Recap of AMA with Austin Kimm, Director of Strategy and Investments | June 29, 2023

Jun 29, 2023
14:06
2 min reading

Choise.com team

Recap of AMA with Austin Kimm, Director of Strategy and Investments | June 29, 2023

Speaker: Austin Kimm is the Director of Strategy & Investments at Choise.com. Austin joins the community AMA to throw more light on the cyclical nature of the market, Bitcoin halving and BitDriven launch.

Intro

I want to start off with just a quick overview of the reasons behind BitDriven, and then we can get into the actual questions. The core concept of BitDriven is linked to Bitcoin halving since the name is BitDriven. I want to explain a little bit about what Bitcoin halving is. Apologies to everyone who already understands this, but it is very important to the bigger picture, so let me start with the Bitcoin halving.

So, Bitcoin halving, as you all know – I'm pretty sure you will know – is what happens every four years when Bitcoin reduces the amount of mining fees effectively it pays to miners when a transaction takes place on the blockchain. Miners are paid, usually in the currency of that blockchain, and in the case of Bitcoin, of course, it is Bitcoin. Right now, every few minutes, six actual Bitcoins are used to fund the network. And of course, as probably most of you know, there is a maximum number of Bitcoins. That maximum number is set at 21 million, and we've already issued 19 million. So, it doesn't take a genius to work out that if you're issuing six new Bitcoins every eight minutes, I think it is, then eventually you're going to run out of them.

So, to stop that from happening, Bitcoin came up with the very ingenious logic of every four years. They're gonna half the value, and in four years' time, they will half it again. So what is currently six will soon be three, and three will become one and a half, and one and a half will become 0.75 or whatever it is. And that logic will carry on for as long as Bitcoin exists. Now, what is very critical to this, of course, is that the market has now understood this, and this halving has already taken place on three, at least three, occasions previously. And with each new halving, there is more evidence that the market reacts to that halving, and I think we've all seen it. And the terminology we now see is 'Bitcoin summer' or 'crypto summer' and they seem to be perfectly correlated to the Bitcoin halving.

So, what's happened in the past is, of course, let's forget the first one because no one really knew what Bitcoin was, and the whole economics behind it was very difficult. But the last two have been pretty clear. So there was a halving, and during that halving process, the price of Bitcoin increased. After the halving, the price of Bitcoin increased by an even faster rate. And then, at some point, profit starts to be taken, and people start to exit from Bitcoin and basically turn it into fiat currency or any other currency, which is all fine. But now that we've had this three times, there is actually a mathematical correlation that you can see. And I'm not going to go into all the numbers, but it's quite a clear calculation. I just want to focus really on the last halving.

So, during the last halving, what happened was, you might recall, back in 2018-2019, Bitcoin had fallen to about $4,000. You know, everybody, including myself, was selling their Bitcoin, thinking, "Is this the end of Bitcoin? Should I just get rid of all my portfolio?" Fortunately, I kept a few, but I did get rid of quite a lot, as everybody did. And then the whole halving cycle sort of kicked into play. That was really the depths of the crypto winter. Then we saw the coin increase to about $20,000 before the halving. And then, after the halving, as some of you will remember, it hit 60-something thousand. So we went from $4 to 60-something thousand in about two years, and that period is centered one year really before the halving, one year after the halving.

And what's important to understand around that is that the next cycle has shown pretty much the same sort of, let's say, direction. So we've had a crypto winter for about 18 months. Everybody's unhappy about the price of Bitcoin. It fell down to $15 and $16,000, but let's put that into perspective. Even that $15-$16,000 is four times the previous winter. So although it fell over a four-year window, you still made a 300% return, which isn't a bad return. Then, over the last, what, three, four months, it looks as though we're heading into a crypto spring. And that crypto spring just happens to be coincidental with the fact that we know that the next halving takes place next May. So, approximately 12 months before the next halving, the market is starting to react, and Bitcoin is roughly $30,000 today.

