Bitcoin in 3-fund indexed portfolio?

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Jeff Albertson
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Re: Bitcoin in 3-fund indexed portfolio?

Post by Jeff Albertson » Fri Sep 08, 2017 7:17 pm

kayanco wrote:
Fri Sep 08, 2017 6:45 pm
Thanks you for the book suggestion. Would you be able to recommend an audbile equivalent book I can listen to?
Amazon has a good price on the kindle version -
https://www.amazon.com/Financial-Market ... 893&sr=8-1

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Uncle Pennybags
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Re: Bitcoin in 3-fund indexed portfolio?

Post by Uncle Pennybags » Fri Sep 08, 2017 7:48 pm

Jeff Albertson wrote:
Fri Sep 08, 2017 7:17 pm
Amazon has a good price on the kindle version -
https://www.amazon.com/Financial-Market ... 893&sr=8-1
Free is a very good price. I got mine after I read this.
Here are some of our top scholars sharing insights from their studies of economic and investment history so we can see how to avoid repeating harmful parts of the past.
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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Sat Sep 09, 2017 10:09 am

avalpert wrote:
Fri Sep 08, 2017 4:28 pm
..
No, it's because that is the currency you do your spending in .. You don't care how many dollars it takes to buy a british pound unless you will be buying british pounds in the future ..
Wanted to clarify this quote part. I don't understand this reason. I was thinking in terms of stocks, I buy stocks but I don't spend in stocks. Same way, "if" the pound will go up in value, I can buy today at a low price and tomorrow when I need to spend dollars, I can sell the pound to get dollars. Like I can sell stocks to get dollars to spend.

Can someone clarify? Is this a well-established reason that we normally don't buy foreign currency because we need to spend in dollars?

In my reading I came across some country where people convert(ed) local currency (e.g. pesos) to dollars, because the local currency didn't hold value. So it still seems to me that we don't buy foreign currency because of an assumption/belief that the dollar will hold it's value.

Thoughts?

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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Sat Sep 09, 2017 10:13 am

Valuethinker wrote:
Fri Sep 08, 2017 4:40 pm
kayanco wrote:
Fri Sep 08, 2017 3:46 pm
Valuethinker wrote:
Fri Sep 08, 2017 10:28 am
Tamalak wrote:
Fri Sep 08, 2017 10:18 am
No, there's no place for bitcoin. Bitcoin is a currency. The average forward-looking expected return on a currency is zero. The average forward-looking expected real return on a currency is zero minus inflation.

Take a moment to feel good for lottery winners, and then move on.
The argument for Bitcoin on that basis is this:

- unlike fiat currencies, the number of Bitcoins is finite by algorithm design

- therefore if inflation in the USD is say 2% in the long run, Bitcoin should appreciate by 2% pa in the long run against the USD

- (another argument: to me somewhat circular because it requires that Bitcoin actually have value; that Bitcoin should rise in value with the cost of manufacturing it which is dependent upon hardware cost and electricity cost per kwhr)

I don't fully subscribe to this argument, for separate reasons:

- Bitcoin cannot serve as a store of value, currently, because it is too volatile. Thus even if it does rise against the USD by 2% p.a. at an underlying level, that is totally drowned out by the volatility

- practically, governments cannot allow Bitcoin to be a currency which allows transactions for things they wish to limit or prohibit - drugs for example, or in the avoidance of Chinese exchange controls

I therefore tend to see Bitcoin as another financial speculative asset, like gold. We are in a world of nearly negative real interest rates (arguably, negative) and thus negative cost of carry. That buoys speculative assets-- whether Condos in Vancouver (but they have utility-- you can live in that $1m condo (or rent it out for c. 1.5% of value p.a.) or Bitcoin. All things being equal, I think the long term investor is better off in gold- -where supply rises very slowly but there is broad agreement that the metal is valuable and can serve as a store of value (albeit a volatile one).

Perhaps Ethereum, which has more transactional utility, is a better cryptocurrency.

Valuethinker, I'm glad you joined the conversation my friend, and shared your views. Very informative!
Crypto currencies are one of those things one could throw into the portfolio for diversification purposes.

But you really cannot afford more than 1-2% because you could lose the lot, when the Chinese government, say, decides to ban Bitcoin-- or the world's law enforcement agencies do a deal to prevent its use in unauthorized activities*.

So one is just not going to be able to put enough in to make a difference.

Of the c-currencies, it appears to me that Ethereum is the most appealing, because of its support by major financial institutions. It can thus be made to fit into existing Anti Money Laundering and reporting protocols. However I have not studied this in any detail.

* my guess is they do that the way all these things are done. Any financial institution that handles Bitcoin, exchanges bitcoin for anything else, is prosecuted under existing anti terrorist and anti money laundering protocols. Throw in prison terms for executives of said institutions. Then there is no way for Bitcoin to get into the financial system.
This seems to be an almost unanimous advice, only put in money you can afford to lose. Even from one of the main Bitcoin guys, Gavin Andresen.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Sat Sep 09, 2017 10:14 am

Jeff Albertson wrote:
Fri Sep 08, 2017 7:17 pm
kayanco wrote:
Fri Sep 08, 2017 6:45 pm
Thanks you for the book suggestion. Would you be able to recommend an audbile equivalent book I can listen to?
Amazon has a good price on the kindle version -
https://www.amazon.com/Financial-Market ... 893&sr=8-1
Very cool!

kayanco
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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Sat Sep 09, 2017 11:03 am

Btw, have these folks made any statements on Bitcoin/crypto-currency:

Allan Roth
Rick Ferri
Larry Swedroe
Eugene Fama
William Bernstein
Burton Malkiel

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Re: Bitcoin in 3-fund indexed portfolio?

Post by alex_686 » Sat Sep 09, 2017 12:35 pm

kayanco wrote:
Sat Sep 09, 2017 10:09 am
avalpert wrote:
Fri Sep 08, 2017 4:28 pm
..
No, it's because that is the currency you do your spending in .. You don't care how many dollars it takes to buy a british pound unless you will be buying british pounds in the future ..
Wanted to clarify this quote part. I don't understand this reason. I was thinking in terms of stocks, I buy stocks but I don't spend in stocks. Same way, "if" the pound will go up in value, I can buy today at a low price and tomorrow when I need to spend dollars, I can sell the pound to get dollars. Like I can sell stocks to get dollars to spend.
Many people cite currency risk. If the British Pound were to weaken I could buy more pounds. If my British stock remained the same price in pounds this means the price in US Dollars has fallen.

I discount most of that risk. Currency risk is bounded by Purchasing Power Parity (PPP). A good chunk of currency risk is actually inflation risk and productive economic assets, like equities, are a good hedge against inflation. Once again see David Chambers and Elroy Dimson. You face about a 1% variance in equity prices thanks to currency risk, which is pretty small considering everything.

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Uncle Pennybags
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Re: Bitcoin in 3-fund indexed portfolio?

Post by Uncle Pennybags » Sat Sep 09, 2017 3:59 pm

kayanco wrote:
Sat Sep 09, 2017 10:09 am
Can someone clarify? Is this a well-established reason that we normally don't buy foreign currency because we need to spend in dollars?
The US dollar is the de facto world currency. Commodities are priced in US dollars. The only reason to hold foreign currency is if the home money is failing. Fact is the US dollar is as sound as a dollar and has survived all attempts to price gold or oil in something other than the $.
It is now illegal to mine Bitcoin in Venezuela. Venezuelan Bitcoin Miners Turning to Ethereum After Government Crackdown

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Re: Bitcoin in 3-fund indexed portfolio?

Post by LadyGeek » Sat Sep 09, 2017 8:43 pm

Please see my thread here: Wiki article - Bitcoin
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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Sat Sep 09, 2017 10:36 pm

LadyGeek wrote:
Sat Sep 09, 2017 8:43 pm
Please see my thread here: Wiki article - Bitcoin
Good initiative. I'm sure it'll be helpful and informative.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by miles monroe » Sun Sep 10, 2017 8:15 am

"it's a payment system, not an investment".

-clark howard

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Uncle Pennybags
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Re: Bitcoin in 3-fund indexed portfolio?

Post by Uncle Pennybags » Sun Sep 10, 2017 10:29 am

OP. would you drop international stock in favor of bitcoin to keep the portfolio "3-fund"?

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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Sun Sep 10, 2017 1:17 pm

Uncle Pennybags wrote:
Sun Sep 10, 2017 10:29 am
OP. would you drop international stock in favor of bitcoin to keep the portfolio "3-fund"?
Hmm ... perhaps ... if you like. Or consider it a 4th component, or maybe imagine it inside the international or US fund ...

