Blog Posts by Snow

• Why does the Crypto market have a 4 year cycle?
• How could it be predictable?
• Will it always be a 4 year cycle?

All markets operate in cycles, but the cause of these cycles could be greatly different. Day traders search for patters typically caused by other traders. Long and short positions in the traditional market aim to predict the business cycle, which has a lot to do with how different businesses and governments interact, changing incentive and profitability over time.

In commodities the cycles are predictable, but traders often change the predictability of the value of the commodities.

Why are commodity markets predictable?

If the wheat harvest is in September you can predict that the farmer sells it afterward. The processor then sells it after processing, and the wholesaler then sells it to the retail store. While our economy is a little more complex than this picture, it's the fundamental basis. If you know when the windfall happens in advance you can place investments to capitalize from it. As more investors recognize a very predictable pattern they invest earlier and sell earlier until the value proposition has market equilibrium or has been randomized by the investors.

Is Bitcoin a Commodity?

Yes.

Some may debate semantics here, and there are plenty of cryptos that fall under the definition of a security, Bitcoin and most major coins are commodities. They are found or made through effort, not decree. They exist individually, as in, cannot be copied. I do see a future clarification between physical and digital commodities because they are very different, but both are commodities.

United States Court rulings have also deemed Bitcoin, Litecoin and some other cryptos as commodities.

Predicting the Cycle

Bitcoin has a supply cycle that is publicly known to anyone willing to look. Bitcoin blocks are about 10 minutes apart, and every 210,000 blocks the amount of bitcoin units able to be found by a miner is halved by the network consensus rules. This means there is less new bitcoin that can be sold every 4 years. In the world of commodities, something that is in demand but has a lowering supply increases in value. Less bitcoin to be sold but equal buyers means higher prices. One could buy wheat in October, then sell it in August, like one could buy bitcoin in 2015 and sell it in 2017 then buy in 2019 and sell in 2021.

Because of existing stock each Bitcoin cycle should have less market effect than the last and because of the nature of investors the cycle could be dulled to no price effect, or greatly over invested to highs far beyond the expected effect.

What about other coins?

Coins besides Bitcoin have their own network rules and cycles. Even so, almost all follow the Bitcoin cycle because they rely on Bitcoin popularity to grow more than their own fundamentals. This may change in the future, but as of writing in 2021, it is proving true again.

So every 4 years bitcoin price will go up?

If only it were that simple. Investors will ultimately decide where to put their value. If there were only basic miners and users that always existed at the same levels it would be extremely easy to predict the exact future value of 1 satoshi. Because the market is much more complex, other factors could far overshadow the supply metric. Additionally, each Bitcoin cycle has less effect on the existing stock, so each halving should be less relevant compared to outside factors.

While we want to invest in a new financial space our typical investment accounts are not the place to start except under specific scenarios. Unfortunately it's very difficult to buy bitcoin or any crypto using a traditional retirement account, which means we are left searching for where we can buy it without these instruments.

It is possible to buy within a self directed IRA or 401k, but these accounts are more difficult to setup. We are working on an article for this topic and I will link to it here once it is done.

Before I move on to list where and how to buy, I would like to take this space to talk about where NOT to buy, and why.

Do not buy from Paypal or Robinhood

These services allow you to bet on the price, but it's important to understand that bitcoin and most other crypto's are real commodities, not securities. There is no price authority, the price is what you pay, or in these cases, whatever the service says it is. These services do not allow you to take your purchased coins, so you cannot own them yourself, and you cannot sell them where you wish. They cannot be transferred elsewhere, and there is no legal limitation to the buy or sell prices offered by these services. If you own coins on these platforms now it would be best to strategize the best way to sell them and buy coins elsewhere.

Why are you buying?

This is important. Why you are buying may change where you want to buy and which factors are important to you. If you are buying to invest purely as a financial move, then the traditional exchanges listed below will be right for you. If you want to invest, but would like to also support the overall movement towards a free market it would be best to use exchanges that do not promote regulation, or those who work to prevent more. Yes, Bitcoin, and by proxy, all crypto's promote an unregulated free market by making it as difficult as possible for regulatory agencies to physically stop these projects. This is a core function of a blockchain. Further, anonymity is considered important by many proponents of crypto. If you see value in owning crypto without anyone having direct knowledge that you do you will be looking for ways to buy that are not traditional exchanges.

Exchanges List:

Coinbase

Coinbase is very easy to use and Coinbase Pro is one of the easiest exchange interfaces to use. While Coinbase pro has some of the lowest fees, the regular Coinbase offer is one of the highest fee options with a spread on top, meaning the price they offer to sell you coins at is more than the price they will buy them off you. Comparing this pricing system to other exchanges requires placing an order on each to compare the total costs and return. The total spread on Coinbase is around 4%, which means about a total of 2% “fee” to buy or sell.

A common complaint about both platforms is that the website often crashes when there's high volatility in the bitcoin market.

Gemini

Gemini is a US regulated exchange that uses this as a point in advertising. They have promoted further regulation of the industry and are the leading platform in the state of New York, where being a bitcoin exchange is privileged by a board of private bankers and a non refundable fee that has no set amount but is typically more than $1,000,000. The exclusivity of their New York operations may be a driving factor in their promotion of further national regulation. This very pointed issue may not be a concern for every investor.

