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What I've learnt from trading shitcoins

666!

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You’ve maybe seen me on Twitter talking about coins like BAYSE and others recently…

There’s a good reason.

FX volatility is dead.

Stocks are doing well of course…

But there’s always a part of the risk curve that can be utilised.

Enter shitcoins.

They’re HUGELY high beta, sometimes decorrelated from equity indices and the overall risk environment, and they are pure insanity.

Here’s a few lessons I’ve learnt from them.

1) It is a marketing game.

Yep.

It’s an order driven marketing game with very few fundamental drivers involved.

You HAVE to accept this.

If you don’t then you will be stuck misunderstanding what you’re doing.

It is pure PvP and that is it.

2) There is an abundance of fake liquidity.

Something might have a market cap of $20m, but the second a $2000 sell goes in, that market is printing a red candle.

Not a drastic red candle, but it’s evident that market making isn’t really a thing.

Where in small cap equities you’d see some nice support stepping in and absorbing some selling pressure, it’s very easy for a cascade to occur in shitcoins.

THIS IS NOT A BAD THING THOUGH.

What you are in effect seeing is a pure market — not pure in the sense that there aren’t nefarious actors wash trading, driving the price up and down as they might wish — more pure in the sense that everyone in it effectively has the same function and are looking at the same data, of course outside of any large supply holders.

But in that case, you’re hoping tokens are locked and not readily available to dump…

3) There truly is no point in trading FX when you see the volatility differences.

Linked to point 1…

I’ve said many times, people have been pushed further to the right of the risk curve.

It is how crypto has proliferated in the last few years — put things like housing out of reach of young people and the path of least resistance is to the thing which can provide the largest outsized returns!

4) Overvalued stocks are OK, but crypto not really having a use case isn’t.

What’s more dangerous?

Seeing Wingstop trading at 145x earnings or punting something which you know doesn’t really have any value but you’re following trends/flows?

I’m into BAYSE as mentioned above because I know what it is.

It’s a satire of Coinbase and the memes are based around Brian Armstrong.

Here’s mine.

It’s a reward for holding 25k of the coin.

Does he look like a sex offender?

Yes.

Would I put him up as artwork in my house?

Also yes.

But do I think he’s valuable?

OK yes again.

Why?

Well because I want the coins to go up…

And so does everyone else in crypto.

If there is sufficient desire for something to go up, it’ll go up, since all a market is reliant on is the marginal buyer!

Should we have a pretence there is any value in all this?

No, not really, we’re buying momentum.

Is there sufficient value in buying Wingstop at 141x earnings?

No, not really, we’re buying momentum (some might say).

If you take shitcoins for what they are — a momentum play — you can get rid of any sort of desire to be high finance and develop a model around that central factor.

Crypto = long only momentum.

NOT ADVOCATING TO BUY BAYSE. I DO HOLD A HALF MILLION TOKEN POSITION FOR ALL TRANSPARENCY.

What’s the most important chart this week?

666!

That’s how many days the 2s10s curve has been inverted for.

Recession, where?

Well it usually starts when it is reverted again (when it crosses the red line).

What do I need to know this week?

Yes, Warren Buffett has sold some Apple shares.

No, he is not going to dump the whole position.

Macro FinTwit doomers now think Apple is dead because Grandpa sold some shares.

He literally said at the Berkshire Hathaway AGM that they will ALWAYS hold Apple, CocaCola et al.

You can take something from this — it probably means the pain trade is higher when these guys are making these calls!

Hope you enjoyed the read, share the note around!

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(The one time payment is to keep the community market smart — no one in there is a midwit).