1/ I just recorded @Swan Signal with @samcallah and I briefly highlighted how I think game theory has been shaping my thinking of Bitcoin. But I don't think I did a great job in our discussion so let me try to make it better here. 🧵 2/ Bitcoin is an individual revolution. It starts at the individual level, which is a beautiful thing. Unlike other adoption cycles, where those with broader access to information or resources adopted first, Bitcoin has the most ethical and fair adoption cycle ever seen. Those who truly understand its value proposition are the ones with the advantage. Knowledge is the barrier.

How hard it is to forecast bitcoin's price?

Using history as a guide, we can run a simulation to forecast 1-year returns using a Monte Carlo Simulation.

Quick results:

. Average expected price in 1-year = $144k

But the average here is not a great indicator. This is the same as saying you will stick your head in a refrigerator and your feet in the oven and (on average) you are fine.

. 95% of the simulations fall between $30k and $448k.
. The worst simulation ends at $6.5k
. The best one ends at $901k

Conclusion? Prices are close to be impossible to forecast.
Anyone picking prices with certainty did not run the numbers.

The good news?

77% of the simulations are positive

The returns compared to the vol are among some of the best you can find in any asset class.

[1/n] "But Bitcoin is too volatile."

Would you rather invest in bonds? Fun... Let's run the numbers!

Here are results for TLT (iShares 20yr Treasury ETF).
. Average returns are 3% (compared to 70% on the Bitcoin Monte Carlo)
. 60% of times you get positive returns (compared to 70%)
. 95% of values give you a return between -25% and +43% (yes, bonds have volatility).

14% annualized vol with 3% annualized returns
compared to BTC:
70% annualized vol with 72% annualized returns

5x the vol = 24x the returns

I'll take the vol every day on BTC....

[2/n]

Nakamoto Portfolio Theory
-----------------------------
Real Estate as a store of value

We ran the numbers, studied historical returns, and scrutinized the fundamentals to determine if real estate truly delivers on its promises.



Our findings ▶️nakamotoportfolio.com/static/docs/Fr… 1/ How does residential real estate stack up against inflation?

The traditional notion of real estate as a hedge against inflation is not as foolproof as you may think.

Avg. 2.33% return above CPI since 2000

We could have stopped here...

nakamotoportfolio.com/apps/case_shil…

Nakamoto Portfolio Theory
-----------------------------
How are bitcoin's historical returns distributed?
Turns out there's nothing 'normal' about them.

We've tumble down a rabbit hole, ending up deep in the world of #Bitcoin forecasting.
(1/n) Why does this matter? Good forecasting helps us understand risk.
To run Monte Carlo simulations (a key forecasting tool), we need a statistical distribution that accurately mirrors Bitcoin's historical returns. But first, we need to see if we can even find one that fits!
(2/n)

Nakamoto Portfolio Theory
-----------------------------
Bitcoin Valuation based on Fixed Income

Inspired by @FossGregfoss's work, we'll explore how to estimate the value of Bitcoin using credit default swaps (CDS) as fiat insurance.

You know... "for the kids".
1/n In line with our other research pieces, this one comes with a web app so you can also run the numbers.
In this one you can change pretty much all assumptions (numbers in blue can be edited) including CDS levels, debt levels and other assumptions.
nakamotoportfolio.com/apps/foss

2/n

The Rat Poison Portfolio 🐀
An equally weighted portfolio of Berkshire Hathaway, Microsoft, JP Morgan and BlackRock

Guess what happens when we add #bitcoin to this portfolio?

Higher volatility?
Higher drawdowns?
Higher risk?

Let's run the numbers Since 2014, that portfolio returned 16% annualized (assuming quarterly rebalancing). Not bad.

BUT by adding a 2.5% allocation to Bitcoin the Portfolio increases returns to ~20% WITH reduced risk.

Nakamoto Portfolio Theory
-----------------------------
The Nakamoto Portfolio Theory is a set of frameworks to help investors understand the impact an emerging asset like Bitcoin has a portfolio allocation.

Mega thread on the frameworks and foundation.
nakamotoportfolio.com Bitcoin is a new unit of account. Question your diversification theories.

https://twitter.com/alphaazeta/status/1638226302216839178?s=20

Nakamoto Portfolio Theory
------------------------------------
Bitcoin and Retirement Accounts

Let's discuss why Bitcoin is the ultimate asset to include in a retirement account.

