Bitcoin in 3-fund indexed portfolio?

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kayanco
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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Mon Sep 11, 2017 4:40 pm

alex_686 wrote:
Fri Sep 08, 2017 4:39 pm
.. Are you familiar with the concepts "Purchasing Power Parity" and "No Arbitrage Pricing". These concepts should help.

My new favorite book is David Chambers and Elroy Dimson "Financial Market History: Reflections on the Past for Investors Today". They cover historical currency speculation. ..
How do you feel about these books (in terms of usefulness to a commoner), if you are familiar with them:

1. Stress Test: Reflections on Financial Crises
2. Business Adventures: Twelve Classic Tales from the World of Wall Street
3. Too Big to Fail (Andrew Ross Sorkin)
4. Black Edge: Inside Information, Dirty Money ..
5. All the Devils Are Here
6. After the Music Stopped: The Financial Crisis, the Response
7. The Wizard of Lies: Bernie Madoff and the Death of Trust
8. Fraud: An American History from Barnum to Madoff

Thank you.

alex_686
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Re: Bitcoin in 3-fund indexed portfolio?

Post by alex_686 » Mon Sep 11, 2017 4:57 pm

kayanco wrote:
Mon Sep 11, 2017 4:40 pm
How do you feel about these books (in terms of usefulness to a commoner), if you are familiar with them: ...
I have done some extensive reading but it does not look like our reading lists overlap so no comment there.

As a general observation it looks like all of these books deal with specific market issues. The most specific example is Madoff. Markets bread down all of the time but they rarely break down the same way twice. We learn our lesson, build contingency plans for that type of break, and figure out a whole new way to break. This can be useful information. I have been reading about this stuff since Ivan Boesky. But it is limited.

I don't see any books on Economic or Investment theory in your reading list. There are readable books here. You may want something there to broaden your horizon. I would like to drive this back to the OP, Bitcoin, and currency. For myself, Bitcoin seems to fall into "Tulip Mania". History is informative here.

Swelfie
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Re: Bitcoin in 3-fund indexed portfolio?

Post by Swelfie » Mon Sep 11, 2017 5:36 pm

kayanco wrote:
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?
It is very much a rabbit hole. The tensions in the Bitcoin community are at frenzied and rabid levels. On the whole, for those that don't know, /r/bitcoin tends to support Bitcoin (BTC) and /r/BTC tends to support Bitcoin Cash (BCH).

Personally, I think there is enough blatantly false information being flung around that you have no chance without being an expert yourself as to what is true of false in regards to Bitcoin. So far, it appears to be the only crypto market where this is the case, although Ethereum showed some pretty telling symptoms when their chain split and yielded Ethereum classic. The misinformation is heavy from both sides. There are active paid commenters on forums promoting pure propaganda and falsehoods. There are well funded and organized cyber-attacks on the Bitcoin network against miners and relayers of transactions (nodes) of a particular alignment. There is heavy censorship. Many individuals who were known experts have developed new, controversial "opinions" without any stated rigorous evidence or reason. It seems there are multiple very well funded entities manipulating the flow of information, the public opinion and the market. And this is coming from multiple directions, so it is likely multiple entities with conflicting agendas.

I would not trust ANYTHING you hear without solidly research and even then be very suspect because a lot of the academic looking "research" on the contentious topics is utter gibberish but looks very convincing to a non-expert. There is currently hundreds of Billions of dollars and potentially many Trillions of dollars at stake and big players seem to be trying to shape the developing market in their favor and have been for years.

Personally, I try to understand the primary arguments of both sides and watch the market for queues. This is partially because I don't just have my money in this space, I am also an engineer in the space, so I am interested not only in the value but the long term utility.

The one thing to look out for in the immediate future is that Bitcoin will be resolving a very severe battle in November. What comes out of that could be any number of things including plummeting to zero value extremely rapidly, or quadrupling in value again. Personally I won't hold it without holding Bitcoin Cash as a hedge (which might also plummet to zero rapidly in the battle). By end of year this immediate crisis should be over (but there is always a new crisis on the horizon in crypto-currency).

Now if you are asking where I stand on the issues, I will just say that purposefully making your technology as inefficient as possible is not generally a sound strategy unless you have bigger alternative income streams you are driving users to, you are embracing and extinguishing the technology because it competes with yours, or you have a monopoly position, and Bitcoin has lost its monopoly position. But I also don't think there is a "good guy" in this battle. It's all about the money.

kayanco
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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Mon Sep 11, 2017 6:32 pm

Swelfie wrote:
Mon Sep 11, 2017 5:36 pm
kayanco wrote:
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?
It is very much a rabbit hole. The tensions in the Bitcoin community are at frenzied and rabid levels. On the whole, for those that don't know, /r/bitcoin tends to support Bitcoin (BTC) and /r/BTC tends to support Bitcoin Cash (BCH).

