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Chris DeMuth Jr.
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"It's not given to human beings to have such talent that they can just know everything about everything all the time. But it is given to human beings who work hard at it - who look and sift the world for a misplaced bet - that they can occasionally find one." - Charlie Munger I look... More
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  • Chart Of The Day – Monday, December 23, 2013 18 comments
    Dec 23, 2013 10:00 AM

    (click to enlarge)

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: This is my runner up short idea for 2014.

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Comments (18)
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  • eduso
    , contributor
    Comments (200) | Send Message
     
    This is very well a reason why bitcoin is not a currency. And there is no way to control volatility at all, as there is no mechanism/ institution to account for price stability.
    23 Dec 2013, 01:25 PM Reply Like
  • J Boogie
    , contributor
    Comments (13) | Send Message
     
    How would you go about shorting bitcoin?
    23 Dec 2013, 05:42 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (6282) | Send Message
     
    Author’s reply » Here: https://icbit.se and here: https://www.bitfinex.com
    23 Dec 2013, 05:50 PM Reply Like
  • connellybarnes
    , contributor
    Comments (417) | Send Message
     
    I made some models for Bitcoin.

     

    For example, price versus transactions per day historically is predictive of future price. Or Google Trends coverage tends to be predictive of temporary price spikes in Bitcoin.

     

    These models indicate that price will fall in the short term (6 months), so I believe your short is valid on that time basis. However, the long term trend is upward, and it is essentially a binary option on whether Bitcoin is widely adopted. The positive outcome is fairly probable and the expected value is high as long as the monetary velocity is not too high (and I expect in that scenario merchants will hold some percentage of their transactions in Bitcoin to further reduce fees, so I don't expect monetary velocity to be too high in that scenario).

     

    That's why I'm long Bitcoin. If the price plummets as expected then I will average down. I'd been meaning to buy since $15s in price but unfortunately I've been very busy so I didn't actually manage to do the checks into which merchants are best and how to secure the coins until recently, so my cost basis is $770.

     

    Also BTW which article of yours had the Sotheby's-some other company spread as a predictor of overvaluation of the broad market?
    19 Jan 2014, 02:47 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (6282) | Send Message
     
    Author’s reply » http://seekingalpha.co...
    19 Jan 2014, 03:00 PM Reply Like
  • connellybarnes
    , contributor
    Comments (417) | Send Message
     
    Thanks. I think Hussman's models are the best indicators:

     

    http://seekingalpha.co...
    http://bit.ly/19TQ78f
    30 Jan 2014, 11:26 PM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (6282) | Send Message
     
    Author’s reply » He's someone I admire a great deal. I read everything he writes.
    31 Jan 2014, 06:36 AM Reply Like
  • connellybarnes
    , contributor
    Comments (417) | Send Message
     
    Margin debt also seems to be an interesting indicator recently:

     

    http://bit.ly/1frSnIz
    4 Feb 2014, 01:26 PM Reply Like
  • connellybarnes
    , contributor
    Comments (417) | Send Message
     
    Mt Gox Bitcoin is 50% off the regular Bitcoin price due to insolvency risk of the exchange Mt Gox. I'm guessing it is overpriced since the Mt Gox CEO would not even confirm to a customer who flew to Japan to meet him that his savings were solvent! Then again the "Magic the Gathering" exchange may just be run by businessman with questionable marketing skills. It's not clear how to short the Mt Gox Bitcoins although going long should be trivial.

     

    http://on.ft.com/1eGD7oJ
    16 Feb 2014, 11:19 PM Reply Like
  • connellybarnes
    , contributor
    Comments (417) | Send Message
     
    Mt Gox claims it will be restarting withdrawals soon, so this could be a short term long arb opportunity, albeit an extremely scary one:

     

    http://bit.ly/1h83fMW
    http://onforb.es/1muwK2d

     

    Reminds me of the 19th century bank runs. "Is there enough money in the bank? Let's find out by simultaneously withdrawing all our money!" They plan to open with withdrawal limits. I hope for their customers that there is no "fractional reserve Bitcoin" going on. Some research paper showed that the probability of failure of these exchanges is inversely proportional to their size, so that at least is in the favor of Mt Gox.