Now, there's no guarantee that the halving will repeat itself, but all indicators are that we're following that same cycle. And there is also a mathematical logic for it because Bitcoin miners estimated that it costs them approximately $16,000 to $20,000 to mine Bitcoin. So if bitcoin doesn't have a mathematical value, then why would they mine it? So obviously, when the next halving takes place, if it was costing them $16,000, it's now going to cost them $32,000, etc. So there is also a mathematical reason for it from a resource perspective. But what makes BitDriven different is that we can all buy some Bitcoin and basically hold that strategy and just hold. I've got quite a few friends who think that's the pure strategy. "I'm just going to own Bitcoin and I'm gonna hold it. Fantastic." But there is an alternative approach, and that's where BitDriven comes in.

So, because we've had three or four cycles already, what we can see during this period is that other currencies are basically tied to the success or otherwise of Bitcoin. And I think we all intuitively know this. So when the market goes up, sorry, when Bitcoin goes up, the market goes up. When Bitcoin goes down, the market goes down. It's an unusual day when Bitcoin goes down and the rest of the market goes up. It doesn't tend to happen. So it's hard to say which one drives which, but it appears to be centered around the Bitcoin halving. So it is reasonable to assume that Bitcoin is the driver, not so much a follower of the total market, especially when Bitcoin amounts to about 40% of the market. So if you have historical trends that you can basically correlate to the Bitcoin halving, you can start to see other currencies that have the same picture.

But where it becomes exciting is those other currencies react in a much more extreme way, that's both up and down. So that means that when Bitcoin is going up, say, 2%, they may go up 5 or 6 percent. When Bitcoin goes down 2%, they go down 5 or 6 percent. So that means that at the peak of the crypto summer, they are a multiple of the Bitcoin growth. And when in the depths of a crypto winter, they're at multiples of the Bitcoin losses. So it's quite an extreme range of scenarios. But by tracking historically over the last, say, at least eight years, where we've had the two primary Bitcoin halvings, we can see pure correlations between certain coins and Bitcoin. And while you can't guarantee it, by creating a pool, you can average out those risks.

So, my last sort of comment now, before we get into some of the questions that you might have asked me, the key here is creating a pool of currencies that are correlated to the Bitcoin pricing. We expect that the Bitcoin price will increase over the next 18 months. We pretty much know the period that it's going to increase. And if the other currencies follow a similar path to what they've done in the past, we can make some reasonable predictions about what will happen to those other currencies. And rather than put all your eggs in just one basket, Bitcoin, you can actually put it into a much wider basket and average out some of the risks that would be associated with just picking one coin. And that's where BitDriven is really quite unique from anything else that is in the marketplace.

Now, this I would call a higher risk strategy than, say, putting your money into a savings account. So, I want to stress, this is not a risk-free product. If the market does not react like it did in the past, then maybe some of these scenarios are just not going to happen. But all indications so far would tell us that it should happen. And as I said, last time it went from $4 to $60. So when we say you can get a 12 times return, that is based upon our estimation that we think Bitcoin will go from the lows that were around $20,000 to $150,000. Maybe it doesn't reach $150,000, but that's basically our mathematical modeling. And when you add all those other currencies in there, it sounds crazy to say a 12 times return, but we're sufficiently confident in it that we actually changed our fees around that 12 times return.

And then, a few key features, I guess, about the product, rather than create a brand new fund, the users will think, for us to do was to create effectively a token. Now, this token is not tradable on exchanges. You won't be able to go on to Binance and trade it for something else. It's specifically designed for this product, and it really just reflects the total value of the underlying assets that are inside the BitDriven strategy. And there will be a wide range of assets there. Some of them will probably not follow the path that we expect. Some companies may just fail completely. But by having a large portfolio of them, you're going to see the total value of the fund. And it's very specific to Choise.com. It's provided for us by one of our partner companies, and you cannot get it anywhere else.

Are you the only one offering the opportunity to buy BitDriven, or are there other wallets/exchanges/platforms?