They offer an interest bearing account option and have moderate fees compared to other top rated exchanges. They also have a limited offering of different coins.

Binance US

I have less information about this platform that other. Binance has history on why they have a Binance US version. When the company began being pressured by regulators and tax authorities they moved their headquarters to Malta after a bid type negotiation with multiple small nations. When the United States made it clear that they would pursue them if they continued to offer services to US based customers they ceased operation in the country. After some time they opened Binance US, which is only for US customers and follows US regulations. I have heard that it is hard to verify on Binance US.

Kraken

Kraken has promoted the furthering of an open market within the United States and offers some of the lowest fees as well as leveraged trading. They also won a Bank Charter in Wyoming! This is not setup yet, and may change the position of this exchange once it is. Kraken takes up the bottom of the list because most customers have to wire funds in, which makes kraken the worst option listed for low volume purchases because of flat fees ranging up to nearly $100 to get funds on and off your account. On the other hand, if you're a business or looking to invest (or sell) for millions USD, then Kraken, or Kraken's OTC Desk is likely the perfect fit. Kraken has the least user friendly interface out of all that are listed here. It works, but it's not simple.

Where possible links to exchanges have been replaced with referrals. Using these referral links may offer you incentives, but it also helps this blog stay alive.

To own cryptocurrency you must have a wallet.

While it may be easier to leave coins with an exchange or other administrator, it's typically not recommended. Many exchanges and online wallets have suffered from security breaches in the past, using such a service is placing trust in them.

A good wallet is private, open source, and well tested

A private wallet is one where only you have the private keys. This is most similar to holding cash in your hand. It does not mean it’s invulnerable to theft, it should be treated much like cash. Seeing your private keys is sometimes not an option from within the wallet software, so how can you know you have the keys? Most private wallets will prompt you write down a phrase of 12 or more words as a backup, this is known as a mnemonic “seed” and is capable of restoring your wallet even if your device is lost or destroyed. Since it is a backup of the private keys it will even restore crypto that is added to your wallet after making the backup. The seed phrase is your wallet, and it isn’t normally protected by a password and is not protected by a lock screen, it should be stored somewhere very safe and never stored on a phone or computer without expert precautions – do not screenshot or print seed words, write them by hand or use a metal storage device. Jameson Lopp periodically publishes stress tests on these devices which should be designed to survive a house fire.

There are many different kinds of wallets, including free software and hardware/offline wallets. It is extremely important to verify the wallet you intend to use. For new users this is likely only using a wallet found in the Google Play Store or Apple Store, and verifying positive reviews and a long track record of at least 6 months, beware of fake reviews and new wallets.

I highly recommend the following wallets:

– Electrum

This is a widely trusted wallet and the oldest lite wallet (meaning you don't have to run a full node). It's available for desktop and android. I use this wallet on desktop and paired with cold storage devices or multisignature. It has a lot of advanced features and compete control of your coins, but also can be used in very basic setups where it's quite simple.

– Bluewallet

This wallet has great features similar to Elecrum but is highly functional on a mobile device. Available for both Android and iOS this wallet is recommended by many seasoned bitcoiners. It can also be used to create multisignature wallets with other people or devices.

– Coldcard

A bitcoin only hardware wallet with advanced features, including air gapped setup and use.

– Trezor

A fully open source hardware wallet supporting Bitcoin and altcoins.

Derek Justin McCloud posted on Facebook a link to S&P500 priced in gold as a way to value the market for “true inflation” as apposed to using the posted rate for product price inflation.

This isn't a new idea, nor an unknown debate. Product price inflation is an index of prices and the official inflation rate is posted regularly. Many economists and investors use this product price inflation as the basis of their adjusted calculations against the dollar. The debate is around if this rate is what should be used.

The average price of products is effected by many things. Is the value of money really equal to the average price of products? According to Ludwig Von Mises, one of the more prominent economists of the 20th century, the value of all money in an economy equals the need for money by that economy. Essentially the idea is that the value of money reflects how well the economy is doing. This could be more easily seen if the number of monetary units within that economy were finite, but that's not what happens with most national currencies. As governments issue more units the value of those units fall in relation the value of the economy because each unit is a fraction of the economy and creating more units makes the fraction each unit holds less.

I don't think gold is a stable medium to use as a basis in calculating the true value of the market – call this “real” inflation adjusted. I decided to create a chart to depict the real inflation as the M2 money supply. Even the traditional economists that use the product price index as their inflation amount often use the M2 money supply as the precursor or indicator of future product price inflation.

If the money supply were finite how might the market look today? Have the printers of new money awarded the value of the growth of the public market to the first receivers of the new money?

The first chart below shows the cumulative M2SL money supply, S&P500, and S&P500 adjusted for the M2SL money supply starting in 1985. These are all shown as percent compared to the first point.

The second chart shows the nominal price of S&P500 and the M2SL adjusted nominal price of the S&P500 starting in 1985.

Made with data from, https://fred.stlouisfed.org/series/M2SL#0 and https://finance.yahoo.com/quote/%5EGSPC/history