To share with you my (possibly flawed) reasoning, I'm imagining it as a 'company' whose stock can be bought and sold, but not captured in a broad market index portfolio. Just as if there was a real company that wasn't yet part of the index, we'd want to include it, so I was wondering if Bitcoin should/could be included (of course not in the official index, but in a personal portfolio).

Just like it's possible that my board index fund might have a fraudulent company, but it's not possible to single it out conclusively, but I don't worry because my loss would be contained. And the converse, there might be a company with a technology of which most are skeptical but might become a hit. I don't worry about totally missing out because it's in my index.

So I was applying this line of reasoning to Bitcoin. To be clear, my thread doesn't advocate that this is a good idea, rather, it asks whether this reasoning implies owning bitcoin? Or whether I've reached a faulty conclusion. And if so, I wanted to understand why/how. That's why I made this thread.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by Swelfie » Sun Sep 10, 2017 6:46 pm

I am very pro crypto currency and I understand the technology extremely well (well enough that I can innovate in the space.) I believe that it is not a fad or Ponzi scheme and has very high intrinsic value, similar to "the internet" or "the automobile".

That being said, I think it has no place in a 3 fund portfolio.

The structure of crypto currencies is more similar to a commodity than a currency. I say this because they have an underlying use to perform work or build products and have a limited supply. So intrinsically they should behave in a mature market similar to a commodity: track inflation with high volatility due to changes in supply and demand.

However, they are a strange commodity because a new class of this commodity can be released at anytime and the market can retool for it rapidly. So it's a type of commodity we have never seen before, so what such an odd duck looks like in a mature market is purely theoretical.

And the market is far, far from mature. Imagine a new substance, say adamantium, was discovered 8 years ago. The research market entered a phase where adamantium was interesting. Then we went from interesting to "useful". We are now entering the phase where the market is realizing it is valuable. But understand, THIS COMMODITY HAS YET TO BE INDUSTRIALIZED ON ANY REAL SCALE.

So, what we have is something the major players knows is valuable, but there is no underlying industry to peg that value to, so it is utter speculation how valuable it is. I think "very" valuable, but I am often wrong.

And then there is "which one?". I see the major players as Bitcoin, Ethereum, and Monero because they all bring unique factors into the space. But again, the tech is immature. Perhaps some unique factor like Byteball offers suddenly dominates all other propositions? It could wipe out the value of all others rapidly. In addition to being young, it is an unregulated and heavily manipulated market, with absolutely mammoth players manipulating the market through propaganda, shady market practices that would be illegal elsewhere, lobbying and regulatory manipulation. It's a horribly opaque market.

So, if someone is invested in a 3 fund portfolio, the growth of this new industry will be captured by the value of the companies in the index. I don't think direct investment in the underlying commodities has any place in a 3 fund portfolio.

If you are a slice and dicer and already have things like value, size, momentum, commodities, etc. tilts then crypto currency might have a place, but I'd place it in with the esoteric alts like art, reinsurance, mortality bonds, etc. and I would recommend the size of that slice being proportional to those others.

Now, if you want to gamble, then this is a high risk, extremely volatile and exciting place to do so. But that is gambling, not investing and is certainly not a Boglehead endorsed behavior and has no place in a discussion on asset allocation

/Disclaimer: I heavily gamble in this space. It started out as a small slice of my slice and dice allocation, but after that slice exploded over 100x I chose not to rebalance. I would never recommend this to others, particularly on a Boglehead forum. I'm down 30% in the last week. In crypto that's called a "minor pull back". Do you want your retirement nest egg fluctuating like that?

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Re: Bitcoin in 3-fund indexed portfolio?

Post by LadyGeek » Sun Sep 10, 2017 8:42 pm

Hot off the press! We have a new wiki article: Bitcoin

Swelfie - The wiki article is in full agreement with you, but the wording is a bit sparse. If you wish to revise the wording in the wiki article, comments are now being solicited in the discussion thread: Wiki article - Bitcoin
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Sun Sep 10, 2017 9:19 pm

Swelfie wrote:
Sun Sep 10, 2017 6:46 pm
..
And then there is "which one?". I see the major players as Bitcoin, Ethereum, and Monero because they all bring unique factors into the space. But again, the tech is immature. Perhaps some unique factor like Byteball offers suddenly dominates all other propositions? It could wipe out the value of all others rapidly. In addition to being young, it is an unregulated and heavily manipulated market, with absolutely mammoth players manipulating the market through propaganda, shady market practices that would be illegal elsewhere, lobbying and regulatory manipulation. It's a horribly opaque market.
..
Very useful and well rounded reply. Thanks for doing so. I found your whole post to be very informative, and for completeness sake, due to your direct experience would like to ask a few follow ups:

1. What exchange do you use?
In my research I only found GDAX and Gemini that accept ACH.

2. What wallet(s) do you use?

3. You mentioned Ethereum, what's your take on Ethereum classic and Bitcoin cash?
The main exchanges (e.g. mentioned above) don't deal with these two. Could it be worth buying them since there aren't many places to trade them?

Thanks.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by Swelfie » Sun Sep 10, 2017 11:17 pm

kayanco wrote:
Sun Sep 10, 2017 9:19 pm
Very useful and well rounded reply. Thanks for doing so. I found your whole post to be very informative, and for completeness sake, due to your direct experience would like to ask a few follow ups:

1. What exchange do you use?
In my research I only found GDAX and Gemini that accept ACH.

2. What wallet(s) do you use?

3. You mentioned Ethereum, what's your take on Ethereum classic and Bitcoin cash?
The main exchanges (e.g. mentioned above) don't deal with these two. Could it be worth buying them since there aren't many places to trade them?

Thanks.
1. GDAX is good and insured. Only place I would leave any non trivial amount for any length of time. Bittrex for the other coins like Monero.

2. Ledger Nano S. If you are holding any more than a couple Grand a hardware wallet is a necessity. Losing coins to a virus or just plain losing your private key is a very real danger and there is absolutely no recourse. Never hold any real amount on something connected to the internet. Paper wallets with backups for things that Ledger doesn't support yet (Monero support is on its way but not there yet.)

3. I don't bother with Ethereum Classic. It's not bad persay, but the ecosystem is no where near as active as Ethereum and it has little to offer that Ethereum doesn't. Bitcoin Cash right now is a hedge. The Bitcoin chain split due to MASSIVE market manipulation by some very well funded entities on both sides of the coin (no pun intended). Unless you are "in the know" you have no idea what is true right now, and if you were in the know then you are fabulously wealthy. The largest companies in the world are playing very dirty pool right now. Phase 1 of the Bitcoin split happened in August. Phase 2 will happen in November. It is entirely possible that come November we may have 1, 2, or 3 Bitcoins. Bitcoin Cash could go to zero, or it could replace Bitcoin altogether. I would be wary investing in Bitcoin until this is hashed out end of year. Ethereum and Monero are much safer bets in the mean time. I hold equal amounts (in coin, not USD equal) of Bitcoin and Bitcoin Cash and will hold that through November and I can be reasonably confident that the war has shifted to a new phase and I'm not left holding only worthless assets. Bitcoin isn't going away anytime soon, but what people are calling Bitcoin may shift.

Edit: on that last point, Litecoin is also a decent hedge for Bitcoin's upcoming craziness for reasons that are far too complex for this post. You can research litecoin SegWit integration and atomic swaps for info and just the fact that it is one of the most venerable coins, almost as old as Bitcoin itself and is still a major player. I expect Litecoin value to correlate to the sum of Bitcoin and Bitcoin Cash value through November because of it's interoperability and the fact that so much of the market is also expecting that and invested accordingly. For this reason I see it as a reasonable surrogate for direct Bitcoin investment in the near future and much lower risk.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by CodeMaster » Mon Sep 11, 2017 3:55 am

Swelfie wrote:
Sun Sep 10, 2017 6:46 pm
I am very pro crypto currency and I understand the technology extremely well (well enough that I can innovate in the space.) I believe that it is not a fad or Ponzi scheme and has very high intrinsic value, similar to "the internet" or "the automobile".

That being said, I think it has no place in a 3 fund portfolio.

The structure of crypto currencies is more similar to a commodity than a currency. I say this because they have an underlying use to perform work or build products and have a limited supply. So intrinsically they should behave in a mature market similar to a commodity: track inflation with high volatility due to changes in supply and demand.

However, they are a strange commodity because a new class of this commodity can be released at anytime and the market can retool for it rapidly. So it's a type of commodity we have never seen before, so what such an odd duck looks like in a mature market is purely theoretical.

And the market is far, far from mature. Imagine a new substance, say adamantium, was discovered 8 years ago. The research market entered a phase where adamantium was interesting. Then we went from interesting to "useful". We are now entering the phase where the market is realizing it is valuable. But understand, THIS COMMODITY HAS YET TO BE INDUSTRIALIZED ON ANY REAL SCALE.

