Bitcoin Bubble Peak, Weekly Wrap 12/17-23/2017

This will be the last week wrap this year. Merry Xmas and Happy New Year to all!

Cryptocurrencies

Another crazy week in crypto-land. I’ve been watching the tape rather closely this week. After making a high about $19.5K (GDAX) last weekend, the price action was indicative of distribution: higher volume on declines. In the past the dollar volume typically rises and falls in concert with price. The decline started to accelerate on Thursday. I had a phone conference in the morning so couldn’t trade very well. But I did manage to exit $RIOT and $OSTK calls as well as %BTSC with a 75% overall profit on the amount committed, granted lots more were left on the table. On bitcoin, my mental stop-loss thresholds were $14K on Wednesday and $15K on Thursday — the levels that would negate my $60K price projection. The $15K level was breeched convincingly during my Thursday commute home. Thursday night, I sold cryptos down to 40% across the board. Most of the rest were sold Friday morning such that now I only have some BTC in transit from the CoinBase vault. My total cashed out amount is now around 13 times the initial deposit and I approximately 10% of the total coins left (by value).

Price is still bouncing around as people try to pick the bottom. On Reddit and BitcoinTalk forums HODLers are still edging each other on. I know that bitcoin has seen similar or greater magnitude of declines before but the air of frenzy just prior to this peak felt different. Every bubble ends by running out of buyers and it was difficult to see how many more buyers can be conjured up. I was acutely aware of the mass psychology but still hoped for a final “hurray” to extract even more money when I made my $60K call. That said I had a fairly early peak date in mid January. To me, more likely than not, the greatest bubble of mankind has finally popped.

Could I be wrong? Certainly, as wrong as my $60K call was. Bitcoin will need to go back above $20K quickly to get me interested again. There will need to be a lot of gullible institutional money for that to happen. Real recovery will take a long time if ever. I hope years from now there are real companies with decentralized applications based on the blockchain technology. For now I’m taking my marbles and going home.

Fixed Income

10-year yield almost got to 2.5%, highest since March. I’m still trying to understand the impact of the new tax bill on interest deductibility. There has been some movement on $BGB which is a senior loan CEF. Meanwhile, the discount on $NAC continues to widen. I added more this week since reducing CA tax liability is of even greater importance now. The only thing holding me back from adding more is the fact that $NAC has been earning slightly less than distribution. I’m hoping the December UNII report will put that concern to rest.

Precious Metals

Signs continue pointing to both precious metal and miners having made an important bottom the week prior. I added a little $GDX this week and will continue to deploy money from now to the end of January to bring my PM allocation back towards 15%. If the bitcoin bubble has indeed popped, some funds may flow from digital gold to the real thing.

Portfolio

The trades have already been mentioned above. Current portfolio composition is as follows: PMs 9.6%; equities 53.9%; FI, 22.2%; cash equivalent, 10.5%; and other, 3.8%. The “other” category is composed of crypto, 0.7%; 3X ETFs, 0.35%; and options, 2.75%. Effective exposure from options is 63.2% of total portfolio value for a leverage ratio of 23X. The total portfolio is 116% long equities (not beta-adjusted).

Return-wise the portfolio is still doing well. Month-to-date the active account is up 9.2% and the total portfolio 5.6%. All returns reported here are pre-tax and a significant amount of capital gains taxes are due this year. Tax liability is treated as withdrawal from the account.

Good Reads

None of the above is investment advice, the standard disclaimer applies.