Personally, I think there is enough blatantly false information being flung around that you have no chance without being an expert yourself as to what is true of false in regards to Bitcoin. So far, it appears to be the only crypto market where this is the case, although Ethereum showed some pretty telling symptoms when their chain split and yielded Ethereum classic. The misinformation is heavy from both sides. There are active paid commenters on forums promoting pure propaganda and falsehoods. There are well funded and organized cyber-attacks on the Bitcoin network against miners and relayers of transactions (nodes) of a particular alignment. There is heavy censorship. Many individuals who were known experts have developed new, controversial "opinions" without any stated rigorous evidence or reason. It seems there are multiple very well funded entities manipulating the flow of information, the public opinion and the market. And this is coming from multiple directions, so it is likely multiple entities with conflicting agendas.

I would not trust ANYTHING you hear without solidly research and even then be very suspect because a lot of the academic looking "research" on the contentious topics is utter gibberish but looks very convincing to a non-expert. There is currently hundreds of Billions of dollars and potentially many Trillions of dollars at stake and big players seem to be trying to shape the developing market in their favor and have been for years.

Personally, I try to understand the primary arguments of both sides and watch the market for queues. This is partially because I don't just have my money in this space, I am also an engineer in the space, so I am interested not only in the value but the long term utility.

The one thing to look out for in the immediate future is that Bitcoin will be resolving a very severe battle in November. What comes out of that could be any number of things including plummeting to zero value extremely rapidly, or quadrupling in value again. Personally I won't hold it without holding Bitcoin Cash as a hedge (which might also plummet to zero rapidly in the battle). By end of year this immediate crisis should be over (but there is always a new crisis on the horizon in crypto-currency).

Now if you are asking where I stand on the issues, I will just say that purposefully making your technology as inefficient as possible is not generally a sound strategy unless you have bigger alternative income streams you are driving users to, you are embracing and extinguishing the technology because it competes with yours, or you have a monopoly position, and Bitcoin has lost its monopoly position. But I also don't think there is a "good guy" in this battle. It's all about the money.
Thanks again for sharing your experience and feedback, much appreciated !!

Good reminders to overcome our natural gullibility and credulity.

Just today after coming across terms like segwit, hard fork, soft fork, segwit2x ... it seems like inside the speculation of Bitcoin, there are further speculations :p
Last edited by kayanco on Mon Sep 11, 2017 6:37 pm, edited 2 times in total.

kayanco
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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Mon Sep 11, 2017 6:32 pm

alex_686 wrote:
Mon Sep 11, 2017 4:57 pm
kayanco wrote:
Mon Sep 11, 2017 4:40 pm
How do you feel about these books (in terms of usefulness to a commoner), if you are familiar with them: ...
I have done some extensive reading but it does not look like our reading lists overlap so no comment there.

As a general observation it looks like all of these books deal with specific market issues. The most specific example is Madoff. Markets bread down all of the time but they rarely break down the same way twice. We learn our lesson, build contingency plans for that type of break, and figure out a whole new way to break. This can be useful information. I have been reading about this stuff since Ivan Boesky. But it is limited.

I don't see any books on Economic or Investment theory in your reading list. There are readable books here. You may want something there to broaden your horizon. I would like to drive this back to the OP, Bitcoin, and currency. For myself, Bitcoin seems to fall into "Tulip Mania". History is informative here.
Thank you Alex, I appreciate your feedback.

TomCat96
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Re: Bitcoin in 3-fund indexed portfolio?

Post by TomCat96 » Mon Sep 11, 2017 6:51 pm

kayanco wrote:
Thu Sep 07, 2017 12:36 pm
Hi all,

Over time I've come to respect and value your collective knowledge and willingness to discuss and help each other understand stuff.

Based on my poor (and likely flawed) understanding of the actual reasons behind the 3-fund portfolio or index investing in general, I want to discuss if Bitcoin can/should be included in a broad indexed portfolio.

Points of discussion:

1.

I believe one of the reasons for including bonds and international is that they are supposed to have low correlation with each other (at least in theory). I've read that Bitcoin has low correlation with stocks and bonds. So would this be a reason to include Bitcoin in a portfolio?

(To be clear, I'm not asserting that Bitcoin has a low correlation. It's just something I came across. My question in other words is, assuming that it has a low correlation, would it then be a good idea to include it?

2.

Another feature/benefit of a total market index that I've read about, is that is gives you some exposure to a future blockbuster company. Let's say there's a low priced company today that goes big in the future. Holding an index would ensure some share of that. And the reverse. If a single company goes bust, the loss would be limited.

So does this line of reasoning imply holding bitcoin? If it becomes even bigger (as speculated), holding some % of it in a portfolio would give some portion of that bounty. But if it turns out to be a digital Tulip, the loss wouldn't be catastrophic.

3.

Nassim Taleb's barbell concept.

Where I believe he recommends some 90% investment in sometime safe, and 10% risky.
Can Bitcoin/crypot-currency be in that 10%? That is, 90% of portfolio = 3-fund portfolio, and 10% = Crypto-currency (or any other risky combination, e.g. 5% Crypto, 5% Biotech, etc, etc.). Would this be an implementation of his barbell concept? If not, please explain why.

Please share your thoughts/critique.
My aim is not to say that this is a good idea. If it's a bad idea, I'd like to understand why.

Thanks.
In my opinion, using bitcoin in a 3-fund indexed portfolio is a terrible idea. First of all, there is absolutely no evidence to suggest that bitcoin is in fact uncorrelated or has a low correlation with stocks. To use it as the uncorrelated stock asset as in your portfolio is like building the foundation of your house on a bed of sticks you've never seen before.