Okay, I think I answered that one, so One More Fund is a company that is closely connected to Choise.com. They help us with some other institutional and strategies, and they've developed really some amazing AI technology. I mean, one of the things, for example, that they can do is they can analyze 7,000 different DeFi protocols, and they can move money in and out of them in minutes to earn a high percentage with the fees for those funds that require high liquidity, etc. And it's all done automatically. So, One More Fund is working with us exclusively, with us to provide this product, and they will be the team that will be rebalancing the portfolio. They'll be doing all of the reallocations, and only for Choise.com. Maybe there are other companies out there going to do something different, but this particular product is only for Choise.com.

What sets BitDriven apart from other cryptocurrency investment options?

I think the key here is the basket approach. If you look at, let's say, a traditional fund, what they will be doing, of course, is buying a basket of equities or they'll be buying a whole portfolio of maybe a particular industry. What we're able to do here is, because we're looking at a correlation to particular assets, we don't care so much about what that industry is. It could be that it is a finance company or it could be a multi-level marketing company. It doesn't really matter, provided that the token itself has a correlation to Bitcoin over time, and therefore it's almost inconceivable that someone else would have that same basket of assets that we would be working with for BitDriven.

Secondly, usually when you get involved with a longer-term project like this, so I would caution anyone, if you want to get in and out in the space of six weeks, then this is not the right thing for you because we're playing with time here. I mean, the period has been proven over time that it's approximately an 18-month to two-year window. You have a summer, then you have a winter, then you have a summer. So the timing of everything is very important, but nevertheless, we have very little tie-ins for people. They can get into this product, and if they change their mind in six weeks, they can get out again. There's a very small administration feature to manage the liquidation, but it's an opportunity for people to play with the market for the longer term without having to know fully about the market. But at the same time, if they feel uncomfortable, there's any point they can easily withdraw.

And finally, it's the core underlying concept. I think there will be other companies that are looking at this because the Bitcoin halving story is very well known, and I'm sure there are very clever analysts out there who have spotted those same correlations that we have. And I think there was some very interesting news recently with BlackRock. If you are an investor, you've probably heard of BlackRock. They've applied effectively for something quite similar. They call them ETFs, but it doesn't really matter what they are. They're effectively a fund that is linked to a basket of assets that can be traded on equity exchanges. So for me, that's sort of a let's say an endorsement because this special ETF is linked purely to Bitcoin and the Bitcoin halving strategy, and I'm pretty confident of that. So when someone like BlackRock is going into it but with a different structure, it really gives, I think, some credibility to what we are doing.

Do you think BitDriven will benefit the project?

It's not really clear to me here what we mean by the project, but if you mean Choise.com as an ecosystem, then of course it is. So, one of the things that I think Choise.com does very well is that we're always trailing new ideas. We've had effective crypto insurance for people who want to buy crypto. We've got the AI algorithm which produces investment advice against Bitcoin. We've got Dual Currency Accounts, etc. We've had a whole range of projects we're always testing out, you know, something new, something that might grab the excitement. Now, some of these have been much more successful than others, and also the timing of launch obviously has an impact. But we believe that the timing of this is everything, that's critical to the success of it. There's no point in launching this product, this service, in 12 months' time because we've missed that boat. 12 times now become 2 times if you're lucky.

So right now, we believe that we're heading into a crypto summer. When we have a crypto summer, everybody's attitude to the things that we do changes. So people spend more, they exchange more, they buy more, there's just a whole different ball game. And that's fundamental to the Choise.com platform. We make transactional revenue for various things, but by diversifying into this type of area, it just generates a whole new user base, a whole new interest level. Now, people are feeling good if they look at their BitDriven token and it's gone up four times. That will have a positive attitude to everything else. So, whilst maybe BitDriven may only be a few million dollars at the beginning, if we achieve a 12 times increase, then it'll be 25, 30, maybe 40, maybe even more dollars at the end. And that just has a knock-on benefit to pretty much everything else that we're doing.

