The total crypto market cap continues its grind down for the third week in a row as it ends the week at $2.28 trillion, down from its peak of $2.82 trillion three weeks ago.
There feels to be a lot more pain in the community than usual because of the unmet expectations of a blow off top in Q4 that many thought was coming. This negative sentiment is prevalent despite Bitcoin being up 70% for the year, while Ethereum is up a staggering 466% in the same time period.
As of today, my portfolio is down 30% on a levered basis and down 11% on an unlevered basis. Ethereum, as the single largest position, has continued to hold strong at the $4,000 level despite the volatility of the broader market. My largest losses in absolute dollar terms continue to be Cardano and Polkadot - which are both down 33% each against their respective cost basis.
These past two weeks, I took advantage of the market dislocation to add to my positions slightly despite having fully deployed my capital back in the first week of November. The total additions amount to only 0.70% of my total portfolio as I don’t have much cash laying around, and there’s only so many burgers I can flip to generate extra income.
As such, it may make sense to remind everyone of the slightly tweaked portfolio allocation as compared to the one in early November.
Portfolio Allocation - Cost Basis
Ethereum - 43.0% (average cost - $4,044)
Cardano - 15.7% ($2.02)
Polkadot - 14.8% ($44.42)
Solana - 14.2% ($191.21)
Polygon - 4.0% ($1.89)
Bitcoin - 3.0% ($48,081)
Algorand - 1.4% ($1.58)
As you can see, the movement hasn’t been much as the top 6 remains in the same order. However, I’ve brought my cost basis down slightly on Cardano (from $2.06) and Polkadot (from $47) as I’ve added just a touch more into those positions as they’ve experienced the largest declines in the last couple weeks.
Appreciating the Exponential
Here’s a parlor trick.
Imagine you had a piece of paper in your hands. Now fold it in half. And then imagine you fold it again.
Now, what would you say is the thickness of the paper if you had done the same fold 50 times?
Is it an inch? two inches? Maybe something more?
Well, if you had folded that same piece of paper on itself 50 times, that piece of paper would reach the sun.
That’s because every time you fold the paper, you double the thickness. With one fold you’re at 2, with two folds - 4. At 10 folds, you’re at 1,024. At 50 folds, that is 2 to the power of 50, you’ve reached 1,125,899,906,842,624. A quadrillion.
Now, if you didn’t get the correct answer, and I certainly did not get that answer for the first time - you must ask yourself what else are you missing?
It is vital to appreciate this blind spot in our linear mind because even though we are in an exponential age where technology is doubling every year and growing exponentially, just like the parlor trick, it is almost impossible that our brain can visualize that growth.
In the early “folds” when we look at artificial intelligence, virtual reality, or the crypto ecosystem - the early adopters often tell us - wow, that’s going to change the world. But as an outsider looking in - it probably looks more like a gimmick.
In the second or third fold, the paper’s thickness is barely noticeable. However, by the later folds, we underestimate the results by a staggering degree.
One of the best thinkers in this space, Jeff Booth, shared the above image at conference in Vienna recently to demonstrate the power of exponentiality.
“In 1985 the Apple computer had 25,000 transistors. The one launched last week, has 57 billion transistors. The one launched last week is 1.5x faster than the one launched last year, and it uses 60% less power.”
What this shows is that even though in a short period of time, “1.5x” might not be much. But 1.5x folded a couple more times over a slightly longer time period - such as from 1985 to 2021 - can be world changing.
That change from a clunky and bulky personal computer that can do perhaps simple word processing to a supercomputer in our pockets at all time that can work and communicate with the rest of the world.
I bring this up because in the week to week, month to month as we observe the crypto market go up and down linearly, and we feel the daily pain of the short term price movement that goes against us, we must not forget that in a longer time scale, crypto has been growing at an exponential rate.
Bitcoin adoption alone is growing at an annual rate of 113% a year. At the same time period in the adoption cycle, the Internet was only growing at 63% a year. Even if Bitcoin’s adoption slowed to what the Internet adoption rate, we would have a billion users by 2024 and 4 billion by 2030.
For those who are worried about the recent volatility in the market, I hope the above gives you some solace, but more importantly some perspective.
As you know, I’ve sold everything I have to put into this market.
Every stock that I own I’ve sold, every dollar I can borrow from my credit lines I’ve put into this, and I’ve even borrowed the maximum against my 401k retirement savings account and ploughed into the space.
Conviction is not something I lack.
Good night, and see you next week. :)