The boglehead portfolio is not a get rich quick scheme. The assumptions we make and the principles we employ as the fundamental edifices of the paradigm must endure for decades. In the case of diversified stocks and bonds it just so happens we actually have decades of evidence.

For example, in order for the boglehead portfolio to function properly, a certain kind of relationship has to hold. One implicit assumption we bogleheads make is that bonds will not in the future all of a sudden become 100% correlated to stocks. Nobody talks about this possibility, but it is clear that in order for a 3 fund portfolio to act like a three fund portfolio, the three funds cannot act identically.

Bitcoin has two major factors which make it a poor choice. First of all, bitcoin does not produce anything of value. If you're using it as a growth asset in your portfolio, know that it's value is driven purely by what someone else will pay for it. Think about what that means. If you incorporate that into your portfolio, you're basing the long term value of portfolio rebalancing on people out-speculating each other.

Secondly, to the extent you're using bitcoin as an uncorrelated liquid asset, it is inferior to bonds and cash. Why?

The purpose of the bond portion of your portfolio is to produce something better than cash. Stocks drive the growth. Bonds are for the safety. The point of this is to rebalance the risky portion of your portfolio against something that is either uncorrelated, lower risk, or hopefully both. In other words, when you sell the stock portion of your allocation, you're not using those proceeds to buy pink sheets or tulip bulbs. That would undermine the purpose of the exercise. The growth of the three fund portfolio depends on the stability of what you're rebalancing into when you sell stocks, so that when you choose to rebalance back into your risky asset you can be assured your money will be there.

There's no point in rebalancing out of stocks into bonds, if when you sell your bonds to go back into your stocks, the bond portion has dropped 10%/20% etc. Bitcoin's volatility at this point far exceeds the stock market. That alone makes it completely unsuitable for the bond portion of your 3 fund portfolio.

A bad investment strategy doesn't necessarily mean one will lose money. I can let it all ride on black and still make a killing. I'm not saying bitcoin will lose money. What I am saying however is that none of bitcoin's characteristics thus far make it unsuitable for any portion of a three fund portfolio. At best it is a complete unknown. And at worse, empirical evidence suggests that it functions in a manner that completely contravenes sound investment principles for the long term.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by LadyGeek » Mon Sep 11, 2017 8:08 pm

Tanelorn wrote:
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.
Actually, I did not know the background of this author. Thank you, I have corrected the wiki and removed the article.

In its place, I cited swelfie's post and Jack Bogle to explain exactly how you should allocate bitcoins in your portfolio.

See: Bitcoin

I'll continue this discussion in the wiki thread: Wiki article - Bitcoin
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.

kayanco
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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Mon Sep 11, 2017 9:02 pm

TomCat96 wrote:
Mon Sep 11, 2017 6:51 pm
... In the case of diversified stocks and bonds it just so happens we actually have decades of evidence ...
Another useful post. TomCat96, I like your overall points. Can you clarify, decades of evidence of what?

kayanco
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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Mon Sep 11, 2017 9:03 pm

LadyGeek wrote:
Mon Sep 11, 2017 8:08 pm
.. I cited swelfie's post and Jack Bogle to explain exactly how you should allocate bitcoins in your portfolio ..
I couldn't find the Jack Bogle reference, can you please link me to it?

Thanks.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by LadyGeek » Mon Sep 11, 2017 9:33 pm

Sorry, the reference was buried a little too deeply. I have revised the footnote:
wiki wrote:1. John Bogle recommends setting aside 5% of a retirement portfolio as "play money", which is the most you can afford to lose and not jeopardize your retirement. See: Having a play money account, footnote.
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.

kayanco
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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Mon Sep 11, 2017 9:43 pm

LadyGeek wrote:
Mon Sep 11, 2017 9:33 pm
Sorry, the reference was buried a little too deeply. I have revised the footnote:
wiki wrote:1. John Bogle recommends setting aside 5% of a retirement portfolio as "play money", which is the most you can afford to lose and not jeopardize your retirement. See: Having a play money account, footnote.
Thank you.

I didn't know this. So John Bogle actually recommends setting aside some % as "play money".

To calculate this 5%, do you take 5% of your total retirement balance? e.g Take the 401k balance and designate 5% of it?

redstar
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Re: Bitcoin in 3-fund indexed portfolio?

Post by redstar » Mon Sep 11, 2017 9:47 pm

kayanco wrote:
Mon Sep 11, 2017 9:43 pm

To calculate this 5%, do you take 5% of your total retirement balance? e.g Take the 401k balance and designate 5% of it?
I took 5% of all of my investments (taxable and tax-advantaged) and use that as play money. It really does help with mental accounting, as I don't tinker with the rest of my portfolio as much. I am interested in cryptocurrencies, so some of this money is my own "crypto-index", which contains the top 20 cryptocurrencies weighted by market cap (limited to max 10% of total). Plus, crypto has been so volatile that a little goes a long way in terms of returns (and risk), so it definitely shouldn't be a large role in your portfolio.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Mon Sep 11, 2017 9:59 pm

redstar wrote:
Mon Sep 11, 2017 9:47 pm
kayanco wrote:
Mon Sep 11, 2017 9:43 pm

To calculate this 5%, do you take 5% of your total retirement balance? e.g Take the 401k balance and designate 5% of it?
I took 5% of all of my investments (taxable and tax-advantaged) and use that as play money. It really does help with mental accounting, as I don't tinker with the rest of my portfolio as much. I am interested in cryptocurrencies, so some of this money is my own "crypto-index", which contains the top 20 cryptocurrencies weighted by market cap (limited to max 10% of total). Plus, crypto has been so volatile that a little goes a long way in terms of returns (and risk), so it definitely shouldn't be a large role in your portfolio.
Thanks for posting.

