2023 Bitcoin Method Recap, and Efficient Markets

This feels like the longest holiday week ever. 2023 was a good year in terms of gains from a combination of the Bitcoin shorting method , leveraged tech funds, Meta, etc.

Regarding the Bitcoin method, as discussed earlier, I would go short Bitcoin before the market open and then cover it at the close. And then at the same time do the opposite with QQQ. This takes advantage of the U.S. government selling its Silk Road holdings and hedge funds dumping. And also, the high correlation between stocks and Bitcoin, in which ‘alpha’ can be extracted by taking advantage of Bitcoin’s negative directional bias during the day compared to the QQQ.

To get an idea of how strong and persistent this negative bias is, the P&L this strategy, which allocates half its capital to ‘long’ ndx/nasdaq100 at the open and the other half to shorting Bitcoin at the open (technically kept as cash as collateral), posted a fifteen-percent gain for the year. Which is pretty amazing given that Bitcoin is up over 150+ percent for the year (via Google Sheets):

Despite large BTC gains for 2023, shorting Bitcoin is profitable when choosing the right timeframe.

I may increase positions on Fridays and Sundays, when the method works especially well. The unfailing consistency of this pattern would seem to violate the efficient market hypothesis, and would one assume that it should have long stopped working by now, but nope. It works equally well even when Bitcoin is at $40k or $20k, because all I am doing is profiting from short-term movement: the price itself does not matter.

Too many people default to the assumption that things must be mean-reverting, or at least underestimate how long trends or profitable methods can continue. “Meta stock is overvalued or Facebook is a fad…it must fall” (people have been making this argument since 2010, well-before its IPO) or “the stock market is over-extended” (people have been saying this since 2010 , too) etc.

My strategy or ‘guiding principle’ is to take the opposite side of this, by betting on trends surpassing people’s expectations of how long they can last. For markets to be efficient implies the opposite of the ‘wisdom of the crowds’; that is, following the herd consensus cannot provide alpha, as it’s already priced into the market. So if the consensus is that trends must be brief or things must quickly stop working, then we would expect the trend to outlast the biased consensus expectation.