Hi, this is Colton Dillion from Hedgehog, the crypto robo-adviser that keeps your portfolio balanced and diversified, so you can benefit from the craziness of crypto without needing to time the market. Speaking of which…

Taking Profits

I have another thought about rebalancing, the practice that keeps your investment portfolio diversified to manage risk. (You may recall that automated rebalancing is a core Hedgehog feature.) As we discussed recently, rebalancing involves selling high and buying low. That sounds like the obvious thing to do, but it can be difficult in practice, because it means selling the higher-value assets to buy more of the lower-value ones. Psychologically, that feels weird; it's counterintuitive. But intuition isn't everything, especially in finance.

Regular rebalancing, like dollar-cost averaging, is a discipline that bypasses the human tendency to follow hype. So is the crypto-classic "buy and HODL" mentality, another way to benefit from time in the market (versus trying to time the market). But HODLing has a weakness compared to rebalancing: you don't take profits or harvest your losses for tax breaks.

Because rebalancing involves selling high, you're pushed to actually profit from the investments that perform well cyclically. While past performance is no guarantee of future returns, this approach has often proved more effective than trying to call the top of the market, a notoriously hard feat.

$500k Fatfinger

An expensive snafu was spotted this week:

A user accidentally paid nearly 20 bitcoin ($500,000) in a fee to move just 0.008 bitcoin ($200), setting a record for the most expensive transaction fee paid in U.S. dollars for a single Bitcoin transaction.

The wallet that made the payment is a Bitcoin power user, having sent and received more than 120,000 transactions, according to Casa CTO Jameson Lopp.

"The transaction that paid nearly 20 BTC ($500,000) fee a few hours ago looks like an exchange or payment processor with buggy software," Lopp said on X.

I was going to say this is a great microcosm of bitcoin privacy — everyone can see what happened and marvel at the mistake, but no one knows exactly who the culprit is. That's the nature of pseudonymity.

But then Mononaut figured it out (probably): "The fat fingers belong to PayPal." He commented, "Single-address wallets are terrible for privacy. It was trivial to unravel PayPal's entire wallet structure and payment history from one known tx." So… still a great microcosm of bitcoin privacy, namely that it's easy to mess up!

Quick Hits

Five fun links:

A direct result of the Grayscale decision.

Dang, I wonder how much I could get for my own MetaFactory hypebeast collection. "Real-world Assets" or RWAs are so hot right now… but it might be demoralizing to appraise my own closet 😅

Like T-shirts? More seriously: the intertwining of TradFi and DeFi continues, and will keep continuing. I think I liked Azuki's physical-backed token (PBT) acronym better, since a whoopie cushion has the same onomatopoeia.

At least in theory, NFTs are a good fit for luxury fashion and similar prestige assets. From the OpenSea x Puma page for GutterMelo sneaks:

NFT technology is valuable to the sneaker industry for many reasons: provenance and an immutable record of authenticity and ownership, scarcity and rarity for digital goods, and the ability to buy and sell sneakers without always having to ship the physical item. And because the physical sneakers have a high-quality digital counterpart, GutterMelo collectors can showcase their exclusive ownership in the digital world as well.

That's all for today!

Keep hedging,
— Colton

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