So I'm guessing you are holding these 20 coins on an exchange?
From what I've read, that might be risky.

redstar
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Re: Bitcoin in 3-fund indexed portfolio?

Post by redstar » Mon Sep 11, 2017 10:10 pm

kayanco wrote:
Mon Sep 11, 2017 9:59 pm
Thanks for posting.

So I'm guessing you are holding these 20 coins on an exchange?
From what I've read, that might be risky.
Yeah, it can be. I thankfully haven't lost anything in the big exchange thefts, etc, but I could have. Now, I try to only hold the small ones on several different exchanges, and I move the large-cap ones to a hardware wallet. If you do this though, consider risk of loss (such as a house fire), and keep paper backups in a safety deposit box at your bank.

If you do want to only buy Bitcoin, Ethereum, and Litecoin and keep them on exchanges, Coinbase/GDAX seem a little bit less risky based on their overall security and insurance practices. Their USD accounts are FDIC insured, and the cryptocurrency is apparently insured against a massive exchange hack (but not if someone just gets into your account).

kayanco
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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Mon Sep 11, 2017 10:23 pm

redstar wrote:
Mon Sep 11, 2017 10:10 pm
kayanco wrote:
Mon Sep 11, 2017 9:59 pm
Thanks for posting.

So I'm guessing you are holding these 20 coins on an exchange?
From what I've read, that might be risky.
Yeah, it can be. I thankfully haven't lost anything in the big exchange thefts, etc, but I could have. Now, I try to only hold the small ones on several different exchanges, and I move the large-cap ones to a hardware wallet. If you do this though, consider risk of loss (such as a house fire), and keep paper backups in a safety deposit box at your bank.

If you do want to only buy Bitcoin, Ethereum, and Litecoin and keep them on exchanges, Coinbase/GDAX seem a little bit less risky based on their overall security and insurance practices. Their USD accounts are FDIC insured, and the cryptocurrency is apparently insured against a massive exchange hack (but not if someone just gets into your account).
This sounds like a reasonable plan.

Nonetheless, the price of Bitcoin itself seems prohibitive now ...

redstar
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Re: Bitcoin in 3-fund indexed portfolio?

Post by redstar » Mon Sep 11, 2017 10:29 pm

kayanco wrote:
Mon Sep 11, 2017 10:23 pm

Nonetheless, the price of Bitcoin itself seems prohibitive now ...
Just in case you aren't aware, you can buy fractional bitcoins. If you are just talking about the relative price being high, knowing bitcoin, it will probably crash again :wink:

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

Post by Jeff Albertson » Mon Sep 11, 2017 10:42 pm

Wonder why so many who are now "studying" cryptocurrencies fail to recognize the time-tested investment in beanie babies?
http://www.slate.com/articles/health_an ... tment.html
https://secure.marketwatch.com/story/wh ... 2017-09-05

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Re: Bitcoin in 3-fund indexed portfolio?

Post by Swelfie » Tue Sep 12, 2017 12:09 am

redstar wrote:
Mon Sep 11, 2017 10:10 pm
kayanco wrote:
Mon Sep 11, 2017 9:59 pm
Thanks for posting.

So I'm guessing you are holding these 20 coins on an exchange?
From what I've read, that might be risky.
Yeah, it can be. I thankfully haven't lost anything in the big exchange thefts, etc, but I could have. Now, I try to only hold the small ones on several different exchanges, and I move the large-cap ones to a hardware wallet. If you do this though, consider risk of loss (such as a house fire), and keep paper backups in a safety deposit box at your bank.

If you do want to only buy Bitcoin, Ethereum, and Litecoin and keep them on exchanges, Coinbase/GDAX seem a little bit less risky based on their overall security and insurance practices. Their USD accounts are FDIC insured, and the cryptocurrency is apparently insured against a massive exchange hack (but not if someone just gets into your account).
I can't recommend a hardware wallet enough. Id say if you have more than $2k in crypto currency, the $100 expense is more than worth it. Ledger or Trezor are both good (ledger is what I have and I will vouch for it's awesomeness). You have to read the volumes of stories of fortunes that have been lost o minor malware or exchange collapse or honestly, THINKING THE PASSWORD WAS IN YOUR SOCK DRAWER AND ITS NOT THERE NOW but you can see your millions right there online, tucked safely away from everyone, INCLUDING YOU!

Seriously, there is no passed recovery question in crypto. If you lose it it's gone for good. If someone sees they key, it's gone for good. Just buy a hardware wallet. It's the price of a decent date and you will sleep better. Don't keep it on on any exchange unless you are okay leaving it on the subway (my beer money is like that, my rent money is not.)