So, what we have is something the major players knows is valuable, but there is no underlying industry to peg that value to, so it is utter speculation how valuable it is. I think "very" valuable, but I am often wrong.

And then there is "which one?". I see the major players as Bitcoin, Ethereum, and Monero because they all bring unique factors into the space. But again, the tech is immature. Perhaps some unique factor like Byteball offers suddenly dominates all other propositions? It could wipe out the value of all others rapidly. In addition to being young, it is an unregulated and heavily manipulated market, with absolutely mammoth players manipulating the market through propaganda, shady market practices that would be illegal elsewhere, lobbying and regulatory manipulation. It's a horribly opaque market.

So, if someone is invested in a 3 fund portfolio, the growth of this new industry will be captured by the value of the companies in the index. I don't think direct investment in the underlying commodities has any place in a 3 fund portfolio.

If you are a slice and dicer and already have things like value, size, momentum, commodities, etc. tilts then crypto currency might have a place, but I'd place it in with the esoteric alts like art, reinsurance, mortality bonds, etc. and I would recommend the size of that slice being proportional to those others.

Now, if you want to gamble, then this is a high risk, extremely volatile and exciting place to do so. But that is gambling, not investing and is certainly not a Boglehead endorsed behavior and has no place in a discussion on asset allocation

/Disclaimer: I heavily gamble in this space. It started out as a small slice of my slice and dice allocation, but after that slice exploded over 100x I chose not to rebalance. I would never recommend this to others, particularly on a Boglehead forum. I'm down 30% in the last week. In crypto that's called a "minor pull back". Do you want your retirement nest egg fluctuating like that?
Thank you for this super insightful post... In my own personal research and understanding of everything, my conclusions of the risks and what everything is and how it can possibly evolve all came out to be same as yours. I learned a lot also, wasnt familiar with Monero and didnt realize GDAX was insured! Very fascinating info confirming my understanding seems to be correct and certainly its all a risk Im personally willing to invest in as like you said, it seems to be the beginning... given entire countries are starting to try to work with it, its just starting but still hard to explain / justify value anything out of it since all the factors are still so new we are really just watching and trying to make sense of it all. Thanks for all the info again, Im going to try GDAX and research Monero coin more.

Also I was intereted in ETH since I heard its hot in developer community now and it can be worked with in Javascript. If so, I would love to start learning / coding in it to play / understand it even more and hopefully find opportunity / just have fun :P

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Re: Bitcoin in 3-fund indexed portfolio?

Post by Expro » Mon Sep 11, 2017 5:51 am

It's being reported that China is or will shortly close its major cryptocurrency exchanges.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by Tanelorn » Mon Sep 11, 2017 6:42 am

Swelfie - thank you for your very detailed replies. I'll try to address some of the various comments earlier in this thread:

More broadly, in a portfolio context, I think BitCoin should be viewed as either cash or gold. I know someone who argues for keeping 10% of their "cash" allocation in crypto currencies for example, and rebalances as they appreciate. The earlier charts of real returns show gold having a very modest long term real return - that's about what you would expect/want for something as a store of value - it's not supposed to make a speculative return, although there is speculative volatility. Of course BC are early in their life and so valuations could be very different down the road (either way), but I think there's an argument for holding some if you want a store of value. Cash and other foreign currencies do have a place in a portoflio, and they are productive assets in that they earn interest generally. BC don't currently earn interest, although that might change if rates rise; most developed market currencies don't earn a positive real return on cash at current inflation rates either. BC are also not subject to the substantial amounts of money printing (quantitative easing) that regularly debase our largely virtual fiat currencies these days. Since real returns are what matter, the fixed and arguably deflationary (accounting for lost coins, etc) nature of BC may make it on par or slightly better as a long term cash like instrument.

On the risk side, most people in developed countries don't hold large amount of foreign cash, but that's mostly because

1) their liabilities are nearly all denominated in their home currency, so diversification of holding other currencies adds more risk than return/diversification, and

2) their home currency isn't that volatile.

Ask anyone in an emerging country with serious inflation issues and they'll give you a very different opinion about holding foreign cash (like US dollars or Euros). Anyone with any wealth in Venezulan cash has been wiped out, at least if they didn't manage to convert it to something else a few years back. This happens with fair regularity somewhere around the globe, and holding cash in a foreign currency hedges this risk. I think US/EU Bogleheads often overlook this risk because it's not likely to happen to them, but the fact that it does happen to others will drive demand for things like BC with favorable cash like properties, and which are easy to transact in and hard for governments to regulate.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by Uncle Pennybags » Mon Sep 11, 2017 6:52 am

Tanelorn wrote:
Mon Sep 11, 2017 6:42 am
More broadly, in a portfolio context, I think BitCoin should be viewed as either cash or gold.
"Coin" is not gold. I can't make gold with a video card and there are no coins.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by Swelfie » Mon Sep 11, 2017 8:41 am

Uncle Pennybags wrote:
Mon Sep 11, 2017 6:52 am
Tanelorn wrote:
Mon Sep 11, 2017 6:42 am
More broadly, in a portfolio context, I think BitCoin should be viewed as either cash or gold.
"Coin" is not gold. I can't make gold with a video card and there are no coins.
With that argument futures, options, ETFs, stocks and bonds don't exist either. Bitcoin is basically a derivative. A very interesting one because there is no counterparty risk (it introduces a completely new risk in it's place which is arguably much more stable.)

To reject something because you can't hold it in your hand eliminates most investible products.

And you don't make it with a video card. You receive a dividend for throwing money away proportional to the amount you burn. That's the trick that bankrupts bad actors and removes counterparty risk since no central authority is needed to remove bad actors. Currently the mechanism for Bitcoin is to prove you wasted it on worthless computers and electricity. Others are experimenting with other mechanisms such as removing money from the market for a time period and wasting the time value of that money in return for a dividend since it's more environmentally friendly.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by am » Mon Sep 11, 2017 8:47 am

https://www.leaprate.com/cryptocurrency ... exchanges/

Wonder how China closing local exchanges will be on the currency? Is this the nail in the coffin as other countries follow or simply a bump in the road?

CodeMaster
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Re: Bitcoin in 3-fund indexed portfolio?

Post by CodeMaster » Mon Sep 11, 2017 9:35 am

am wrote:
Mon Sep 11, 2017 8:47 am
https://www.leaprate.com/cryptocurrency ... exchanges/

Wonder how China closing local exchanges will be on the currency? Is this the nail in the coffin as other countries follow or simply a bump in the road?
This is more of a rumor / misinterpretation at the moment... China has released no official statement saying their doing that, only the news are reporting based on a misinterpreted vague report it seems. Also many believe its Chinas way to manipulate the prices and try to drive them down since this is 3 or 4th time China has done this, except this time the prices are resistant as the market doesnt buy it nor feel China is the center of the world.

Countries are not following suit, few days ago Russia just announce OFFICIALLY their acceptance of digital currency. With or without China, Bitcoins continue on it seems.

https://www.nytimes.com/reuters/2017/09 ... ml?mcubz=0

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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Mon Sep 11, 2017 10:33 am

Swelfie wrote:
Sun Sep 10, 2017 11:17 pm
kayanco wrote:
Sun Sep 10, 2017 9:19 pm
Very useful and well rounded reply. Thanks for doing so. I found your whole post to be very informative, and for completeness sake, due to your direct experience would like to ask a few follow ups:

1. What exchange do you use?
In my research I only found GDAX and Gemini that accept ACH.

2. What wallet(s) do you use?

3. You mentioned Ethereum, what's your take on Ethereum classic and Bitcoin cash?
The main exchanges (e.g. mentioned above) don't deal with these two. Could it be worth buying them since there aren't many places to trade them?

Thanks.
1. GDAX is good and insured. Only place I would leave any non trivial amount for any length of time. Bittrex for the other coins like Monero.

2. Ledger Nano S. If you are holding any more than a couple Grand a hardware wallet is a necessity. Losing coins to a virus or just plain losing your private key is a very real danger and there is absolutely no recourse. Never hold any real amount on something connected to the internet. Paper wallets with backups for things that Ledger doesn't support yet (Monero support is on its way but not there yet.)

3. I don't bother with Ethereum Classic. It's not bad persay, but the ecosystem is no where near as active as Ethereum and it has little to offer that Ethereum doesn't. Bitcoin Cash right now is a hedge. The Bitcoin chain split due to MASSIVE market manipulation by some very well funded entities on both sides of the coin (no pun intended). Unless you are "in the know" you have no idea what is true right now, and if you were in the know then you are fabulously wealthy. The largest companies in the world are playing very dirty pool right now. Phase 1 of the Bitcoin split happened in August. Phase 2 will happen in November. It is entirely possible that come November we may have 1, 2, or 3 Bitcoins. Bitcoin Cash could go to zero, or it could replace Bitcoin altogether. I would be wary investing in Bitcoin until this is hashed out end of year. Ethereum and Monero are much safer bets in the mean time. I hold equal amounts (in coin, not USD equal) of Bitcoin and Bitcoin Cash and will hold that through November and I can be reasonably confident that the war has shifted to a new phase and I'm not left holding only worthless assets. Bitcoin isn't going away anytime soon, but what people are calling Bitcoin may shift.