We ran the numbers at @SwanBitcoin's Research...
🦢🏃‍♂️🔢📈

🧵1/n 🔽 2/ First off, an Individual Retirement Account (IRA) is a tax-advantaged investment vehicle designed to encourage saving for retirement. It offers potential tax benefits, and versions of these accounts exist all around the world. 🌍

Nakamoto Portfolio Theory
-----------------------------
Schrödinger's Coin Model 🐈
Valuing Bitcoin as a Store of Value

How #Bitcoin will demonetize other assets and why it's significantly undervalued by 13x today
This is quite the thread. Hang tight🚀▶️

@SwanBitcoin @samcallah This model considers Bitcoin's potential to capture the monetary premium of traditional assets like real estate, stocks, and bonds, leading to a shift in capital allocation and reevaluation of their worth ▶️

Nakamoto Portfolio Theory
-----------------------------
Portfolio optimization

Why every portfolio should have a #bitcoin allocation.
A (somewhat) technical thread on portfolio theory.
@SwanBitcoin

Let's dive in... 📈 ▶️ 1/ Portfolio optimization is the process of selecting the best mix of assets to maximize investment returns while managing risk. The goal is to achieve a balance between risk & reward that aligns with an investor's financial objectives. 📈 ▶️

1/ 🧵A deep dive into how @Greenpeace has lied & exaggerated facts over the years, hindering technology advancement.
Here's a breakdown of some key events, controversies, and how the organization's management practices contradict its mission. 2/ 🌐 Greenpeace is known to have spread misinformation on various topics like nuclear energy [1], GMOs [2], and its controversial Indian Government stand [3]. They often present a one-sided view, ignoring scientific evidence that contradicts their narrative.

Like clock work in every bear market:

"I'm going to sell BTC and wait until the market turns around. Then I buy back."

TLDR; don't. You'll get REKT.

Longer explanation 👇🧵(1/5) In fact, I've heard this so much during the last bear market that I wrote a Python script that shows the risk of this strategy.

Bitcoin moves in sharp and concentrated bursts. If you miss just a few of these best days, you risk never recovering.

👇🧵(2/5)

My view on altcoins is simple.
I’ve spent years learning about Bitcoin. Read a lot, watched more videos than I’m willing to admit, listened to podcasts pretty much every day.
I also learned to code so I could read the Bitcoin code. I had a paranoia about back doors that ... 1/n ... only went away after being able to audit the open source code. I researched how to safely compile the code and how to verify signatures. Also made a few modifications to see what would happen with rogue
Built several small apps - best way to learn is to do in my opinion.
2/n

A threat on potential risks on this market and why we may see more asset price volatility and failing companies.

I haven't been involved in swap markets for a long time and I am admittedly making a few leaps here to draw some conclusions but I don't think these are too off. Let's use Robinhood and their "crypto" platform as an example. A user logs into their RH account and buys $500 worth of bitcoin. What happens next?

GBTC premium keeps getting crushed and currently sitting close to historical low levels.

Not going to get into details but there’s probably a massive unwind of carry trade happening.

Cont... I’ve been a critic of services like @BlockFi for a while. Not getting too much into that. And the below is a guess on my part.

But how do you think they can pay an interest on the #btc you deposit in their custody?

coindesk.com/blockfi-takes-…

GBTC Premium to BTC at 8.67%. Significantly lower than the historical average.

How GBTC arbitrage works? 👇 GBTC gives an option for investors to contribute "in-kind". This means that you can buy BTC at market price and convert into an instrument that trades at a premium. This premium oscillates but it's been >20% recently. So, theoretically investors could "arb" this spead.

I've been meaning to write some thoughts about @grayscaleinvest $GBTC for a while.

Buying $GBTC vs #Bitcoin is not an obvious decision. It depends a lot on your tax situation + familiarity with tech.

This is not tax or financial advice. But a few thoughts below. $GBTC:
- 2% annual fee (argh!)
- 18% premium to BTC
- If placed in IRA, accrues Tax Free
- Not your keys, Fraud risk
- Commission Free on many platforms
- Easy execution

0/ This whole bear market I've been repeating that Bitcoin prices move quickly, unexpectedly and in large jumps. If you are following any of the technical analysis talking heads or if you think you have an edge in doing TA yourself, take a few moments to analyze historical prices 1/ The chart below, for example, has data from 1/1/15. The scatter plot shows daily returns. Do you see how many of those are above 7%?
No need to go far, remember 4/1 when BTC moved from 4,150 to 4,900?
How many "experts" saw that coming?

0/ I’ll try to make a case on why using @therealblockfi interest account is one of the worst decisions a BTC investor can make. I’m all for innovation and new products in the BTC space. But, in my view, this is highway robbery + exposes investors to a risk they don’t understand👇🏻 1/ Let’s start with the 6% yield. This is pre-tax. There’s enough here to be concerned that this could be taxed as ordinary income (0% to 37%). @ 37% - the aft tax yield = 3.78% NOT 6%.

I keep hearing people say: "I will sit on the sidelines until BTC starts a bullish trend again". For some reason that sounded like a dangerous approach. So I wrote a web app to check what would happen if you missed some of the best days of performance. Time for a thread 👇 Disclaimer: I've learned to code very recently and would love if someone could check my work (link to git at the end of thread). But it looks like... 👇