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Re: Bitcoin in 3-fund indexed portfolio?

Post by Uncle Pennybags » Tue Sep 12, 2017 7:03 am

Swelfie wrote:
Tue Sep 12, 2017 12:09 am
Don't keep it on on any exchange unless you are okay leaving it on the subway (my beer money is like that, my rent money is not.)
"Coin" money better be beer money and not rent money. :beer

kayanco
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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Tue Sep 12, 2017 9:10 am

Swelfie wrote:
Tue Sep 12, 2017 12:09 am
redstar wrote:
Mon Sep 11, 2017 10:10 pm
kayanco wrote:
Mon Sep 11, 2017 9:59 pm
Thanks for posting.

So I'm guessing you are holding these 20 coins on an exchange?
From what I've read, that might be risky.
Yeah, it can be. I thankfully haven't lost anything in the big exchange thefts, etc, but I could have. Now, I try to only hold the small ones on several different exchanges, and I move the large-cap ones to a hardware wallet. If you do this though, consider risk of loss (such as a house fire), and keep paper backups in a safety deposit box at your bank.

If you do want to only buy Bitcoin, Ethereum, and Litecoin and keep them on exchanges, Coinbase/GDAX seem a little bit less risky based on their overall security and insurance practices. Their USD accounts are FDIC insured, and the cryptocurrency is apparently insured against a massive exchange hack (but not if someone just gets into your account).
I can't recommend a hardware wallet enough. Id say if you have more than $2k in crypto currency, the $100 expense is more than worth it. Ledger or Trezor are both good (ledger is what I have and I will vouch for it's awesomeness). You have to read the volumes of stories of fortunes that have been lost o minor malware or exchange collapse or honestly, THINKING THE PASSWORD WAS IN YOUR SOCK DRAWER AND ITS NOT THERE NOW but you can see your millions right there online, tucked safely away from everyone, INCLUDING YOU!

Seriously, there is no passed recovery question in crypto. If you lose it it's gone for good. If someone sees they key, it's gone for good. Just buy a hardware wallet. It's the price of a decent date and you will sleep better. Don't keep it on on any exchange unless you are okay leaving it on the subway (my beer money is like that, my rent money is not.)
Based on your experience with cryptography, let me ask:
When the initial 24 word passphrase (wallet recovery phrase) is generated, is there a way to encrypt it (e.g. using a password from memory) to generate another 24 word phrase?
i.e.:
24 words -> encrypt -> 24 words*
24 words* -> decrypt -> 24 words (in same original order)

Use case:
If someone finds it on a computer and tries to use it as a recovery phrase, it won't work.

Thanks.

kayanco
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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Tue Sep 12, 2017 9:15 am

Jeff Albertson wrote:
Mon Sep 11, 2017 10:42 pm
Wonder why so many who are now "studying" cryptocurrencies fail to recognize the time-tested investment in beanie babies?
http://www.slate.com/articles/health_an ... tment.html
https://secure.marketwatch.com/story/wh ... 2017-09-05

I have a thread on bubble returns:
viewtopic.php?f=10&t=227349

For the beanie babies bubble, can you please post the maximum return on a $100?

Thanks.

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

Post by Uncle Pennybags » Tue Sep 12, 2017 11:14 am

The more I read about "coin" the more I realize I will never truly understand them. Never invest in something one does not understand.
kayanco wrote:
Tue Sep 12, 2017 9:15 am
For the beanie babies bubble, can you please post the maximum return on a $100?
It depends on what one can get someone to pay for them.
http://www.ebay.com/itm/like/1526762549 ... dispItem=1

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

Post by Jeff Albertson » Tue Sep 12, 2017 11:34 am

kayanco wrote:
Tue Sep 12, 2017 9:15 am
For the beanie babies bubble, can you please post the maximum return on a $100?

Thanks.
Sorry, no idea, not a performance chaser.

The Economist's Buttonwood new column is on ICOs.
https://www.economist.com/news/business ... s-investor
HERE is the deal. You can buy an entry in a computer ledger issued by a startup company on the basis of an unregulated prospectus. It is called an “initial coin offering” or ICO. But though the ledger entry is called a coin, you cannot spend it in any shop. And whereas the use of the term ICO makes it sound like an IPO (initial public offering), the process whereby a firm lists on a stockmarket, coin ownership does not necessarily get you equity in the company concerned.

This sounds like the kind of bargain that would appeal only to people who reply to e-mails from Nigerian princes offering to transfer millions to their accounts. But ICOs may well be the most popular investment craze since the dotcom boom of 1999-2000; even Paris Hilton, a celebrity heiress, has jumped on the bandwagon.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by alex_686 » Tue Sep 12, 2017 1:11 pm

kayanco wrote:
Mon Sep 11, 2017 6:32 pm
Thank you Alex, I appreciate your feedback.
Let me throw out 3 suggestions.

Money: The Unauthorized Biography--From Coinage to Cryptocurrencies by Felix Martin. Cryptocurrencies is a bit of an overstatement. But it is a good laymen's read on currencies.

