Cryptomania 2017: Dear Bitcoin investor beware of your asset allocation!

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There can be no doubt that 2017 is the year of cryptomania. Every day more and more investors, especially young earners want to try their luck with Bitcoin, Ethereum, Litecoin and any other crypto coin they can get their hands on. Cryptomania 2017 is fantastic to watch as it unfolds, but dear bitcoin and altcoin investors, would you consider slowing down for a moment to look at your asset allocation?

Thanks to social media, us non-investors have a front row seat to cryptomania 2017. We get to see how the lure of instant returns can make a human being lose all sense of proportion and the little common sense they had to begin with. Anyone saying a word against bitcoin, even if it is fact-based becomes a fool. Any prediction about bitcoin unless it has “hodl” in the sentence is wrong. Fellow bitcoin investors become a comrade in arms and a union forms to “guide” new investors.  Greed, ladies and gentlemen, is not only good, it is also contagious. As a student of human behaviour, I am having a nerdgasm every day. Thank you for the entertainment, dear crypto investors. Lage Raho.
Let us not forget to thank the Bitcoin haters hoping for a crash so that they appear superior. Anything that rises up vertical has to be bubble right? Anything that we don’t understand must be a ponzi scheme? Thank you for the entertainment, dear crypto haters. The following is true of both the bitcoin hater and the bitcoin lover
The moment we want to believe something, we see all the arguments for it, and become blind to the arguments against it.  – George Bernard Shaw
Before we begin, I would like to clarify my stance, I am a bitcoin neutral (else learning is not possible). I am not an investor (& I have no need for it) but I am also not against it.

I have argued against it: Three Reasons to avoid Bitcoin or any other cryptocurrency

I have argued for it: Bitcoin: Is it a Ponzi Scheme? A Pyramid Scheme? Or a Bubble?

Have some considered both sides: If Bitcoin becomes expensive and popular in future, should I buy some now?!

And have offered simple way to invest with (wrong) guidance: How to buy Bitcoins in India: A simple DIY approach to Bitcoin investment

and how to invest in crypto: Investing in Cryptocoin vs Trading in Cryptocoin

This post is not about whether Bitcoin or other cryptocurrencies are good or bad. There are other things to worry about!
So dear Bitcoin investor, can you please get your head out of the crypto chart for a few minutes, consider reading this drivel and calculate your asset allocation? oh, what is that you ask? Apologies. It is a useless term that stands for how much is currently invested where.  it might help you manage risk better.
Let us consider that you had Rs. 10,000 with you in January 2016 and you decided to invest “a little bit” in Bitcoin. You are not like those kids today who want to join the party late. You had a vision and knew Bitcoin IS THE FUTURE. Besides a vision, you were also smart: you put in only a bit so that even if you lose it all, you will not worry too much.
You put away Rs. 6000 in an Equity large cap fund. So 6000/10000 = 60% = asset allocation in equity.
Rs. 3800 in a debt mutual fund = 38%. asset allocation in debt.
You put 1% in a liquid mutual fund and you invested the remaining 1% = Rs. 100 in Bitcoin (via an international exchange). Don’t ask me how. That is another story.
To keep things simple, let us assume that you did not invest in any instrument after that. Most people would have, especially when they see huge returns. This will only make the below table much worse than it already is! I will leave the impact of further investments to your imagination after you see the graphs below.


Cryptomania 2017: Asset allocation table

A Mirae fund is used for the large-cap Why? Becuase it is good: Mutual Fund Review: Mirae Asset India Opportunities Fund

A Franklin Savings Plus fund is for the debt part. Why? Becuase Franklin India Savings Plus Fund :A Debt Fund For First-time Investors?

A Quantum fund is used for cash. Why. Because it invests in good, solid debt: PlumbLine November 2017: a handpicked list of mutual funds

What you see below is the initial purchase in Jan 2016 and the values and asset allocation every quarter after that. The yellow rows are attention-grabbing but get to it the last.

Bitcoin asset allocation table

Cryptomania 2017: Other poor investments!

Bitcoins growth is so spectacular that I first need to plot the other instruments. These are in normal scale.

asset allocation without bitcoin

Cryptomania 2017: Bitcoin the Giganotosaurus!

Now with Bitcoin added, I thought the log scale (shown below) will help, but it does not!! Bitcoin drawfs other instruments (for the period considered)

Asset allocation with bitocin: cryptomania 2017

Asset allocation with Bitcoin: January 2016

The asset allocation pie charts say the story the best.

Bitcoin assets pie chary

Asset allocation with Bitcoin: December 2017


Now scroll back to the table above and look at the yellow rows. I will wait.

Back? Okay, now this is the point of the post: Due to the incredible growth in Bitcoin, a 1% allocation (which was peanuts) in Jan 2016 has become a coconut in Dec 2017 with 21% allocation.

If you lose a peanut, you will not bother to search or feel sorry for yourself. Please don’t tell me you will feel the same if you lose a coconut!

What am I trying to say?

Yoda about Bitcoin Investor: Become the wolf of cryto, you have

Book profits now (normal speak)

Book profits now (Yoda speak)

I had assumed no investment in crypto or anywhere else after Jan 2016. How will the Dec. 2017 pie chart look if you include those?

Hey, this is not part of my asset allocation dude!

What is that I hear you say? “This was only a small amount and not part of my asset allocation calculation”. Okay then, it was only a small amount, to begin with, so who cares about its value today? Sell it off and give it you a charity. Better still, give it to me – your favourite obnoxious pig-headed blogger.

Cryptomania 2017 Facebook image

It is only a small amount. Does not matter how large it is now, isn’t it? So you don’t care if it comes back to that small amount again, right?

If it would hurt now to see it go from your hands, it IS part of your asset allocation. Wake up and shift at least part of your gains to safer asset class like equity (boy I never thought I would write that!) or even better to debt before the risk you took goes waste. And it will, even if Bitcoin is 100% legit. See why: Investing in Cryptocoin vs Trading in Cryptocoin.

Asset allocation matters.

It is the only metric that determines the health of your wealth.

Invest in cryptocurrencies with an asset allocation and rebalance it as fast as your wealth grows.

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  1. Great, Pattu Sir!
    Very well said it, to RE-BALANCE the portfolio (which we investors/ traders ALWAYS simply forget!)

    This becomes the Topmost Urgency, when the portfolio grows UN-ORGANICALLY!

  2. Ha ha Pattu…Awesome like always! Had a good laugh..
    Had stopped reading all blogs for a long time as I got busy. The topic attracted me. I am neutral as well.

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