Ecoinometrics - May 05, 2021

Don't skip hodling day...

Timing the market is hard. Period. This observation applies to Bitcoin. 

You might think that you know exactly when to take profit and when to re-enter the market but the truth is that most likely you are taking more risk than necessary.

Here is an example of why...

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Don’t skip hodling day

Being long Bitcoin is an asymmetric bet. 

Slowly but surely Bitcoin is finding its place in the global financial system. Institutions as well as high net worth individuals are buying and regulations are put in place to include BTC. More integration and a wider distribution means less chances BTC will go to zero.  

At the same time, if you have a long enough time horizon, you can expect to see a 10x return even if you only start investing today. This 10x isn’t a random number I just pulled out of my hat, it is simply what it will take for Bitcoin to replace physical gold as a major store of value.

Given that we are still early on the adoption curve this target seems within reach if you can wait maybe a couple of halving cycles.

That sounds nice enough. 

But 10x isn’t enough for everybody. Some people will think:

“Sure I can benefit from hodling, but if I trade it then I could generate much bigger returns.”

Maybe. But that’s definitely not for everybody. And if you happen to not be long BTC when it pumps then you could end up significantly worse off than if you had just been hodling all along.

When I say significantly, I do mean very significantly.

Let’s do a thought experiment.

Start at the beginning of each halving cycle and compare three scenarios:

  1. You hodl all the way during the cycle.

  2. You hodl but you miss the 5 best performing days of the cycle.

  3. You hodl but you miss the 10 best performing days of the cycle.

The 2nd and 3rd scenarios are what would happen if you sold just before some of the best days and bought back right after. That would be pretty unlucky, but hey that’s just a thought experiment. 

So what happens if you compare the performance of those three scenarios for each cycle?

The answer is in the chart below. For each cycle you can see the full performance of Bitcoin, the performance without the best 5 days and the performance without the best 10 days.

The vertical axis is the growth starting from the halving.

If you read this chart too quickly you might think that indeed only missing a few of the best performing days degrades your performance. 

But if you have read the chart in more details you have probably noticed that the vertical axis representing the growth is using a log scale… which means it is actually way worse than it looks.

To realize how bad it is let’s just focus on the total performance for each cycle. 

For the 1st cycle:

  • The total growth is 49x.

  • If you skipped the 5 best days it falls to 13x i.e. a 74% drop in performance.

  • If you skipped the 10 best days it falls to 5x i.e. an 89% drop in performance.

The same thing happens for the 2nd cycle and so far in this 3rd cycle. 

Check it out…

Moral of this story: unless you are highly confident in your trading strategy, you are probably better off just hodling Bitcoin. So hodl, stack sats and you won’t miss the boat.

CME Bitcoin Derivatives

Interesting turn of events on the CME Bitcoin options market. Pretty much since those BTC options contracts were launchedlast year the situation has been the same. The amount of calls far outnumbered the amount of puts. 

This was likely the result of two things.

First, as long as BTC had not started its parabolic rise there was a pretty big market of hodlers who were glad to sell covered calls in order to generate income. But when we are in a bull market and BTC can rise very high, very fast the risk of those covered calls ending up in the money is rising. 

The result is that a number of people probably think the risk isn’t worth it. And that means less call sellers. 

Second, a different set of traders might see less value in buying calls for directional positions now that Bitcoin has already risen a lot. Result is less call buyers.

And now that the post-halving bull market is hitting a plateau more traders are turning to either buying protective puts or simply betting on a correction.

Hard to know if this is the actual dynamic at play but at least it makes sense.

And that brings us to today’s situation where we have 3 puts for every 2 calls in an anemic options market.

Looking at the Commitment of Traders report data from last week we can see:

  • A deleveraging of the smart money before the April contracts expired. 

  • An odd spike in short positions for the retail traders. Most likely some short term speculation on a correction.

Overall it is same old, same old.

No growth of the open interest or the traded volume. It looks like the basis trade from the smart money and the momentum play of the retail crowd is at capacity.

That’s it for today. If you have learned something please subscribe and share to help the newsletter grow.




The Ecoinometrics newsletter decrypts Bitcoin’s place in the global financial system. If you want to get an edge in understanding the future of finance you only have to do two things:

  1. Click on the subscribe button right below.

  2. Follow Ecoinometrics on Twitter

Done? That’s great!