A Monetary History of the United States, 1867–1960 by Milton Friedman and Anna J. Schwartz. It is a bit academic and a thick book but a good read.

Against the Gods: The Remarkable Story of Risk by Peter L. Bernstein. More on risk management than currencies, but it may offer insight when dealing with the uncertainties of Bitcoin.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by Valuethinker » Tue Sep 12, 2017 1:25 pm

Jeff Albertson wrote:
Tue Sep 12, 2017 11:34 am
kayanco wrote:
Tue Sep 12, 2017 9:15 am
For the beanie babies bubble, can you please post the maximum return on a $100?

Thanks.
Sorry, no idea, not a performance chaser.

The Economist's Buttonwood new column is on ICOs.
https://www.economist.com/news/business ... s-investor
HERE is the deal. You can buy an entry in a computer ledger issued by a startup company on the basis of an unregulated prospectus. It is called an “initial coin offering” or ICO. But though the ledger entry is called a coin, you cannot spend it in any shop. And whereas the use of the term ICO makes it sound like an IPO (initial public offering), the process whereby a firm lists on a stockmarket, coin ownership does not necessarily get you equity in the company concerned.

This sounds like the kind of bargain that would appeal only to people who reply to e-mails from Nigerian princes offering to transfer millions to their accounts. But ICOs may well be the most popular investment craze since the dotcom boom of 1999-2000; even Paris Hilton, a celebrity heiress, has jumped on the bandwagon.
OMG Paris Hilton!

I am totally, totally, behind Paris as an investor.
Why didn't you tell me this?

Guys, if Paris is in then we should all be in. Like this is soooo big. This is like Taylor Swift getting back with Tom Hiddleston. And Hiddleston being the next James Bond.

Paris ICO is like, like Hiddleswift on drugs, majorly.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by Valuethinker » Tue Sep 12, 2017 1:27 pm

Jeff Albertson wrote:
Mon Sep 11, 2017 10:42 pm
Wonder why so many who are now "studying" cryptocurrencies fail to recognize the time-tested investment in beanie babies?
http://www.slate.com/articles/health_an ... tment.html
https://secure.marketwatch.com/story/wh ... 2017-09-05
Beanie Babies were a fad, an artefact of the Boomer classes.

Crypto currencies, on the other hand, are a thing. Majorly. Bigly even.

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

Post by Uncle Pennybags » Tue Sep 12, 2017 1:59 pm

Valuethinker wrote:
Tue Sep 12, 2017 1:25 pm
OMG Paris Hilton!
I should have seen this coming, I'm three months late and a "coin" short. If I had "coin" I would sell NOW.
Valuethinker wrote:
Tue Sep 12, 2017 1:27 pm
Beanie Babies were a fad, an artefact of the Boomer classes.
Crypto currencies, on the other hand, are a thing. Majorly. Bigly even.
Think of "coin" being stuffed toys. Stuffed toys will be around for a long time. Think of Bitcoin being the Beanie Baby of "coin".

I just checked and Bitcoin is down 18% in 10 days.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by redstar » Tue Sep 12, 2017 3:56 pm

kayanco wrote:
Tue Sep 12, 2017 9:10 am
Based on your experience with cryptography, let me ask:
When the initial 24 word passphrase (wallet recovery phrase) is generated, is there a way to encrypt it (e.g. using a password from memory) to generate another 24 word phrase?
i.e.:
24 words -> encrypt -> 24 words*
24 words* -> decrypt -> 24 words (in same original order)

Use case:
If someone finds it on a computer and tries to use it as a recovery phrase, it won't work.

Thanks.
This is theoretically possible, but I don't know any tool that will make it easy. I would suggest either 1) never put these 24 words into a computer. Keep them on paper someplace safe (like a bank safety deposit box), or 2) use a "brainwallet" instead. Just don't forget exactly what you typed, or you lose it all. This also isn't as easy to use as a hardware wallet when you want to send coins.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Tue Sep 12, 2017 5:05 pm

Valuethinker wrote:
Tue Sep 12, 2017 1:25 pm
Jeff Albertson wrote:
Tue Sep 12, 2017 11:34 am
kayanco wrote:
Tue Sep 12, 2017 9:15 am
For the beanie babies bubble, can you please post the maximum return on a $100?

Thanks.
Sorry, no idea, not a performance chaser.

The Economist's Buttonwood new column is on ICOs.
https://www.economist.com/news/business ... s-investor
HERE is the deal. You can buy an entry in a computer ledger issued by a startup company on the basis of an unregulated prospectus. It is called an “initial coin offering” or ICO. But though the ledger entry is called a coin, you cannot spend it in any shop. And whereas the use of the term ICO makes it sound like an IPO (initial public offering), the process whereby a firm lists on a stockmarket, coin ownership does not necessarily get you equity in the company concerned.

This sounds like the kind of bargain that would appeal only to people who reply to e-mails from Nigerian princes offering to transfer millions to their accounts. But ICOs may well be the most popular investment craze since the dotcom boom of 1999-2000; even Paris Hilton, a celebrity heiress, has jumped on the bandwagon.
OMG Paris Hilton!

I am totally, totally, behind Paris as an investor.
Why didn't you tell me this?