Edit: on that last point, Litecoin is also a decent hedge for Bitcoin's upcoming craziness for reasons that are far too complex for this post. You can research litecoin SegWit integration and atomic swaps for info and just the fact that it is one of the most venerable coins, almost as old as Bitcoin itself and is still a major player. I expect Litecoin value to correlate to the sum of Bitcoin and Bitcoin Cash value through November because of it's interoperability and the fact that so much of the market is also expecting that and invested accordingly. For this reason I see it as a reasonable surrogate for direct Bitcoin investment in the near future and much lower risk.

Thank you. Very useful.

I think one thing might need clarification, unless someone gets a false sense of security. Unless I'm mistaken I think only the USD wallet on GDAX/Coinbase is insured, and not the Bitcoins themselves?

About the hardware wallets, are these multi-signature? I don't find myself liking multi-signature even though it's supposed to be more secure, because it doesn't give you full control. How do you like blockchain.info and Electrum?
Can you recommend a desktop wallet for Ether, Litecoin, Bitcoin Cash?

CodeMaster
Posts: 653
Joined: Sun Mar 18, 2007 3:03 pm

Re: Bitcoin in 3-fund indexed portfolio?

Post by CodeMaster » Mon Sep 11, 2017 10:46 am

Swelfie wrote:
Sun Sep 10, 2017 11:17 pm
kayanco wrote:
Sun Sep 10, 2017 9:19 pm
Very useful and well rounded reply. Thanks for doing so. I found your whole post to be very informative, and for completeness sake, due to your direct experience would like to ask a few follow ups:

1. What exchange do you use?
In my research I only found GDAX and Gemini that accept ACH.

2. What wallet(s) do you use?

3. You mentioned Ethereum, what's your take on Ethereum classic and Bitcoin cash?
The main exchanges (e.g. mentioned above) don't deal with these two. Could it be worth buying them since there aren't many places to trade them?

Thanks.
1. GDAX is good and insured. Only place I would leave any non trivial amount for any length of time. Bittrex for the other coins like Monero.

2. Ledger Nano S. If you are holding any more than a couple Grand a hardware wallet is a necessity. Losing coins to a virus or just plain losing your private key is a very real danger and there is absolutely no recourse. Never hold any real amount on something connected to the internet. Paper wallets with backups for things that Ledger doesn't support yet (Monero support is on its way but not there yet.)

3. I don't bother with Ethereum Classic. It's not bad persay, but the ecosystem is no where near as active as Ethereum and it has little to offer that Ethereum doesn't. Bitcoin Cash right now is a hedge. The Bitcoin chain split due to MASSIVE market manipulation by some very well funded entities on both sides of the coin (no pun intended). Unless you are "in the know" you have no idea what is true right now, and if you were in the know then you are fabulously wealthy. The largest companies in the world are playing very dirty pool right now. Phase 1 of the Bitcoin split happened in August. Phase 2 will happen in November. It is entirely possible that come November we may have 1, 2, or 3 Bitcoins. Bitcoin Cash could go to zero, or it could replace Bitcoin altogether. I would be wary investing in Bitcoin until this is hashed out end of year. Ethereum and Monero are much safer bets in the mean time. I hold equal amounts (in coin, not USD equal) of Bitcoin and Bitcoin Cash and will hold that through November and I can be reasonably confident that the war has shifted to a new phase and I'm not left holding only worthless assets. Bitcoin isn't going away anytime soon, but what people are calling Bitcoin may shift.

Edit: on that last point, Litecoin is also a decent hedge for Bitcoin's upcoming craziness for reasons that are far too complex for this post. You can research litecoin SegWit integration and atomic swaps for info and just the fact that it is one of the most venerable coins, almost as old as Bitcoin itself and is still a major player. I expect Litecoin value to correlate to the sum of Bitcoin and Bitcoin Cash value through November because of it's interoperability and the fact that so much of the market is also expecting that and invested accordingly. For this reason I see it as a reasonable surrogate for direct Bitcoin investment in the near future and much lower risk.
Regarding the Ledger Nano S, so its like a USB drive that holds your coins right? What happens if you lose that tiny drive or if it malfunctions and dies? Do you bascially lose all your money either via loss or someone takes it and sends it to themselves?

User avatar
queso
Posts: 631
Joined: Thu Jan 07, 2016 3:52 pm

Re: Bitcoin in 3-fund indexed portfolio?

Post by queso » Mon Sep 11, 2017 10:50 am

CodeMaster wrote:
Mon Sep 11, 2017 10:46 am
Swelfie wrote:
Sun Sep 10, 2017 11:17 pm
kayanco wrote:
Sun Sep 10, 2017 9:19 pm
Very useful and well rounded reply. Thanks for doing so. I found your whole post to be very informative, and for completeness sake, due to your direct experience would like to ask a few follow ups:

1. What exchange do you use?
In my research I only found GDAX and Gemini that accept ACH.

2. What wallet(s) do you use?

3. You mentioned Ethereum, what's your take on Ethereum classic and Bitcoin cash?
The main exchanges (e.g. mentioned above) don't deal with these two. Could it be worth buying them since there aren't many places to trade them?

Thanks.
1. GDAX is good and insured. Only place I would leave any non trivial amount for any length of time. Bittrex for the other coins like Monero.

2. Ledger Nano S. If you are holding any more than a couple Grand a hardware wallet is a necessity. Losing coins to a virus or just plain losing your private key is a very real danger and there is absolutely no recourse. Never hold any real amount on something connected to the internet. Paper wallets with backups for things that Ledger doesn't support yet (Monero support is on its way but not there yet.)

3. I don't bother with Ethereum Classic. It's not bad persay, but the ecosystem is no where near as active as Ethereum and it has little to offer that Ethereum doesn't. Bitcoin Cash right now is a hedge. The Bitcoin chain split due to MASSIVE market manipulation by some very well funded entities on both sides of the coin (no pun intended). Unless you are "in the know" you have no idea what is true right now, and if you were in the know then you are fabulously wealthy. The largest companies in the world are playing very dirty pool right now. Phase 1 of the Bitcoin split happened in August. Phase 2 will happen in November. It is entirely possible that come November we may have 1, 2, or 3 Bitcoins. Bitcoin Cash could go to zero, or it could replace Bitcoin altogether. I would be wary investing in Bitcoin until this is hashed out end of year. Ethereum and Monero are much safer bets in the mean time. I hold equal amounts (in coin, not USD equal) of Bitcoin and Bitcoin Cash and will hold that through November and I can be reasonably confident that the war has shifted to a new phase and I'm not left holding only worthless assets. Bitcoin isn't going away anytime soon, but what people are calling Bitcoin may shift.

Edit: on that last point, Litecoin is also a decent hedge for Bitcoin's upcoming craziness for reasons that are far too complex for this post. You can research litecoin SegWit integration and atomic swaps for info and just the fact that it is one of the most venerable coins, almost as old as Bitcoin itself and is still a major player. I expect Litecoin value to correlate to the sum of Bitcoin and Bitcoin Cash value through November because of it's interoperability and the fact that so much of the market is also expecting that and invested accordingly. For this reason I see it as a reasonable surrogate for direct Bitcoin investment in the near future and much lower risk.
Regarding the Ledger Nano S, so its like a USB drive that holds your coins right? What happens if you lose that tiny drive or if it malfunctions and dies? Do you bascially lose all your money either via loss or someone takes it and sends it to themselves?
I can't speak to the ledger, but the Trezor uses a 24 word recovery seed so as long as you don't lose that or have it stolen (don't digitize it or store it with your Trezor!) you can recover from a stolen device. Even if the device was stolen the thief wouldn't know your passcode so he/she couldn't access your wallet even if they had physical possession of the device.

kayanco
Posts: 742
Joined: Sat Jun 07, 2014 12:20 am

Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Mon Sep 11, 2017 10:54 am

Uncle Pennybags wrote:
Mon Sep 11, 2017 6:52 am
Tanelorn wrote:
Mon Sep 11, 2017 6:42 am
More broadly, in a portfolio context, I think BitCoin should be viewed as either cash or gold.
"Coin" is not gold. I can't make gold with a video card and there are no coins.
Good point.

When I play the devil's advocate on Bitcoin, many things come up that make me hesitant.

