[Cryptography] Cryptocurrency: CME Approved, Coin Paychecks, FED, OpenBazaar ZEC BCH

[Patrick Chkoreff]

Ray Dillinger wrote on 12/04/2017 05:17 PM:

> The evidence supports the notion that most investors make up reasons
> for their decisions long after the decisions are made, thinking backward
> instead of forward.

I wrote:

> That's why I deploy a nearly automatic asset-allocation strategy, where
> I target X% of my liquid NAV to be held in BTC.
> ...
> When my actual allocation gets 20% out of line from my target, I buy or
> sell to get it back to the target.
> ...
> Asset allocation is by no means a sure thing, because I could lose even
> more than 10% if I keep buying into a slowly sagging market.

Case in point:  the current vicious bear market in Bitcoin.  Losses can
mount to 100% of your entire portfolio if you keep doggedly buying in to
bring your allocation back up to 10%.

The key workaround in my code to generate buy points is to include a
maximum total loss, say 12% of the original portfolio value, and have
the code only buy amounts such that even if Bitcoin dropped to 0
overnight, the total loss will be 12%.  In other words, I include a
"short-circuit" check on the way down, after which buying ceases.  If a
lot of people deploy that strategy it can help push the market into
free-fall, but I take care to ensure that's not my problem.

Allowing a loss of 12% (or higher) of the original portfolio value is no
big deal when you include a portion of "the house's money" from previous
windfall gains as part of the loss allowance -- i.e. the gains reaped
from selling back down to 10% as the price rose.

I suppose what I'm describing could be applied to loss management for
arbitrary gambling, including Blackjack and other games.  At some point
the system instructs you to stop playing so you don't leave you and your
family destitute.  Habitual gamblers who crave the dopamine rush pay no
attention to such signals, and it ruins them.

Trading in Bitcoin is clearly far closer to gambling than trading in
gold, since gold has a multi-millenia track record of maintaining real
purchasing power.  It should be treated as such.


-- Patrick

P.S. I know this isn't about cryptography, but it is about security and
risk management, so perhaps somewhat germane.  I just wanted to follow
up on the original thread, and I won't belabor the topic.