I’ve donated\/sold more than 80% of my cryptocurrency holdings (Ripple and Bitcoin) over the past two weeks, after holding them without trading for around 4 years.<\/p>\n
When I last blogged about Bitcoin<\/a>, I said I would buy Bitcoin soon. That plan failed because I didn’t manage to convince the appropriate company that I’d documented my identity, so I didn’t find a way to transfer money from a bank to an account from which I could buy Bitcoin. (Difficulties like that were one reason why cryptocurrencies used to be priced too low). I procrastinated for two years, then found a convenient opportunity when MIRI needed to unload some Ripple.<\/p>\n My guess is that the leading cryptocurrencies will be somewhat higher a decade or two from now, but the prospects over the next year or two seem fairly poor compared to the risks.<\/p>\n Much of my expected value for the cryptocurrencies used to come from a 2+% chance of a hundred-fold rise. But a hundred-fold rise from current levels seems a bit less than 1% likely.<\/p>\n I compare cryptocurrency trends mainly to the gold bubble of 1980, since gold is primarily a store of value that pays no income, and is occasionally used as a currency.<\/p>\n I made some money once before<\/a> by predicting that an unusual market pattern would repeat, with the same seasonal timing. So I’ve been guessing that cryptocurrencies would peak in mid-January. Yes, that’s pretty weak evidence, but weak evidence is all I expect to get.<\/p>\n I’ve also tried to extract some evidence from price trends. That usually provides only a tiny benefit in normal markets, but I suspect I get some value in high-volume inefficient markets (mainly ones where it’s hard to short) by detecting how eager traders are to buy and sell.<\/p>\n I watched the markets nervously in December, thinking that a significant bubble was developing, but seeing signs that any peak was still at least weeks in the future. Then I got nervous enough on January 2 to donate some Ripple to CFAR<\/a>, even though I still saw signs that the market hadn’t peaked.<\/p>\n By January 5, I stopped seeing signs that the trend was still up, but I waited several days before reacting, hoping for rebounds that ended up being weaker than I expected. I ended up selling at a lower average price than CFAR got for what I donated to them, because dissatisfaction with the lower-than-recent price made me hesitant to sell.<\/p>\n An important lesson to draw from this is to always try to sell financial assets before the peak. Endowment effect is hard to avoid.<\/p>\n