One of those things is Nassim's Taleb's Lindy effect. For some stuff, the longer it's been around, the longer it's likely to be around. Gold's been arund and valued for centuries, it's more likely to be that way. Bitcoin is less than 10 years old, so it might not be around after another 10 years.

Another skeptical note that appears to me, at this point it's all the same corporate/silicon valley companies involved. They'll have the same mindset/philosophy and interests whether they work on Bitcoin or a regular credit card type application; some of them just happen to be involved with Bitcoin, not out of some deep belief in the original Bitcoin ideas/vision.

Also, I'm confused over the decentralized aspect. I've come across some seemingly well-rehearsed pitches that there's no central authority, but after reading the post by Swelfie and subsequent cursory search, it seems like even with Bitcoin there are central players with concentrated power (e.g. the miners with processing power, the investors with money) that make key decisions. And I'm sure those decisions would be based on self-interest and not to primarily enable one villager to easily send money to another villager for low fees.

CodeMaster
Posts: 653
Joined: Sun Mar 18, 2007 3:03 pm

Re: Bitcoin in 3-fund indexed portfolio?

Post by CodeMaster » Mon Sep 11, 2017 10:56 am

queso wrote:
Mon Sep 11, 2017 10:50 am
CodeMaster wrote:
Mon Sep 11, 2017 10:46 am
Swelfie wrote:
Sun Sep 10, 2017 11:17 pm
kayanco wrote:
Sun Sep 10, 2017 9:19 pm
Very useful and well rounded reply. Thanks for doing so. I found your whole post to be very informative, and for completeness sake, due to your direct experience would like to ask a few follow ups:

1. What exchange do you use?
In my research I only found GDAX and Gemini that accept ACH.

2. What wallet(s) do you use?

3. You mentioned Ethereum, what's your take on Ethereum classic and Bitcoin cash?
The main exchanges (e.g. mentioned above) don't deal with these two. Could it be worth buying them since there aren't many places to trade them?

Thanks.
1. GDAX is good and insured. Only place I would leave any non trivial amount for any length of time. Bittrex for the other coins like Monero.

2. Ledger Nano S. If you are holding any more than a couple Grand a hardware wallet is a necessity. Losing coins to a virus or just plain losing your private key is a very real danger and there is absolutely no recourse. Never hold any real amount on something connected to the internet. Paper wallets with backups for things that Ledger doesn't support yet (Monero support is on its way but not there yet.)

3. I don't bother with Ethereum Classic. It's not bad persay, but the ecosystem is no where near as active as Ethereum and it has little to offer that Ethereum doesn't. Bitcoin Cash right now is a hedge. The Bitcoin chain split due to MASSIVE market manipulation by some very well funded entities on both sides of the coin (no pun intended). Unless you are "in the know" you have no idea what is true right now, and if you were in the know then you are fabulously wealthy. The largest companies in the world are playing very dirty pool right now. Phase 1 of the Bitcoin split happened in August. Phase 2 will happen in November. It is entirely possible that come November we may have 1, 2, or 3 Bitcoins. Bitcoin Cash could go to zero, or it could replace Bitcoin altogether. I would be wary investing in Bitcoin until this is hashed out end of year. Ethereum and Monero are much safer bets in the mean time. I hold equal amounts (in coin, not USD equal) of Bitcoin and Bitcoin Cash and will hold that through November and I can be reasonably confident that the war has shifted to a new phase and I'm not left holding only worthless assets. Bitcoin isn't going away anytime soon, but what people are calling Bitcoin may shift.

Edit: on that last point, Litecoin is also a decent hedge for Bitcoin's upcoming craziness for reasons that are far too complex for this post. You can research litecoin SegWit integration and atomic swaps for info and just the fact that it is one of the most venerable coins, almost as old as Bitcoin itself and is still a major player. I expect Litecoin value to correlate to the sum of Bitcoin and Bitcoin Cash value through November because of it's interoperability and the fact that so much of the market is also expecting that and invested accordingly. For this reason I see it as a reasonable surrogate for direct Bitcoin investment in the near future and much lower risk.
Regarding the Ledger Nano S, so its like a USB drive that holds your coins right? What happens if you lose that tiny drive or if it malfunctions and dies? Do you bascially lose all your money either via loss or someone takes it and sends it to themselves?
I can't speak to the ledger, but the Trezor uses a 24 word recovery seed so as long as you don't lose that or have it stolen (don't digitize it or store it with your Trezor!) you can recover from a stolen device. Even if the device was stolen the thief wouldn't know your passcode so he/she couldn't access your wallet even if they had physical possession of the device.
I see... and what happens if Hurricane Irma ate it or if it just died after hundreds of years later of idle?

feh
Posts: 1279
Joined: Sat Dec 15, 2012 11:39 am

Re: Bitcoin in 3-fund indexed portfolio?

Post by feh » Mon Sep 11, 2017 11:02 am

kayanco wrote:
Sun Sep 10, 2017 9:19 pm

Very useful and well rounded reply. Thanks for doing so. I found your whole post to be very informative, and for completeness sake, due to your direct experience would like to ask a few follow ups:

1. What exchange do you use?
In my research I only found GDAX and Gemini that accept ACH.

2. What wallet(s) do you use?

3. You mentioned Ethereum, what's your take on Ethereum classic and Bitcoin cash?
The main exchanges (e.g. mentioned above) don't deal with these two. Could it be worth buying them since there aren't many places to trade them?

Thanks.
I'm not the poster that you responded to, but I will answer for myself:

A few months ago I decided to buy altcoins/cryptocurrency. The value is less than 1% of my portfolio. I consider this pure speculation. I used 75% of my funds to buy bitcoin and 25% to buy ethereum (mostly as a hedge).

1. I purchased both on GDAX.
2. bitcoin: Armory ethereum: myetherwallet

I don't trust any exchange to hold my coins. After purchase, I transfer them to my wallet(s).

Swelfie
Posts: 200
Joined: Mon Mar 14, 2016 12:54 am

Re: Bitcoin in 3-fund indexed portfolio?

Post by Swelfie » Mon Sep 11, 2017 11:05 am

kayanco wrote:
Mon Sep 11, 2017 10:33 am
Thank you. Very useful.

I think one thing might need clarification, unless someone gets a false sense of security. Unless I'm mistaken I think only the USD wallet on GDAX/Coinbase is insured, and not the Bitcoins themselves?

About the hardware wallets, are these multi-signature? I don't find myself liking multi-signature even though it's supposed to be more secure, because it doesn't give you full control. How do you like blockchain.info and Electrum?
Can you recommend a desktop wallet for Ether, Litecoin, Bitcoin Cash?
Not sure on the details of GDAX.

I own the Ledger, so I can't speak for the others. It is not multi-signature. The key it contains is all you need to do anything. The benefit is that it is a hardened system that can sign transactions itself and the signing key never enters the computer.

When you first turn it on it generates a random key or you can restore one. You need to write this down and guard it. It is 24 words. If anyone gets it, they have your money. If the ledger is broken or lost, you can restore a new one with these words (or use other software to restore if you wanted something different. It's a standard encoding. You then set a pin up to 8 digits on the device to lock it. 3 bad pin entries resets device to factory settings.

You connect device to computer through USB. An application on the computer sees your public key and balance. You can initiate a transaction but the application cannot send it by itself. The app prepared the transaction and hands it to the device. The device signs the transaction and hands it back. In this way the key is never typed so keyloggers cannot get it, and the key is never given to the computer where a virus or other malware might get it.

Additionally, the pin pad can be set to a random state with each pin entry so the movement of your hands is different every time and cannot be used to figure out pin and you can add a password (or many) that switches to a different wallet. No one can tell there are password wallets. This allows you to store large amounts in password wallet and smaller liquid amounts in main so that if under duress you are forced to unlock the device you can hand over what's on it while your secret wallets remain secure. It is easy to use and highly recommended for any real money.

I have never used desktop wallets except years ago in passing. I would discourage their use because if your machine is targeted by malware it's fairly easy to steal your keys. For phone I use Jaxx. It is easy to use with many coins, but I only would use it for spending cash. Again, you are a malware target. I have bought many a beer with it.

Other than that, use a paper wallet. Generate wallets with a fresh installed computer not connected to the internet and print them out with a printer that does not cache documents. Then transfer to that wallet using the address only. (Always transfer a small amount first to make sure there are no mistakes. Many a fortune has been lost to carelessness). Then put the wallet in a Ziploc bag and put it, or multiple copies of it safely away like in a safe deposit box. Keep the address so you can transfer more money in, but can't take it out without the paper.