Guys, if Paris is in then we should all be in. Like this is soooo big. This is like Taylor Swift getting back with Tom Hiddleston. And Hiddleston being the next James Bond.

Paris ICO is like, like Hiddleswift on drugs, majorly.
haha ... I enjoyed this post :p

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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Tue Sep 12, 2017 5:07 pm

redstar wrote:
Tue Sep 12, 2017 3:56 pm
kayanco wrote:
Tue Sep 12, 2017 9:10 am
Based on your experience with cryptography, let me ask:
When the initial 24 word passphrase (wallet recovery phrase) is generated, is there a way to encrypt it (e.g. using a password from memory) to generate another 24 word phrase?
i.e.:
24 words -> encrypt -> 24 words*
24 words* -> decrypt -> 24 words (in same original order)

Use case:
If someone finds it on a computer and tries to use it as a recovery phrase, it won't work.

Thanks.
This is theoretically possible, but I don't know any tool that will make it easy. I would suggest either 1) never put these 24 words into a computer. Keep them on paper someplace safe (like a bank safety deposit box), or 2) use a "brainwallet" instead. Just don't forget exactly what you typed, or you lose it all. This also isn't as easy to use as a hardware wallet when you want to send coins.
Those are good suggestions. Thanks.

I have to say, you seem like a good person. Thanks for the replies.

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tadamsmar
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Re: Bitcoin in 3-fund indexed portfolio?

Post by tadamsmar » Tue Sep 12, 2017 5:18 pm

There is some question as to whether the feds are really treating bitcoin as a commodity.

https://klasing-associates.com/virtual- ... -position/

Indicates it's not clear if you can use a 1031 exchange if you trade between cryptocurrencies.

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

Post by Uncle Pennybags » Tue Sep 12, 2017 5:45 pm

Paris Hilton is doing it right. She is starting a "coin" pump & dump. Git it before "that's hot".
https://lydian.io/

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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Tue Sep 12, 2017 5:48 pm

Uncle Pennybags wrote:
Tue Sep 12, 2017 11:14 am
... Never invest in something one does not understand ...
I want to offer a friendly and respectful follow up. This seems like a useful heuristic and I like it. But when I think about it, it doesn't seem very applicable.

First, who will decide whether I understand or not. Is it I, myself? Invoking Dunning–Kruger, my claiming that I understand something isn't very accurate.

Second, what criterion is to be used to decide whether I understand something?

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Re: Bitcoin in 3-fund indexed portfolio?

Post by Uncle Pennybags » Tue Sep 12, 2017 6:07 pm

MotoTrojan wrote:
Sun Sep 10, 2017 3:39 pm
$100 at the low of Bitcoin (2010 timeframe I believe)
The ICO was 6 cents.
kayanco wrote:
Tue Sep 12, 2017 5:48 pm
Second, what criterion is to be used to decide whether I understand something?
That's a tough one because many people over estimate what they know.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by PFInterest » Tue Sep 12, 2017 6:21 pm

its a scam!

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Re: Bitcoin in 3-fund indexed portfolio?

Post by LadyGeek » Tue Sep 12, 2017 7:53 pm

redstar wrote:
Mon Sep 11, 2017 9:47 pm
kayanco wrote:
Mon Sep 11, 2017 9:43 pm

To calculate this 5%, do you take 5% of your total retirement balance? e.g Take the 401k balance and designate 5% of it?
I took 5% of all of my investments (taxable and tax-advantaged) and use that as play money. It really does help with mental accounting, as I don't tinker with the rest of my portfolio as much. I am interested in cryptocurrencies, so some of this money is my own "crypto-index", which contains the top 20 cryptocurrencies weighted by market cap (limited to max 10% of total). Plus, crypto has been so volatile that a little goes a long way in terms of returns (and risk), so it definitely shouldn't be a large role in your portfolio.
I found John Bogle's exact wording on the 5% and have revised the wiki. See: Bitcoin (Role in a portfolio, footnote)

(I have a copy of the book I cited.)
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 » Tue Sep 12, 2017 8:52 pm

LadyGeek wrote:
Tue Sep 12, 2017 7:53 pm
redstar wrote:
Mon Sep 11, 2017 9:47 pm
kayanco wrote:
Mon Sep 11, 2017 9:43 pm

To calculate this 5%, do you take 5% of your total retirement balance? e.g Take the 401k balance and designate 5% of it?
I took 5% of all of my investments (taxable and tax-advantaged) and use that as play money. It really does help with mental accounting, as I don't tinker with the rest of my portfolio as much. I am interested in cryptocurrencies, so some of this money is my own "crypto-index", which contains the top 20 cryptocurrencies weighted by market cap (limited to max 10% of total). Plus, crypto has been so volatile that a little goes a long way in terms of returns (and risk), so it definitely shouldn't be a large role in your portfolio.
I found John Bogle's exact wording on the 5% and have revised the wiki. See: Bitcoin (Role in a portfolio, footnote)

(I have a copy of the book I cited.)
Good work. Thanks for the update.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by Uncle Pennybags » Tue Sep 12, 2017 8:52 pm

kayanco wrote:
Mon Sep 11, 2017 9:43 pm
I didn't know this. So John Bogle actually recommends setting aside some % as "play money".
Once that 5% mad money is lost one can only use 5% of new contributions.
If one must invest don't invest in just Bitcoin, make your own "coin" index fund. Block chain will survive but a "coin" type may not.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by Billionaire » Wed Sep 13, 2017 6:58 am