But also, I just want to say that it's not, it's a part of the Choise.com ecosystem. In six months' time, we might come out with something else that is hopefully as innovative. But, as I say, timing for this is critical, and that's why we're launching it now. We will make certain that the environment looks right, and we've got enough evidence now in the last three months that says, "Yes, we are confident in this." And, as I say, I think that anything that shows the company in a positive light will have knock-on benefits to every other part of the company.

What are the potential risks associated with investing in BitDriven's portfolio of coins? Is there an estimated likelihood of failure? Is the risk percentage higher than 20%?

This is an excellent question, one that we really must address with some serious answers. So, as I said, what's the safest investment choice anyone can make today? If you're an institutional buyer, you probably buy US Treasury bills or UK bonds. You're getting 5%. If you are a private investor, you probably stick it into a savings account again. You probably get 5%. But that's what you get. You get 5%. There's no additional benefit if things go up or go down, you get 5%. This is, I wouldn't say it's the opposite end of the extreme, because there is historical evidence here, but you are effectively putting money into something that might go down. Now, the evidence of the last two years as everything went down, okay, they've started to go up again, so down is a real possibility.

But as I said previously, we've timed this so that we don't think down is the direction that we're heading. We are strong believers that Bitcoin halving will change the market direction upwards. So, the question here is, what's the risk? It was a 20% or potential failure. The only logical reason why this concept doesn't deliver positive returns is if crypto, as a market as a whole, doesn't follow the direction that we expect it to go. It's very difficult to see Bitcoin going in a completely different direction than pretty much everything else in the marketplace. So, for this concept not to work, then it's really a bet on the crypto market as a whole.

So, if you are a firm believer that the market is going to go up and that you're a believer, like we are, that it is focused around the Bitcoin halving, then I guess the question is, how good are we at doing correlations and picking tokens, etc.? And this is where an AI algorithm comes in. It's not a human selection process. This is a process that is designed by the best minds and uses an AI algorithm to rebalance the portfolio at the appropriate times, to pick the right tokens. Maybe when it rebalances, it takes some tokens out and puts different tokens in. So, it is also possible, therefore, that the algorithm gets things wrong, but again, I think it's unlikely it gets everything wrong. So, therefore, it comes back to the question of, do you believe in the market story, or are you a pessimist and you think that the crypto winter is just going to carry on for a longer period of time?

So finally, on this point, I would say to anybody who wants to put money into this type of idea, ask yourself, do you believe in cryptocurrency? If you believe in cryptocurrency as a future and that its value is going to increase, I mean right now, it's what, 1.2 trillion dollars, but at the peak of the last time, it was three trillion dollars. Bitcoin is still less than half of its previous peak, etc., but the last time it went from four to 60. So, if you feel that there is enough evidence that that cycle can repeat, then this is something to speculate about and put a small amount or however you feel comfortable with. But it has to be stressed that if the market doesn't do what we think it's going to do, then the probability is that you don't get those types of returns that we put in the advertising materials.

And finally, if the market does do what we think it's going to do, there's a set of those types of numbers that we've put in the materials, which even though some people look at them and say, "That's just crazy," it has happened several times before, and there's no reason why it can't happen again. But again, just ask yourself, do I believe that Bitcoin is a driver to the cryptocurrency market, and do I believe that the cryptocurrency market is going to go up along with that? If the answer to that is yes, then this is an interesting product. I personally will be investing my own money in it, but that doesn't mean that you should. It really is a matter of personal preference, but there is risk. It's, you know, there is an element to it. Hence the reason why it's a thousand return. Let's be clear on that.

Is BitDriven planning to support additional cryptocurrencies or tokens in the future, apart from the ones currently available?

So, let's not confuse BitDriven with Choise.com. Here, of course, the product BitDriven is being provided by Choise.com, but the relationship between BitDriven and the currencies and tokens that Choise.com provides are not the same thing. As I said, we're working with a company called One More Fund, and they are choosing the currencies that go in there. We will have no influence on that. So, the fact that we launch a new token on Choise.com or remove the token has nothing to do with the BitDriven strategy. The BitDriven strategy, as I mentioned, is partially driven by AI. We have certain parameters, for example, a certain percentage must be from a particular period of time, must have two winters, etc., and the algorithm or the team that is managing it will choose different tokens at different times. So, new tokens will be being added and taken out on a regular basis.