There is a multisig model where you need n of m private keys to unlock it, so you could stash 3 keys and any 2 would unlock, so anyone uncovering one would not be able to get in and if you lose one you are still okay. They sound cool, but I've never done it except for playing around with the generator (neat idea... Encode a message and give to 5 friends, any 3 of which can collaborate to decide. Sounds like interesting party games possible.)

Basically, anything I can sign with my phone or computer or on an exchange I treat like my physical wallet: I can lose it or get it stolen and I'm out a few hundred bucks max (except maybe purchasing on exchange, but that is fleeting and I would stagger truly large sales or purchases). My paper wallet and Ledger are like my brokerage account. More secure actually because they aren't insured and there is no entity that will back me up in a breach. If that single number is known by anyone my money is as good as gone.

CodeMaster
Posts: 653
Joined: Sun Mar 18, 2007 3:03 pm

Re: Bitcoin in 3-fund indexed portfolio?

Post by CodeMaster » Mon Sep 11, 2017 11:12 am

Swelfie wrote:
Mon Sep 11, 2017 11:05 am
kayanco wrote:
Mon Sep 11, 2017 10:33 am
Thank you. Very useful.

I think one thing might need clarification, unless someone gets a false sense of security. Unless I'm mistaken I think only the USD wallet on GDAX/Coinbase is insured, and not the Bitcoins themselves?

About the hardware wallets, are these multi-signature? I don't find myself liking multi-signature even though it's supposed to be more secure, because it doesn't give you full control. How do you like blockchain.info and Electrum?
Can you recommend a desktop wallet for Ether, Litecoin, Bitcoin Cash?
Not sure on the details of GDAX.

I own the Ledger, so I can't speak for the others. It is not multi-signature. The key it contains is all you need to do anything. The benefit is that it is a hardened system that can sign transactions itself and the signing key never enters the computer.

When you first turn it on it generates a random key or you can restore one. You need to write this down and guard it. It is 24 words. If anyone gets it, they have your money. If the ledger is broken or lost, you can restore a new one with these words (or use other software to restore if you wanted something different. It's a standard encoding. You then set a pin up to 8 digits on the device to lock it. 3 bad pin entries resets device to factory settings.

You connect device to computer through USB. An application on the computer sees your public key and balance. You can initiate a transaction but the application cannot send it by itself. The app prepared the transaction and hands it to the device. The device signs the transaction and hands it back. In this way the key is never typed so keyloggers cannot get it, and the key is never given to the computer where a virus or other malware might get it.

Additionally, the pin pad can be set to a random state with each pin entry so the movement of your hands is different every time and cannot be used to figure out pin and you can add a password (or many) that switches to a different wallet. No one can tell there are password wallets. This allows you to store large amounts in password wallet and smaller liquid amounts in main so that if under duress you are forced to unlock the device you can hand over what's on it while your secret wallets remain secure. It is easy to use and highly recommended for any real money.

I have never used desktop wallets except years ago in passing. I would discourage their use because if your machine is targeted by malware it's fairly easy to steal your keys. For phone I use Jaxx. It is easy to use with many coins, but I only would use it for spending cash. Again, you are a malware target. I have bought many a beer with it.

Other than that, use a paper wallet. Generate wallets with a fresh installed computer not connected to the internet and print them out with a printer that does not cache documents. Then transfer to that wallet using the address only. (Always transfer a small amount first to make sure there are no mistakes. Many a fortune has been lost to carelessness). Then put the wallet in a Ziploc bag and put it, or multiple copies of it safely away like in a safe deposit box. Keep the address so you can transfer more money in, but can't take it out without the paper.

There is a multisig model where you need n of m private keys to unlock it, so you could stash 3 keys and any 2 would unlock, so anyone uncovering one would not be able to get in and if you lose one you are still okay. They sound cool, but I've never done it except for playing around with the generator (neat idea... Encode a message and give to 5 friends, any 3 of which can collaborate to decide. Sounds like interesting party games possible.)

Basically, anything I can sign with my phone or computer or on an exchange I treat like my physical wallet: I can lose it or get it stolen and I'm out a few hundred bucks max (except maybe purchasing on exchange, but that is fleeting and I would stagger truly large sales or purchases). My paper wallet and Ledger are like my brokerage account. More secure actually because they aren't insured and there is no entity that will back me up in a breach. If that single number is known by anyone my money is as good as gone.
Thanks, what do you think about usnig online wallets like Bittrex.com? Shouldnt they be secure enough to be ok with? I guess the main risk is someone breaches THEM and transfers out all the coins?

User avatar
stoub
Posts: 73
Joined: Thu Jan 27, 2011 6:58 pm

Re: Bitcoin in 3-fund indexed portfolio?

Post by stoub » Mon Sep 11, 2017 11:13 am

CodeMaster wrote:
Mon Sep 11, 2017 10:56 am
queso wrote:
Mon Sep 11, 2017 10:50 am
CodeMaster wrote:
Mon Sep 11, 2017 10:46 am
Regarding the Ledger Nano S, so its like a USB drive that holds your coins right? What happens if you lose that tiny drive or if it malfunctions and dies? Do you bascially lose all your money either via loss or someone takes it and sends it to themselves?
I can't speak to the ledger, but the Trezor uses a 24 word recovery seed so as long as you don't lose that or have it stolen (don't digitize it or store it with your Trezor!) you can recover from a stolen device. Even if the device was stolen the thief wouldn't know your passcode so he/she couldn't access your wallet even if they had physical possession of the device.
I see... and what happens if Hurricane Irma ate it or if it just died after hundreds of years later of idle?
You enter your 24 word recovery seed into any wallet that supports the relevant specifications for 24 word recovery seeds. See Ledger's documentation: On which wallet can I restore my wallet if I lose my Ledger device?

kayanco
Posts: 742
Joined: Sat Jun 07, 2014 12:20 am

Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Mon Sep 11, 2017 11:13 am

feh wrote:
Mon Sep 11, 2017 11:02 am
kayanco wrote:
Sun Sep 10, 2017 9:19 pm

Very useful and well rounded reply. Thanks for doing so. I found your whole post to be very informative, and for completeness sake, due to your direct experience would like to ask a few follow ups:

1. What exchange do you use?
In my research I only found GDAX and Gemini that accept ACH.

2. What wallet(s) do you use?

3. You mentioned Ethereum, what's your take on Ethereum classic and Bitcoin cash?
The main exchanges (e.g. mentioned above) don't deal with these two. Could it be worth buying them since there aren't many places to trade them?

Thanks.
I'm not the poster that you responded to, but I will answer for myself:

A few months ago I decided to buy altcoins/cryptocurrency. The value is less than 1% of my portfolio. I consider this pure speculation. I used 75% of my funds to buy bitcoin and 25% to buy ethereum (mostly as a hedge).

1. I purchased both on GDAX.
2. bitcoin: Armory ethereum: myetherwallet

I don't trust any exchange to hold my coins. After purchase, I transfer them to my wallet(s).
Thanks for replying. This sounds like a reasonable strategy. You seem to have done good home work :)

I guess with Armory you are downloading the whole blockchain. I was leaning towards Electrum, but of course if you have the disk space, Armory would be more secure.

Would be willing to state your reasons for not buying Bitcoin cash and Ether classic?

CodeMaster
Posts: 653
Joined: Sun Mar 18, 2007 3:03 pm

Re: Bitcoin in 3-fund indexed portfolio?

Post by CodeMaster » Mon Sep 11, 2017 11:14 am

stoub wrote:
Mon Sep 11, 2017 11:13 am
CodeMaster wrote:
Mon Sep 11, 2017 10:56 am
queso wrote:
Mon Sep 11, 2017 10:50 am
CodeMaster wrote:
Mon Sep 11, 2017 10:46 am
Regarding the Ledger Nano S, so its like a USB drive that holds your coins right? What happens if you lose that tiny drive or if it malfunctions and dies? Do you bascially lose all your money either via loss or someone takes it and sends it to themselves?
I can't speak to the ledger, but the Trezor uses a 24 word recovery seed so as long as you don't lose that or have it stolen (don't digitize it or store it with your Trezor!) you can recover from a stolen device. Even if the device was stolen the thief wouldn't know your passcode so he/she couldn't access your wallet even if they had physical possession of the device.
I see... and what happens if Hurricane Irma ate it or if it just died after hundreds of years later of idle?
You enter your 24 word recovery seed into any wallet that supports the relevant specifications for 24 word recovery seeds. See Ledger's documentation: On which wallet can I restore my wallet if I lose my Ledger device?
Cool... thanks

feh
Posts: 1279
Joined: Sat Dec 15, 2012 11:39 am

Re: Bitcoin in 3-fund indexed portfolio?