I put bitcoins in the same category as internet gambling.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Wed Sep 13, 2017 7:24 am

Uncle Pennybags wrote:
Tue Sep 12, 2017 8:52 pm
kayanco wrote:
Mon Sep 11, 2017 9:43 pm
I didn't know this. So John Bogle actually recommends setting aside some % as "play money".
Once that 5% mad money is lost one can only use 5% of new contributions.
Good clarification. 5% of new contributions, and not 5% of remaining balance till it goes to 0, lol :p

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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Wed Sep 13, 2017 7:38 am

Swelfie wrote:
Mon Sep 11, 2017 5:36 pm
redstar wrote:
Tue Sep 12, 2017 3:56 pm
Price is below $4000 currently ... Any thoughts on when might be a good buying opportunity?


Thanks.

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

Post by Uncle Pennybags » Wed Sep 13, 2017 7:54 am

kayanco wrote:
Wed Sep 13, 2017 7:38 am
Swelfie wrote:
Mon Sep 11, 2017 5:36 pm
redstar wrote:
Tue Sep 12, 2017 3:56 pm
Price is below $4000 currently ... Any thoughts on when might be a good buying opportunity?
2010 when it was six cents. Now is the time to sell.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Wed Sep 13, 2017 8:17 am

Uncle Pennybags wrote:
Wed Sep 13, 2017 7:54 am
kayanco wrote:
Wed Sep 13, 2017 7:38 am
Swelfie wrote:
Mon Sep 11, 2017 5:36 pm
redstar wrote:
Tue Sep 12, 2017 3:56 pm
Price is below $4000 currently ... Any thoughts on when might be a good buying opportunity?
2010 when it was six cents. Now is the time to sell.
That very well might be the case.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by redstar » Wed Sep 13, 2017 9:00 am

kayanco wrote:
Wed Sep 13, 2017 7:38 am
Swelfie wrote:
Mon Sep 11, 2017 5:36 pm
redstar wrote:
Tue Sep 12, 2017 3:56 pm
Price is below $4000 currently ... Any thoughts on when might be a good buying opportunity?


Thanks.
Sorry, I don't have any investment advice. I sold a a bunch of bitcoin at $18, so I learned my lesson about trying to time the market.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Wed Sep 13, 2017 9:38 am

redstar wrote:
Wed Sep 13, 2017 9:00 am
kayanco wrote:
Wed Sep 13, 2017 7:38 am
Swelfie wrote:
Mon Sep 11, 2017 5:36 pm
redstar wrote:
Tue Sep 12, 2017 3:56 pm
Price is below $4000 currently ... Any thoughts on when might be a good buying opportunity?


Thanks.
Sorry, I don't have any investment advice. I sold a a bunch of bitcoin at $18, so I learned my lesson about trying to time the market.
Right, I guess that was a naive question. Maybe a human tendency to seek answers even when they are not knowable.

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Re: Bitcoin in 3-fund indexed portfolio?

Post by Uncle Pennybags » Wed Sep 13, 2017 10:06 am

At this time Bitcoin is trading at $3,744, which amounts to a 26% drop from the record high of $5,020 hit on September 2.
Look for a dead cat bounce at $3,000

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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Wed Sep 13, 2017 10:13 am

Uncle Pennybags wrote:
Wed Sep 13, 2017 10:06 am
Look for a dead cat bounce at $3,000
Can you explain this please, I'm not familiar with this reference.

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

Post by Uncle Pennybags » Wed Sep 13, 2017 10:22 am

kayanco wrote:
Wed Sep 13, 2017 10:13 am
Uncle Pennybags wrote:
Wed Sep 13, 2017 10:06 am
Look for a dead cat bounce at $3,000
Can you explain this please, I'm not familiar with this reference.
Let me search that for you.

kayanco
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Re: Bitcoin in 3-fund indexed portfolio?

Post by kayanco » Wed Sep 13, 2017 11:22 am

Uncle Pennybags wrote:
Wed Sep 13, 2017 10:22 am
kayanco wrote:
Wed Sep 13, 2017 10:13 am
Uncle Pennybags wrote:
Wed Sep 13, 2017 10:06 am
Look for a dead cat bounce at $3,000
Can you explain this please, I'm not familiar with this reference.
Let me search that for you.
Thanks for the link. It was an interesting read, but I'll guess that you are relying on technical analysis. If so, please be careful, because that might get you in trouble over time. At least that's what I gathered from some of the books recommended on this forum.

Some of the knowledgeable folks here can guide you further on the dangers of technical analysis.

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

Post by Uncle Pennybags » Wed Sep 13, 2017 11:34 am

kayanco wrote:
Wed Sep 13, 2017 11:22 am
Thanks for the link. It was an interesting read, but I'll guess that you are relying on technical analysis.
Technical analysis is useless for predicting the future. I call them as I see them, much like picking the winner of a football game.
Actually the "experts" are pumping a floor of $3000 so that's when many will jump back in.

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