm, starting from 2017. The firm, which was interchangeably called Vanbex and Etherparty, is actually a shell company that developed no useable products, the court document argues. Read more.
Coinbase Expands Into Cross-Border Payments: American major cryptocurrency exchange Coinbase has expanded into cross-border payments. Coinbase customers can now transfer funds to any user with a Coinbase account around the world using Ripple and the exchange’s stablecoin USDCoin with no fee. The development reportedly enables users to send and receive money instantly, as well as convert them into local currency. Read more.
ConsenSys Picks Latest Blockchain Startups for Accelerator Program: ConsenSys Ventures, the investment arm of ethereum development studio ConsenSys, has selected 10 blockchain startups for the second cohort of its accelerator program Tachyon. Announcing the news on Monday, ConsenSys Ventures said that the selected startups for the Tachyon 2.0 program are focused on building new blockchain-based solutions across data privacy, encryption, healthcare and decentralized finance, among other areas. Read more.
Bibox Crypto Exchange Rolls Out Blockchain Project Incubator: Estonia-based Bibox — the ninth largest cryptocurrency exchange in terms of adjusted trading volume — has revealed that it is rolling out Bibox Orbit, an incubator for blockchain projects. The announcement does not specify the exact date of the project launch and only says that “it is aimed to provide the best growing environment for high potential blockchain projects and assist them with ecological construction and long-term development.” Read more.
Interested in crypto research? Look no further. The premier research firm in the space, Delphi Digital, has two subscription offerings for individuals and institutions alike. Take a look at their Bitcoin and Ethereum reports to get a taste of their analysis. [Click here]
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Nothing in this email is intended to serve as financial advice. Do your own research.
Bitcoin: The Long Term Investor's Dream