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I thought it was about time I addressed this concept directly.
I’ve referred to the concept a number of times but haven’t actually dealt with it on it’s own.
So this is essentially a model that is a work in progress, as most of crypto is.
The model is based upon my thesis that, the “further away” you go from base assets like Bitcoin and Ethereum, the more your risk profile increases.
While the risk level might go up in lock step, the reward may not always be a perfect reflection of the risk level.
The “sweet spot” as I’ve previously referred to it, is when there is a risk to reward ratio that is more heavily weighted on the reward end.
So let’s get into the model and my proposed levels.
I’ve created a very basic illustration using the model to help explain it.
I’m suggesting that there are 4 logical levels of risk.
We know that crypto investing is already a high risk asset class, but I’m not coming from the perspective of a general investor here. I’m starting (and staying within) the realm of crypto.
I’d say that Bitcoin is the reserve asset in crypto.
You personally may measure your returns from dollars to dollars, but many seasoned crypto investors measure their returns from Bitcoin to Bitcoin.
This is based on the premise that Bitcoin will expand from being the crypto reserve asset to being the global reserve asset.
So from that point of view, it makes more sense to accumulate BTC than USD. But that is a personal preference.
If we say that Bitcoin is the reserve asset, that effectively makes it “cash” putting it at the risk level of 0. No gains, no loss, just preservation of purchasing power due to Bitcoin’s limited supply.
If you own 210,000 BTC, you will always have 1% of the BTC supply. Not so with a fiat currency because it’s elastic money. Your share of the whole changes all the time.
Now let’s say we want to invest to make more Bitcoin.
We then ..
