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Unfortunately, most investment portfolios are being managed with a linear world view, with indices that are pegged to the past guiding our future investments. Nothing could be more shortsighted or potentially dangerous in a time of exponential change.
Interestingly, however, the Internet has become increasingly centralized over time, potentially endangering its original conception as a “highly survivable system.”
ownership
a distributed and digital ledger referred to as a blockchain.
prefer the term cryptoassets,
The goal of this book is not to predict the future—it’s changing too fast for all but the lucky to be right—but rather to prepare investors for a variety of futures.
This is not a get-rich-quick book with the latest hot tips.
Bitcoin provided a system of decentralized trust for value transfer, relying not on the ethics of humankind but on the cold calculation of computers and laying the foundation potentially to obviate the need for much of Wall Street.
While the mystery may never be solved, Satoshi most certainly was aware of Wall Street’s growing instability.
Satoshi’s choice first to employ this functionality by inscribing a note about bank bailouts made it clear he was keen on never letting us forget the failings of the 2008 financial crisis.
1,309 bitcoin to the dollar.
Diving deeper into Satoshi’s writings around the time, it becomes more apparent that he was fixated on providing an alternative financial system, if not a replacement entirely.
forces. By disappearing into the ether, Satoshi removed the head of Bitcoin, and with it a single point of failure.
while history doesn’t repeat, it does often rhyme.
We believe that over time the implementation of private blockchains will erode the position held by centralized powerhouses because of the tendency toward open networks.
analogous to email for money.”
all cryptocurrencies differ in their supply schedules, and thus the direct price of each cryptoasset should not be compared if trying to ascertain the appreciation potential of the asset.
it’s always important to understand how it’s being distributed and to whom
If the core community feels the distribution is unfair, that may forever plague the growth of the cryptocurrency.
When evaluating any investment decision, the starting point is always an individual’s financial goals, time horizon, and risk tolerance.
Standard deviation of returns, or the range that an asset’s price will vary from its mean value, is one of the most common measures of risk.
If both portfolios have the same expected return of 7 percent, it wouldn’t be a prudent decision to invest in the portfolio with more volatility, as they both have the same expected return.
One of the key breakthroughs of modern portfolio theory was to show that a riskier asset can be added to a portfolio, and if its behavior differs significantly from the preexisting assets in that portfolio, it can actually decrease the overall risk of the portfolio.
Correlation simply measures how assets move in relation to one another.
The two assets move in different directions based on the same news.
some groups of assets won’t provide enough return for the risk taken.
Systematic risk is the risk inherent to investing in assets subject to the effects of macroeconomic events—like global gross domestic product (GDP) growth, trade relations, warfare, and so on. It is also known as undiversifiable risk because all assets are affected by it.
Unsystematic risk, on the other hand, is the risk specific to each individual investment, such as market sector, management, product expansion, geographic exposure, and so on. It is also known as firm-specific risk and can be neutralized with a smartly constructed portfolio.
We believe it’s still early days for cryptoassets.
Dollar cost averaging is a means by which the innovative investor can avoid extreme sensitivity to the starting point of investing.
The bigger the daily percent price changes are, the more volatile the asset is.
Early in bitcoin’s history there were frequent earthquakes, with the price moving more than 50 percent in a day. Over time, however, the bitcoin seismometer has registered smaller and smaller earthquakes in bitcoin’s price.
Volatility is most commonly derived by taking the standard deviation of the daily percent price changes. The bigger this number is, the more the investor can expect significant swings in the price of the asset they’re holding and therefore, the riskier the asset is.
Remember that by dividing the absolute returns9 by the volatility, we can calibrate the returns for the risk taken. The higher the Sharpe ratio, the more the asset is compensating investors for the risk.
Bitcoin compensated investors twice as well for the risk they took than Facebook did and 40 percent better than Netflix, its closest contender
Cryptoassets have near-zero correlation to other capital market assets. The best explanation for this is that cryptoassets are so new that many capital market investors don’t play in the same asset pools.
It is the way in which a new asset behaves with the preexisting group of assets in a portfolio that is the key to both reducing risk and increasing returns.
As assets rise and fall, over time their percentages in a portfolio change. It’s common practice to reassess each quarter and make small buy and sell transactions to reset the target percentages.
Fundamental analysis will reveal if an investment is worthy of long-term capital allocation, while technical analysis will assist with the timing of buys and sells.
Fundamental analysis involves looking at the intrinsic value drivers of an asset.
