One of the greatest crypto Influencers just shared his money-making strategy — but the Internet is not impressed

Renowned crypto influencer PlanB posted an article about quant trading on Twitter, describing a simple strategy that will turn $3.5 invested in 2011 into $5 million in 2022. This involves using 4x leverage and watching the monthly RSI (a technical analysis indicator that determines the strength of a trend and the probability of trend reversal).

Yes. we were as impressed as you are now before we remembered that simply buying bitcoins in 2011 would have also made you a millionaire — and without all that fuss with leverages.

Well, the author didn’t forget to add: “Nothing in this article is financial advice. All content is for informational and educational purposes.”

The advice he gives is essentially straightforward: “If (RSI was above 90% last six months and dropped below 65%) then sell, if (RSI was below 50% last six months and jumps +2% from the low) then buy, else hold.”

He shows as an example trading rule only based on monthly bitcoin (BTC) data and the relative strength index (RSI). The goal is to outperform the simple strategy of buying and holding BTC.

If you had bought 1 BTC in April 2011 for $3.5 and hodled until July 2022, you would have 1 BTC worth $23,322. That is a 119% annualized return. However, you would have to stomach significant risks, like -82% drawdown (max cumulative loss) in 2014.

In this new quant investing article:
1) Process: Data -> Info -> Knowledge -> Wisdom
2) Example trading rule: based on monthly #bitcoin and RSI, outperforms buy&hold 10x in an 11yrs-backtest. This trading rule gave a buy signal based on July close ($23.3K)https://t.co/N5ZKFqCKDK pic.twitter.com/pHDe8NKfcS

— PlanB (@100trillionUSD) August 9, 2022

The trading rule does eight transactions and turns $3.5 start capital in April 2011 into $229K (10 BTC) in July 2022. 10x buy&hold outperformance, 168% annualized return, and less risk (-57% drawdown).

Leverage of about 4x and in-the-money call options (ITM) will turn $3.5 in April 2011 startup capital into $5M (214 BTC) in July 2022.

“In this example, I am using call options with 4x leverage and a position size of only 33%. This means that 67% of the portfolio is in cash, with little risk. Even if a month comes along with very negative BTC returns and call option expires, our maximum loss would only be -33% per month,” PlanB wrote.

How does RSI correlate with target BTC?

2011, 2013, 2017, and 2021 BTC tops correlate with high RSI. Similarly, 2011, 2015, 2018/19, and 2022 BTC bottoms link with low RSI. Bull markets seem to run out of steam when RSI>90. Bear markets seem to fizzle out when RSI<50. So, this pattern can be helpful for a trading rule that avoids bear markets and outperforms buy&hold BTC.

“If you bought $7 of Apple in 1985….”

However, commentators on Reddit didn’t appreciate the genius of the Influencer’s advice at all:

“Almost any plan that involved buying bitcoin in 2011 could make you a millionaire.“

“PlanB has a follow-up that can make you even more money! If you invented Google in early 1998, you’d now be a billionaire!“

“But wait. There’s more. If you sold Saudi Arabia’s oil before they did, you’d be a trillionaire!”

“If you bought $7 of Apple in 85, you could have bought $1 million of BTC in 2011.”

“Just found Microsoft in 1975; it’s easy, guys.”