Post by feh » Mon Sep 11, 2017 11:21 am

kayanco wrote:
Mon Sep 11, 2017 11:13 am
Thanks for replying. This sounds like a reasonable strategy. You seem to have done good home work :)

I guess with Armory you are downloading the whole blockchain. I was leaning towards Electrum, but of course if you have the disk space, Armory would be more secure.
Yes, Armory seems to be one of the most secure wallets, but it does take time and resources (disk space) to set up. I had an old laptop laying around that I dedicated to this purpose.

Would be willing to state your reasons for not buying Bitcoin cash and Ether classic?
I purchased before bitcoin cash came into existence; it was born when the blockchain was forked on 8/1. Thus, I do own bitcoin cash, but I do not currently have a way to buy/sell it, as coinbase/gdax does not yet support it.

I did not buy ether classic for the reasons mentioned a few posts above.

CodeMaster
Posts: 653
Joined: Sun Mar 18, 2007 3:03 pm

Re: Bitcoin in 3-fund indexed portfolio?

Post by CodeMaster » Mon Sep 11, 2017 11:23 am

feh wrote:
Mon Sep 11, 2017 11:21 am
kayanco wrote:
Mon Sep 11, 2017 11:13 am
Thanks for replying. This sounds like a reasonable strategy. You seem to have done good home work :)

I guess with Armory you are downloading the whole blockchain. I was leaning towards Electrum, but of course if you have the disk space, Armory would be more secure.
Yes, Armory seems to be one of the most secure wallets, but it does take time and resources (disk space) to set up. I had an old laptop laying around that I dedicated to this purpose.

Would be willing to state your reasons for not buying Bitcoin cash and Ether classic?
I purchased before bitcoin cash came into existence; it was born when the blockchain was forked on 8/1. Thus, I do own bitcoin cash, but I do not currently have a way to buy/sell it, as coinbase/gdax does not yet support it.

I did not buy ether classic for the reasons mentioned a few posts above.
You can transfer it to bittrex.com and exchange it there.

Swelfie
Posts: 200
Joined: Mon Mar 14, 2016 12:54 am

Re: Bitcoin in 3-fund indexed portfolio?

Post by Swelfie » Mon Sep 11, 2017 11:33 am

kayanco wrote:
Mon Sep 11, 2017 10:54 am
Also, I'm confused over the decentralized aspect. I've come across some seemingly well-rehearsed pitches that there's no central authority, but after reading the post by Swelfie and subsequent cursory search, it seems like even with Bitcoin there are central players with concentrated power (e.g. the miners with processing power, the investors with money) that make key decisions. And I'm sure those decisions would be based on self-interest and not to primarily enable one villager to easily send money to another villager for low fees.
Decentralization works like this:

Every block is essentially a vote by the miners. They vote on what happened and even what the protocol is every block in hopes of winning the transactions in that block. If the majority of other voters disagree, then they don't keep those lottery winnings. So, simple case: you speak a protocol no one else does. Simple, your blocks are rejected and you never win. Game theory says you should always make the obvious vote and this is the most obvious. This is also how upgrades happen because everyone is very motivated to speak the language everyone else is.

More complex: you hear Bob give a merchant some money and then that same money to his brother. You know that both can't be true, so you might choose to not vote for either so if you win you won't get rejected for voting the wrong way.

More complex: same as above, but you only heard Bob give to his brother. You then see someone else win where Bob gave to merchant. You completely forget Bob's brother because that transaction would be rejected out of hand by others.

Most complex: you hear 2 people both in at the same time. One gave it to Bob's brother and one two the merchant. You pick one and start playing next round. Then another winner and it's Bob's brother's chain. Since the most wins have been off this chain, you abandon the merchant chain and vote with everyone else who you know will also switch because it is in their best interest to vote with everyone else. You never bet against the house and this simple statistical fact keeps everyone honest. Anyone betting against the house will go bankrupt.

So, it is distributed in that it is a democratic system where everyone is incentivized to vote the same way, whatever that way may be as long as it's the same, via game theory. In changes to things like protocol, miners are incentivized to agree on what the market would pay the most for the prizes they are winning. Some miners have more power than others, but this is fine as long as more than 50% don't conspire to defraud (in which case those conspirators BECOME the house) and is the famous 51% attack. Note though, that even were miners to conspire to become the house, they are still highly incentivized to maximize value; it just becomes more like a central bank in it being corruptable, but they aren't going to just shoot themselves in the foot.

The fear with extreme miner centralization is that a government might make them a target and choose, for instance, to not relay transactions of certain entities. A current concern in Bitcoin in particular is that too many miners are in China right now and might become targets.

Another, very real concern is that the miners do not run the code that the designers write for them, seeing an alternative protocol as bringing more value, which is what recently happened with Bitcoin and spawned Bitcoin Cash (some miners just started speaking a different protocol altogether). Whether this is a bug or a feature is up to which group you agree with. In that case though, owners now gave coins on both chains (ownership records basically cloned at that point and went two different directions) and the miners are still incentivized to maintain highest value. Those 2 groups just couldn't reach a consensus on which decision brought the most value.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by Swelfie » Mon Sep 11, 2017 11:36 am

CodeMaster wrote:
Mon Sep 11, 2017 11:12 am
Thanks, what do you think about usnig online wallets like Bittrex.com? Shouldnt they be secure enough to be ok with? I guess the main risk is someone breaches THEM and transfers out all the coins?
This is exactly the concern and has actually happened many times. This is what brought down My. Gox exchange and crashed the price of Bitcoin for years. Do not keep significant value on an exchange.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Mon Sep 11, 2017 11:48 am

Swelfie wrote:
Mon Sep 11, 2017 11:33 am
kayanco wrote:
Mon Sep 11, 2017 10:54 am
Also, I'm confused over the decentralized aspect. I've come across some seemingly well-rehearsed pitches that there's no central authority, but after reading the post by Swelfie and subsequent cursory search, it seems like even with Bitcoin there are central players with concentrated power (e.g. the miners with processing power, the investors with money) that make key decisions. And I'm sure those decisions would be based on self-interest and not to primarily enable one villager to easily send money to another villager for low fees.
Decentralization works like this:

Every block is essentially a vote by the miners. They vote on what happened and even what the protocol is every block in hopes of winning the transactions in that block. If the majority of other voters disagree, then they don't keep those lottery winnings. So, simple case: you speak a protocol no one else does. Simple, your blocks are rejected and you never win. Game theory says you should always make the obvious vote and this is the most obvious. This is also how upgrades happen because everyone is very motivated to speak the language everyone else is.

More complex: you hear Bob give a merchant some money and then that same money to his brother. You know that both can't be true, so you might choose to not vote for either so if you win you won't get rejected for voting the wrong way.

More complex: same as above, but you only heard Bob give to his brother. You then see someone else win where Bob gave to merchant. You completely forget Bob's brother because that transaction would be rejected out of hand by others.

Most complex: you hear 2 people both in at the same time. One gave it to Bob's brother and one two the merchant. You pick one and start playing next round. Then another winner and it's Bob's brother's chain. Since the most wins have been off this chain, you abandon the merchant chain and vote with everyone else who you know will also switch because it is in their best interest to vote with everyone else. You never bet against the house and this simple statistical fact keeps everyone honest. Anyone betting against the house will go bankrupt.

So, it is distributed in that it is a democratic system where everyone is incentivized to vote the same way, whatever that way may be as long as it's the same, via game theory. In changes to things like protocol, miners are incentivized to agree on what the market would pay the most for the prizes they are winning. Some miners have more power than others, but this is fine as long as more than 50% don't conspire to defraud (in which case those conspirators BECOME the house) and is the famous 51% attack. Note though, that even were miners to conspire to become the house, they are still highly incentivized to maximize value; it just becomes more like a central bank in it being corruptable, but they aren't going to just shoot themselves in the foot.

The fear with extreme miner centralization is that a government might make them a target and choose, for instance, to not relay transactions of certain entities. A current concern in Bitcoin in particular is that too many miners are in China right now and might become targets.

Another, very real concern is that the miners do not run the code that the designers write for them, seeing an alternative protocol as bringing more value, which is what recently happened with Bitcoin and spawned Bitcoin Cash (some miners just started speaking a different protocol altogether). Whether this is a bug or a feature is up to which group you agree with. In that case though, owners now gave coins on both chains (ownership records basically cloned at that point and went two different directions) and the miners are still incentivized to maintain highest value. Those 2 groups just couldn't reach a consensus on which decision brought the most value.
Well explained. Thanks for sharing your thoughts.

So from all this, can I also draw the conclusion that Bitcoin isn't really absolutely capped at 21 million. I know it's currently coded to mimic a finite resource like Gold, but it seems like there's some alchemy possible, unlike Gold.

