Down the Bitcoin Rabbit Hole

Chapter 1: The Introduction

It’s not for the faint of heart. Anything that can go down by more 50% in a few days is probably hard to justify owning in large size. But does that mean it should not be owned at all? I am talking about Bitcoin. Before I get started, let me get a few things out of the way.

1. I am a long-term believer

2. I am a holder / investor

3. I am not an expert and I am still learning as I go

4. I am not a fanatic (they are out there and it’s a sight to behold)

5. I fully understand that there is a non-trivial chance that it could be worth ZERO

I was first introduced to Bitcoin in the 2017 time-frame. I had heard about it before but pretty much dismissed it…internet money that is going to replace the currencies that we use globally? Got it! Big, big eyeroll. I am not what you would describe as an early adopter of technology.

But I look at charts and since it was catching some buzz, I took a look and saw that it was breaking out in 2016 and by the time we moved into 2017, it was in a full blown uptrend. I did enough reading to be dangerous and bought a little….a very little…like not enough to matter little!

Then I was invited to a lunch in NY City that was being hosted by a Crypto hedge fund that was run by a fairly famous trader who had worked for an extremely famous investor for a lot of years. I wasn’t going to pass that up. I sat through the lunch, understood a bit more to be slightly more than dangerous and decided I was going to buy some more bitcoin…on my walk back to the office…from my phone…with fat fingers. What? I was typing on my phone in the app that I was using at the time and instead of entering the US dollar amount that I wanted to invest, I was in the wrong place on the app and entered the number in the spot for “amount of bitcoin to buy". It was trading at about $15,000 at the time. I could feel the blood draining from my face. Now what? Thankfully the trades didn’t clear right away, I ran (literally a full sprint) to the bank and had them stop payment on the transaction. This worked, transaction cancelled, did not send money! And in hindsight, I am glad it worked because after one last surge to ~$20,000, bitcoin crashed to $3,000 from December 2017 - December 2018. I sold the little that I owned at a small profit and didn’t think much about it after that.

Fast forward to 2020 and bitcoin is back on my radar, this time for fundamental reasons. I have developed a view on inflation rising due to all the money printing being done around the globe in conjunction with the massive amount of fiscal stimulus that was being enacted. The US government was literally giving people money. How could that not lead to inflation beyond just in the asset markets? Here are the total assets on the Fed’s balance sheet.

And here is the Federal Debt as a percentage of GDP.

At the same time, in March, bitcoin lost ~50% of its value in a few days as panic gripped every asset class and people sold whatever they had to raise cash. The CMT in me would normally run hard the other way, but the fundamental side of me kicked in and said “let me take a look at this". I took a look, I did a lot of reading and spoke to a few friends who are experts in the space. I was convinced that it made sense to buy some bitcoin again. I pulled up my account, entered an order…and was denied. What? I sent an email to find out what was going on, and three days later I was informed that my account was locked because of a failed transaction…the one I tried to do after the lunch, with the famous hedge fund guy, from my phone, while walking.

Now what? Thankfully, the popularity of the asset led to other opportunities to open an account and transact in a different place. I use Gemini which was founded by Cameron and Tyler Winklevoss. I am looking forward to reading more about their story here.

I get the account up and running and come up with the idea that I am just going to own bitcoin as an inflation hedge. I am not going to trade it, which would be fun and appeal to the younger me from the NYSE days (I mean, it trades 24 / 7). So here is what I am doing. Twice a month, I buy a fixed dollar amount. I am dollar cost averaging into bitcoin. I see it breaking out now, again. I am not buying any now. I will buy some on November 1st because that is one the days on which I buy bitcoin, the first of the month. I have been doing this since April. It’s not a major percentage of my investments, go back and read number five on the list above.

So if I am not trading this, what’s the investment angle? Bitcoin is the ultimate hard asset, there will only ever be 21 million bitcoin in the world. It’s not like dollars or euros where a central bank can print more whenever they want. It’s not like oil where a new technology (fracking) can come along and allow us to unearth more of it. Nope, 21 million, that’s it. Limited supply! In a world where monetary stimulus is increasing the supply of paper money, bitcoin has limited supply. That is a major fundamental reason for owning it. But is it the only reason? No!

Let’s do this, once a week (two weeks tops) I will discuss here what I am learning about bitcoin and I will determine if it helps or hurts the investment case. Then we can see on the chart how it’s going for me.

If you are interested in learning more, start with the whitepaper.

*This is not advice at all. I strongly urge anyone who is thinking about bitcoin to do as much research as possible*

I hope that everyone has a great weekend. If you have been enjoying my work here, please considering sharing it.

Every Monday - Friday, I write about the markets for clients of Chaikin Analytics. You can find out more about my process here: