Intrinsic Alpha January 2013 - Fancy a Punt?

7/27/2019 Intrinsic Alpha January 2013 - Fancy a Punt?

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Intrinsic Alpha Note February 2014

"What happens to us in the future? Do we become

assholes or something?" Marty, Back to the Future

(film)

"Expecting something for nothing is the most popular

form of hope." Arnold H. Glasow

"Hope is the overdraft on reality." Team Macro Man

"Youth is easily deceived because it is quick to hope." -

Aristotle

Greed is goodGordon Gekko

Fancy a punt?

Welcome to 2014. Its been an interesting start to the year,

however, I find myself at a quandary equities and

bonds arent that interesting these days, we know

equities are going up and bonds are going down, at least

in the long run. Maximum gains there sit somewhere in

the high single digits for the 11 months remaining of

2014. In the hunt for something sexier, something that

could really get your pulse racing, Ive decided to hurt

the voices in my head. Ive decided to make them cry.

What have I done? Ive decided to buy some Bitcoin. Yes,

you are correct in thinking this diametrically opposes

everything I believe in.

Before you get too excited, let me reaffirm my stance on

the Bitcoin:

1. It will be stamped on by governments in the long-run.

2. It is not a currency and never will be.

3. The only thing impressive about it is its speculative

potential.

4. It is not finite because anyone can make their own

crypto-currency.

5. Nothing backs a Bitcoin whereas at least fiat

currencies issued by central banks are backed by the

future tax revenues of their governments.

6. Bitcoin is not like gold or silver, its more like tulips or

South Sea stock.

So why am I doing this? What is going on inside my

head? The answer: pure speculative greed. My New

Years resolution is to make money. I have 11 months to

show that I can. Here goes. Before I continue, I must

warn you, that if you are a bitcoin bug, you should stop

reading here, because I will most likely offend you. It s

nothing personal, just business.

If I had a (random name here)-coin every time I heard

that!

The first thing you have to accept is that the 1000% return

days of bitcoin are over. Sorry, you missed that boat (or

punt). Thats not necessarily a problem, because given

the interesting nature of the bitcoin speculative bubble,

many people have jumped on the bandwagon of creating

alternative crypto-currencies which aim to supplant or

complement bitcoin. The problem however is, as of

today, I count around 80 of these. It seems one needs to

exercise some coin-selection when deciding which of

these to back.

Figure 1 depicts an interesting visualisation of the

marketcap split of the ones Ive come across. With

interesting names like Primecoin, Feathercoin, Dogecoin,

Sexcoin (ooh lala), Casino Coin (vegas baby!), you cant

help but think people are frankly taking the piss. In my

view, they are not taking the piss. What theyre doing

is quite simply jumping on the bandwagon and trying to

get something for nothing.


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Figure 1: Source - coinmarketcap.com

Needless to say, most of the altcoins out there arepointless. They have been created for the sole purpose of

filling the pockets of their creators, who no doubt were

jealous of the handsome returns bitcoin early adopters

received. Thats fair enough, in any bubble with near

zero entry cost, you can expect new entrants. The funny

thing about this list, is that each of these (bitcoin

included) is said to have a market capthe number of

coins in circulation multiplied by the price. I find that

quite funny. Lets get one thing straight, if everyone sold

their bitcoin in one go, the market cap would be zero.

Thats because these assets have no intrinsic value only

hype value. What Im getting to is that the only way to

valuethese things is to attempt to estimate which coins

are most likely to get hyped up and to what extent that

might affect the price.

Discounted insanity?

I have taken the liberty to examine each of the altcoins in

the above list and filter it down to a select few which I

believe are most likely to experience surges in hype, and

hence price. The criteria I used are as follows:

Remove any coins which are simple bitcoin

clones.

Remove any coins which are simple litecoin

clones.

Include coins which have some identifiable

feature that differentiates them from bitcoin or

litecoin.

Include coins which have shown some signs of

hype.

Exclude coins with less than $1m market cap.

My list is shown below, and I include a brief sentence for

the rationale behind my selection. All comparisons are

made with respect to bitcoin.

Peercoin apparently less vulnerable to a proof-of-stake

attack and more energy efficient to mine.

DogeCoin pure ability to get hype, it was in the media

recently for a donation made to the Jamaican bobsled

team.

Quark apparently far more secure than bitcoin and

wide distribution.

Namecoin acts as a decentralised domain name service,

so people can register domains in the blockchain.

Mastercoin so many things here and very complicated

to understand, hence why it could be hyped easily as

people will buy what they dont understand.

ProtoShares Like Mastercoin in terms of complexity

and allegedly entitles the holder to a fraction of

ownership in something called a DAC (Distributed

Autonomous Community).

NXT All coins are pre-mined, so very green and it uses

a completely different code base to bitcoin, also the

wallet requires a passphrase like a Swiss bank account so

no need to install special wallet software potentially.

42 Coin there are only 42 coins (of course divisible to 8

decimal places) and so a lot of hype potential.

Craftcoin the crypto-currency of choice for Minecraft

players and therefore speculators?

Datacoin so small and with a lot of potential for hype as

apparently you can store a limited amount of data in its

blockchain, like torrents or something else.

Bitcoin Ripples Litecoin Peercoin

Nxt DogeCoin MasterCoin Namecoin

Quark ProtoShares WorldCoin Megacoin

Primecoin Infinitecoin Feathercoin Novacoin

Kittehcoin Tickets YbCoin Devcoin

Digitalcoin Zetacoin Mooncoin Anoncoin

Copperlark Ixcoin Terracoin Particle

Freicoin FedoraCoin EarthCoin LottoCoin

GoldCoin TagCoin Cryptogenic Bullion Extremecoin

BBQCoin Sexcoin Dimecoin BitBar

Frozen MemoryCoin Fastcoin Vertcoin

Deutsche eMark Unobtanium Datacoin AsicCoin

RedCoin Junkcoin StableCoin I0Coin

Catcoin Grain FlorinCoin RonPaulCoin

42 Coin GrandCoin Bytecoin Philosopher Stones

Tigercoin Astrocoin QQCoin Franko

Argentum GlobalCoin Xivra BetaCoin

Luckycoin HoboNickels Diamond Elacoin

CasinoCoin Bitgem Phoenixcoin Noirbits

Joulecoin CraftCoin


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Thats the list, and I advocate holding a portfolio of these.

Thats no easy task as each of these requires a wallet,

which can take some time to install. Furthermore, most of

these trade for bitcoin on exchanges, which means you

will need to first buy bitcoins and then the altcoins.

My conviction in each of these stands at:

Coin Weight

Peercoin 10%

DogeCoin 10%

Quark 10%

Namecoin 20%

Mastercoin 5%

ProtoShares 5%

NXT 25%

42 Coin 5%

Craftcoin 5%

Datacoin 5%

Not to get too scientific about the whole exercise, but if

the marketcapof each of these was 1% that of bitcoin,

you would generate a weighted return on investment of

8,787% and if the figure were 2%, you would generate

17,775% return. These numbers are too large to ignore,

infact so large that Ill take my investor hat off and put onmy evil speculator fake moustache.

Coin Market Cap $ Weight %Bitcoin

Mcap

Return

1%

Return

2%

Bitcoin 10,007,053,992 100.00%

Peercoin 112,202,364 10% 1.12% -11% 178%

DogeCoin 55,630,161 10% 0.56% 80% 360%

Quark 19,832,691 10% 0.20% 405% 1009%

Namecoin 42,176,095 20% 0.42% 137% 475%

Mastercoin 54,252,471 5% 0.54% 84% 369%

ProtoShares 15,473,573 5% 0.15% 547% 1293%

NXT 69,418,375 25% 0.69% 44% 288%

42Coin 296,246 5% 0.00% 33680% 67559%

Craftcoin 83,977 5% 0.00% 119064% 238328%

Datacoin 482,174 5% 0.00% 20654% 41508%

Of course a larger current market cap of each coin

implies that the return potential is lower. Under this kind

of outlandish scenario, a 100 investment would turn

into around 8,000 not bad. Imagine how much those

early adopters and early miners will make. I would give

the time horizon of this less than a year perfect timing

and something for nothing.

Back to the future

I could not let this note finish without a few updates on

the real markets. I provide an update of my favourite

chart of the S&P 500 Index:

I cant believe I still have to convince people that what

we are experiencing is a new secular bull-market in US

stocks, and as if to reinforce the correlation between the

1995 line and the 2013 line. It feels to me like we went to

the future in 1995, or that weve gone back to the past.

The sell-off this week (27January 2014) will provide a

great opportunity to those who listen to fill their

stockings. If anything the recent tones of caution at

Davos are a great indicator that we will experience a

near-term sell off in risk which will then be met with aferocious wave of buying risk.

I am pleased to report that the outlook has indeed turned

disinflationary in the US and Europe and even Emerging

markets are starting to stall and their currencies tremble.

Imagine what would happen if developed central banks

started to tighten outright. Remember, that any shock to

the system will be met with an even greater quantity of

easing, which will eventually enter the system as

inflation. We just need that extra bit of deflation to stokepolicymakers. In short, were in need of a correction Mr

Market deliver it.

Thats mostly it, nothing much has changed since my last

note.

May the gods of speculation look down kindly upon us

so that we may no longer have to hope.

The Actuary

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2013S&PIndex

1995S&P

Index

1995 Bull Run 2013 Bull Run

Intrinsic Alpha January 2013 - Fancy a Punt?

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