Did you learn about the workings of Bitcoin from Andreas M. Antonopoulos? I'm considering his book 'The internet of Money' which I believe is a compendium of his lectures.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Mon Sep 11, 2017 11:52 am

Swelfie wrote:
Mon Sep 11, 2017 11:36 am
CodeMaster wrote:
Mon Sep 11, 2017 11:12 am
Thanks, what do you think about usnig online wallets like Bittrex.com? Shouldnt they be secure enough to be ok with? I guess the main risk is someone breaches THEM and transfers out all the coins?
This is exactly the concern and has actually happened many times. This is what brought down My. Gox exchange and crashed the price of Bitcoin for years. Do not keep significant value on an exchange.
This seems like an axiom to adhere to.

Also, I don't want to trust the "custodial" wallets. I listened to Wences Casares on Xapo on EconTalk, but wasn't impressed.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by Uncle Pennybags » Mon Sep 11, 2017 12:11 pm

CodeMaster wrote:
Mon Sep 11, 2017 10:46 am
Do you bascially lose all your money either via loss or someone takes it and sends it to themselves?
There are "someones" out there despite the popular belief.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by Uncle Pennybags » Mon Sep 11, 2017 12:27 pm

kayanco wrote:
Mon Sep 11, 2017 10:54 am
Gold's been arund and valued for centuries, it's more likely to be that way. Bitcoin is less than 10 years old, so it might not be around after another 10 years.
There is only one gold, there are many "coins". Why pick one "coin"? Especially the one that is all the talk. That is a sign of a top. Block-chain investing in not just Bitcoin. Picking the next hot "coin" before it gets hot is how to make money.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by Swelfie » Mon Sep 11, 2017 12:28 pm

kayanco wrote:
Mon Sep 11, 2017 11:48 am
Well explained. Thanks for sharing your thoughts.

So from all this, can I also draw the conclusion that Bitcoin isn't really absolutely capped at 21 million. I know it's currently coded to mimic a finite resource like Gold, but it seems like there's some alchemy possible, unlike Gold.

Did you learn about the workings of Bitcoin from Andreas M. Antonopoulos? I'm considering his book 'The internet of Money' which I believe is a compendium of his lectures.
Yes, the 21 million figure could be changed with consensus. It's unlikely to ever need to be though since we can just add more decimal places for finer granularity without disrupting supply rules. It's more conceivable if one of 2 ideas became popular: 1) the hypothesis that transaction fees provide enough incentives alone to attract enough miners to sufficiently secure the chain turns out to be false or 2) turns out inflation is fundamentally necessary and a deflationary coin is bad.

I haven't read Andreas book. I've heard if him (good and bad things, which is to be expected in the currently very polarized Bitcoin world). Personally, I originally learned about Bitcoin from Satoshi's white paper which is amazingly approachable to the layman and concise. I highly recommend it. It's a short read. From there a expanded my knowledge through many sources that I couldn't begin to enumerate. No single paper jumps to mind at the moment as a cornerstone outside if the aforementioned paper that started it all.

I would learn what makes Ethereum and Monero different from Bitcoin (arbitrary smart contracts and ring signatures respectively) since those are both pretty groundbreaking innovations to the original work. There are some other interesting innovations out there but they really haven't gained a lot of traction (bitUSD is an interesting one to me in particular that uses a futures-like transaction to peg a crypto asset's value to a real asset's value, creating a pegged derivative using only market forces and no enforcement. In theory this could be used to tokenize anything. This is really more of an economic innovation than a crypto currency one though, it just came out in regards to crypto since tokenization with no central authority is more of a problem there.)

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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Mon Sep 11, 2017 12:39 pm

Swelfie wrote:
Mon Sep 11, 2017 12:28 pm
kayanco wrote:
Mon Sep 11, 2017 11:48 am
Well explained. Thanks for sharing your thoughts.

So from all this, can I also draw the conclusion that Bitcoin isn't really absolutely capped at 21 million. I know it's currently coded to mimic a finite resource like Gold, but it seems like there's some alchemy possible, unlike Gold.

Did you learn about the workings of Bitcoin from Andreas M. Antonopoulos? I'm considering his book 'The internet of Money' which I believe is a compendium of his lectures.
Yes, the 21 million figure could be changed with consensus. It's unlikely to ever need to be though since we can just add more decimal places for finer granularity without disrupting supply rules. It's more conceivable if one of 2 ideas became popular: 1) the hypothesis that transaction fees provide enough incentives alone to attract enough miners to sufficiently secure the chain turns out to be false or 2) turns out inflation is fundamentally necessary and a deflationary coin is bad.

I haven't read Andreas book. I've heard if him (good and bad things, which is to be expected in the currently very polarized Bitcoin world). Personally, I originally learned about Bitcoin from Satoshi's white paper which is amazingly approachable to the layman and concise. I highly recommend it. It's a short read. From there a expanded my knowledge through many sources that I couldn't begin to enumerate. No single paper jumps to mind at the moment as a cornerstone outside if the aforementioned paper that started it all.

I would learn what makes Ethereum and Monero different from Bitcoin (arbitrary smart contracts and ring signatures respectively) since those are both pretty groundbreaking innovations to the original work. There are some other interesting innovations out there but they really haven't gained a lot of traction (bitUSD is an interesting one to me in particular that uses a futures-like transaction to peg a crypto asset's value to a real asset's value, creating a pegged derivative using only market forces and no enforcement. In theory this could be used to tokenize anything. This is really more of an economic innovation than a crypto currency one though, it just came out in regards to crypto since tokenization with no central authority is more of a problem there.)
Looks like there's a whole book which collects all his writings, The Book of Satoshi

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Re: Bitcoin in 3-fund indexed portfolio?

Post by Swelfie » Mon Sep 11, 2017 1:36 pm

kayanco wrote:
Mon Sep 11, 2017 12:39 pm
Looks like there's a whole book which collects all his writings, The Book of Satoshi
If they collect "all" his writings, I would imagine the vast majority of those are dev project emails. I can barely stand to read my own inbox of code reviews and arguments over what to name a variable. Ugh.

:beer

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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Mon Sep 11, 2017 3:09 pm

Swelfie wrote:
Mon Sep 11, 2017 1:36 pm
kayanco wrote:
Mon Sep 11, 2017 12:39 pm
Looks like there's a whole book which collects all his writings, The Book of Satoshi
If they collect "all" his writings, I would imagine the vast majority of those are dev project emails. I can barely stand to read my own inbox of code reviews and arguments over what to name a variable. Ugh.

:beer
This might be a rabbit hole, but do you know about reddit.com/r/btc/ vs /r/bitcoin? Which is more reliable?

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Re: Bitcoin in 3-fund indexed portfolio?

Post by Uncle Pennybags » Mon Sep 11, 2017 3:23 pm

kayanco wrote:
Mon Sep 11, 2017 3:09 pm
This might be a rabbit hole, but do you know about reddit.com/r/btc/ vs /r/bitcoin? Which is more reliable?
If you read it on the Wide World of the Web you know it's true.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by LadyGeek » Mon Sep 11, 2017 3:55 pm

Tanelorn wrote:
Mon Sep 11, 2017 6:42 am
...More broadly, in a portfolio context, I think BitCoin should be viewed as either cash or gold. I know someone who argues for keeping 10% of their "cash" allocation in crypto currencies for example, and rebalances as they appreciate. The earlier charts of real returns show gold having a very modest long term real return - that's about what you would expect/want for something as a store of value - it's not supposed to make a speculative return, although there is speculative volatility. Of course BC are early in their life and so valuations could be very different down the road (either way), but I think there's an argument for holding some if you want a store of value. Cash and other foreign currencies do have a place in a portoflio, and they are productive assets in that they earn interest generally. BC don't currently earn interest, although that might change if rates rise; most developed market currencies don't earn a positive real return on cash at current inflation rates either. BC are also not subject to the substantial amounts of money printing (quantitative easing) that regularly debase our largely virtual fiat currencies these days. Since real returns are what matter, the fixed and arguably deflationary (accounting for lost coins, etc) nature of BC may make it on par or slightly better as a long term cash like instrument....
Caution, Bitcoin should not be considered as cash. See the wiki: Bitcoin (Role in a portfolio)
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by Tanelorn » Mon Sep 11, 2017 4:24 pm

LadyGeek wrote:
Mon Sep 11, 2017 3:55 pm
Caution, Bitcoin should not be considered as cash. See the wiki: Bitcoin (Role in a portfolio)
Well, the Wiki is just quoting Peter Tchir's Forbes article and he doesn't justify much of what he says except to argue BCs are more volatile that many currencies. Sure he's entitled to his opinion, but I'm not sure why he should be afforded an authoritative position any more than any other "tune out the noise" financial author. I might listen to him talk about CDSs given his work experience, but I must be overlooking his BitCoin expertise. His part about BC prices not responding to news is clearly wrong.

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