The 3 Rules Of Bitcoin

Unlike Jamie Dimon (here), I think that bitcoin and bryptocurrencies can fit into your portfolio – but only as a highly speculative allocation (here).  I currently do not own any crytpocurrency and would be selling some as I think the next move is further downside, but there may be a time when I choose to add again.

Rules to think about when weighing your decisions on digital currencies.

In any case, I find these three rules to be useful in terms of thinking about how and when to buy and sell Bitcoin and other cryptocurrencies. I believe they are important things that you need to factor into your thinking and analysis on the subject.


Rule #1: Bitcoin Is Smarter Than Me

This is the first and most important rule about Bitcoin.

I cannot speak for everyone who reads my reports, but Bitcoin is definitely smarter than me.  I do not say that lightly.  I have a Bachelor of Mathematics in Computer Science and Combinatorics and Optimization, worked as a software engineer at Microsoft, and have taken several PhD level courses in math and finance, but from what I can tell, I do not have the intelligence that the people who really know Bitcoin do. I might be able to muddle my way through setting up a mining operation, but the reality is that I have to accept that the people who know blockchain and cryptocurrencies intimately are smarter than me.

To put that in perspective, in my ordinary course of business I deal with a lot of economists, many with PhD’s.  They are very smart people and some have specific knowledge that I lack, but I don’t feel overly intimadated by their knowledge.  With crypto I think I am orders of magnitude behind in terms of the knowledge the best and the brightest have in the field – it is both humbling and useful to understand that.

There are lots of things that I don’t fully understand.  I don’t really know how my cell phone works, but if there is a problem I can call the maker of the cell phone and try and get it resolved.  Or I can call my cell phone service provider and get them to help.  Products like that come with a group of people there to help make it work.  They are in the business of making it work when it breaks.

There is no one in the business of helping you if Bitcoin breaks, and there may well be a group of people who are out to take advantage of anything and everything they can about Bitcoin.


Rule #2:  There Are No Rules

It seems silly to say there are no rules in a piece titled the 3 rules of Bitcoin, but let’s just go with it as this is important and ties into rule #1.

On a simplistic level there is nothing to stop anyone from attempting to manipulate their position.  With no good way to get short Bitcoin (that I know of) the manipulation would be to force the price higher.

Someone could buy Bitcoin and do everything in their power to make it go higher.  Bitcoin may not even be a prohibited “investment” for people who normally have investment restrictions due to the nature of their jobs.  So, for example, the financial media, while typically restricted on investments due to their position may not be uniformly prohibited from owning Bitcoin.

Not to mention the anonymous nature could make it relatively easy for anyone who wants to break their rules, to break them.

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