Can you explain the process of rebalancing the BitDriven portfolio? How frequently is it done, and what factors are taken into account?

The fact is that the percentages used are sort of set at the beginning. So, 70% of the portfolio will comprise one type of tokens with a particular age period, and 30% will comprise another. There are guidelines, and I can't remember all of the exact details. They are published on the Choise.com website, and there's a very good section on BitDriven that answers that type of question. But I would like to say that the rebalancing is not a daily process. This is not a fund that is trading tokens, trying to look for the token that's going to move up 5% tomorrow. As I've said already, this is a 12-month to 18-month play, and the only reason to rebalance is if something is fundamentally different from the original vision.

Therefore, instead of what you would see in, let's say, an equity fund which might be buying and selling equities on a daily basis, looking for that next upturn, this has got a pretty firm picture of the tokens that need to be acquired. And approximately every three months, there'll be a rebalancing. Now, maybe there would need to be an emergency rebalance if the market did something fundamentally different. Maybe there's a new sector which is growing at some incredible rate that seems to be tied to the Bitcoin halving but is doing something that previous algorithms didn't point out. But primarily, it's a three-month to six-month rebalancing. So, over the 18-month window, maybe two-year window when the crypto summer we expect will be with us, there'll be three or four, maybe five rebalancing. It's not a daily occurrence.

Could you explain one more time, just briefly, the difference between utility tokens like CRPT and index tokens like BitDriven.

That's an interesting question. So, a utility token, which is pretty much what most tokens claim to be, even though the SEC, for those people who watch regulatory issues, argue that they are not, is effectively a token that is used instead of some form of fee structure. And most of them are purchased in advance and then used at a later date. The way I like to describe them is if you imagine you went to an arcade, and at the arcade, they replaced all the coin slots with their own token. You'd go to the teller and say, "I'd like to have $5 worth of your token so you can play the games, etc." You've effectively bought a token that will be used inside that environment and has very little function outside that environment. That is what most utility tokens do, and that's what CRPT is. It is a token inside the retail platform of Choise.com for transactions.

So, the CRPT token has a specific function. It is a gas fee, a charge, whatever you want to call it. So, the more transactions that take place inside Choise.com, the more CRPT is used. That's a quite simple, mathematical relationship. And how the value of the token increases over time is if the actual volume of transactions increases, then the number of transactions will increase, the number of use cases for CRPT. And part of the model is that a percentage of those coins are burnt, so you reduce the supply. Hence, the theory is that the price of the token goes up.

But in practice, you know, the actual mathematics of it and market sentiment are not the same thing, as you probably know. Many changes in market prices are based on people's expectations of things, rather than the actual things. This token is not an expectation token. This token is very specific to the actual basket of values. Now, you could argue that the basket of values will include utility tokens, and what I've just talked about on utility tokens applies to some of the tokens in that portfolio. But this index token isn't an exact replication of the basket value of those tokens that are owned in the BitDriven strategy divided by the number of tokens. There's no element of what people think it's going to do or how it might change over time. It is a mathematical relationship and cannot be changed. The only thing that changes it is the value of the tokens inside.

And finally, going back to the previous question about exchanges and various other things, there's no logic, therefore, for a token like BitDriven to be on exchanges because there is no element of perception. It is a value. It's a pure value. It's a bit like, let's say, a stablecoin. A stablecoin can be linked to one currency or it can be linked to a basket of currencies. You might remember the old Facebook logic that was going to be a big basket of currencies that would create that stable environment. Now, this is not the same logic in terms of the ultimate goal, but the logic of being fixed to a basket of values means that there's very little point in trading it. You don't trade, for example, one stablecoin for another. You trade stablecoin for its different purpose.

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