     

    Employees of Mt Gox can almost surely execute this arb correctly.
    19 Feb 2014, 08:00 PM Reply Like
  • connellybarnes
    , contributor
    Comments (417) | Send Message
     
    And now Mt Gox is offline and filing for bankruptcy. Gee whiz!
    http://cnet.co/1jvPqtL
    http://nyti.ms/1drXIxR
    25 Feb 2014, 12:58 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (6282) | Send Message
     
    Author’s reply » You thought through this one well. Very interesting to see it play out.
    25 Feb 2014, 06:25 AM Reply Like
  • connellybarnes
    , contributor
    Comments (417) | Send Message
     
    I didn't actually take a position or have that compelling evidence of long or short. I was skeptical of Mt. Gox since they had a previous theft in 2011, an asset seizure in the U.S., and aren't in my legal jurisdiction. If you take a Bitcoin position long or short feel free to PM me and I'll send you some standard links on security.

     

    One should note that none of the exchanges currently have insurance, unlike most stock brokerages. As a customer of this market and because many exchanges have already failed, that would actually be the main thing I would want, but also I'm not sure whether the insurance companies would provide insurance or reasonable premiums for them...

     

    Longer term I think BTC will need dedicated hardware security (custom devices or debit cards), or signing Bitcoins to special cryptographic wallets with multi factor authentication. The security record of the BTC protocol is great. But the security of the community is just abysmal, but that's also unsurprising because most Bitcoins are stored on general purpose computers which present a giant attack surface. It's the standard computer science security problem, just playing out in an ecosystem of companies that mostly don't have hardcore security expertise. Ironically probably the big banks are best equipped to win in this market, but I think currently they're scared due to regulatory uncertainty.
    25 Feb 2014, 10:44 AM Reply Like
  • connellybarnes
    , contributor
    Comments (417) | Send Message
     
    Sorry to keep spamming your Bitcoin post but I thought these purported books of Mt Gox were completely nuts:

     

    http://bit.ly/1prnbjv

     

    The Mt Gox CEO recently confirmed the leaked documents are "more or less legit" (although not produced by Mt Gox):

     

    http://bit.ly/1prnbjr
    26 Feb 2014, 12:00 AM Reply Like
  • Chris DeMuth Jr.
    , contributor
    Comments (6282) | Send Message
     
    Author’s reply » Don't apologize! Your posts are fascinating and appreciated.
    26 Feb 2014, 09:28 AM Reply Like
  • connellybarnes
    , contributor
    Comments (417) | Send Message
     
    The plot thickens! Mt Gox magically finds $115 million of Bitcoin (previously hackers and investigators had claimed it had even more BTC on its balance sheet).

     

    http://wapo.st/1h1VE0J

     

    I find it amusing that people in this case have USB sticks with hundreds of millions of dollars on them.
    21 Mar 2014, 12:26 PM Reply Like
  • Andrew Williams
    , contributor
    Comments (274) | Send Message
     
    Incredible. Sounds like they misplaced them in June 2011?!

     

    I just don't see how they can have a credible explanation for misplacing $119 mm and finding it nearly 3 years later. Their accounts wouldn't have reconciled.
    21 Mar 2014, 02:07 PM Reply Like
  • connellybarnes
    , contributor
    Comments (417) | Send Message
     
    The CEO of Mt Gox spent his youth doing drugs, hacking, having "family troubles", going to expensive boarding schools, and getting in trouble with the law for Internet payment frauds.

     

    http://bit.ly/1h2twdM

     

    If he really has hundreds of millions of dollars on relatively unsecured computer equipment, I have a feeling that his life may soon become even more interesting.
    21 Mar 2014, 02:29 PM Reply Like
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