Operation Saylor - Episode 24/120

Hi again and welcome to another episode of the Operation Saylor. This is update number 24, corresponding to June 2024.

If you are reading this for first time, you might want to check Episode 1, where my plan and details are explained. That will get you in context.

Hello again, and welcome to a new episode of the series. Today, we finalize with the handful of episodes that I want to dedicate to discuss how to measure the performance of Operation Saylor.

As a reminder, on Episode 22 I discussed the relevance of taking both risk and return into account, how I believe performance is a function that goes through all time and not just until the end of the Operation, and why comparing against DCA doesn't make all the sense. On Episode 23, I presented to you the Exit Value metric, as well as its time-accounting derivative, the Integrated Exit Value.

On this episode, I want to leverage that we are now a bit on the same page since the previous definitions and explanations, and use that to run something more fun: comparing Operation Saylor against another course of action, much more traditional and frequently recommended.

Now, you might remember from Episode 22 how I discussed that comparing Operation Saylor against simply DCA-ing the equivalent of the loan installments wasn't valid, for Operation Saylor is a cashflow free that doesn't require me adding funds regularly. DCA-ing, on the other hand, would require me to add funds each month. Thus, we would be comparing apples to oranges.

Nevertheless, I really want to compare this against a normal DCA. To make this possible, I'm going to play a small trick and present to you a theoretical course of action I'll dub DCSAY. DCSAY is simply playing an imaginary parallel universe where I would have run Operation Saylor identically to what I've described so far, with the only caveat that I would have paid the loan installments from my personal pocket instead of using the Operation's stack. Because of this, in DCSAY, I would have simply built up my bitcoin stack at the beginning of the story and I would have never sold a single sat, but used my personal euro funds instead.

Now, because this hypothetical backtest, just like a normal DCA, implies paying out 366.20€ each month out of my pocket, we're back to comparing apples to apples territory. It is not a fully honest comparison towards the real Operation, but it serves well the purpose I'm after: comparing the risk/return of taking the loan or not.

Okay, now that's been quite a few hoops we jumped and we still didn't start with the juicy bit. So, you might be wondering, why all the trouble to benchmark against the DCA?

One of my frustrations before I started Operation Saylor, and one of the reasons I started writing about it, was how commonly borrowing fiat to buy bitcoin was (and is) regarded as a crazy, irresponsible and mindless thing to do without any kind of analysis. And I'm not even talking about normies thinking such things: to them, just buying bitcoin is already beyond salvation, no need to bother with leverage. What got me was seeing seasoned Bitcoiners everywhere jumping into such a mental shortcut, while disregarding first principles thinking. My hope when I started writing was that Operation Saylor could serve as a corner of discussion for this topic, as a real story that would describe in high precision and step by step how doing this looks and feels like, and also just as a bit of good old leading by example.

As time has passed, I've spent more and more time reflecting on this topic and I've also learned a thing or two along the way. With this experience, I've changed my mind: now, not only I think that borrowing fiat to buy Bitcoin is not crazy, but I actually think that for many people ¹ it is, within certain bounds, a vastly superior strategy to DCA.

So, I'm hoping many of such people can read this comparison and at least give it some thinking.

Now, enough setting the foundations and justifying. Let's compare some numbers, shall we? For the following figures, DCA means doing DCA with the equivalent to the loan installments. DCSAY I've already explained above. Any other factors I haven't covered in detail (when to buy bitcoin, the price over time, etc) you can assume to be identical to the real Operation Saylor.

Let's begin with a simple one: the size of the Bitcoin stacks for each strategy:

Now, that's a predictable one. DCSAY means making a handful of big purchases during the first six months and then staying there. DCA keeps on adding slowly. Obviously, DCSAY has the upper hand here. But then again, it would be foolish to ignore the liability that exists in DCSAY and does not in the DCA. I would also like to direct your attention to the steepness of the orange line: it's not that noticable, but you can see its growth is slowing down. As sats get more precious, the DCA strategy has more trouble to climb against the DCSAY stack. We'll have to wait eight more years to find out if the lines ever cross.

Let's look at both in fiat terms:

Kind of the same story as the Bitcoin denominated time, just with the added touch of reflecting the volatility in the BTC-EUR price. Nothing to see here besides flashy fiat amounts.

Next, we look into something way more interesting and relevant: the Exit Value. Note that, in the case of the DCA option, since there's no liability at all, the Exit Value is simply the value of the DCA stack itself.

Now, this is something else. The first observation is how the Y-axis negative area comes to life: with the introduction of liabilities into the comparison comes the fact that DCSAY (and generally, any strategy that borrows money) can go negative. Here, the DCA option can flex: you might accumulate more or less, but you won't ever step into red numbers territory.

In late 2022, with the bear market still heading towards the local bottom, DCSAY stayed in the red for quite a bit. This is the kind of risky exposure that borrowing fiat comes with, and that should clearly be taken into account when judging options. Nevertheless, as we got through the FTX drama, DCSAY caught up with DCA and boomed afterwards, with an upside that has been much stronger than the previous downside.

The final chart I want to show you condenses all of this in one picture:

Don't get blinded by the Y-axis values: what you see is an integral, so it's not really euros we are measuring there. The integral accumulates negative values everytime we spend a month in the red (negative Exit Value) and grows everytime we spend a month in the green (positive Exit Value). The more intense the green/red, the more the curve climbs/drops. Every month in the history counts, and so staying in deep red penalises you forever, just like being heavily in the green rewards you.

The simple way: higher is better.

Now, the DCA strategy can't ever go into negative territory here, since its Exit Value can't be negative due to the lack of liabilities. And it took the lead against DCSAY for a long time because of that early period in the bear market when things were looking bleak. But the recent pumps of 2024 allowed DCSAY to clearly overtake the DCA. It makes sense: the sourness of a few months being in the red in 4-figures magnitude don't cover up the sweetness of being in the green in 5-figures magnitude.

So, the comparison begs the question: did DCSAY, the slightly modified cousin of Operation Saylor, beat DCA-ing? My conclusion is it clearly did, as shown in the monster gap that we are now experiencing in the last graph. Although let's keep in mind we are early and this chart can evolve in volatile ways as time passes. I don't want to sell the skin before we hunt the bear.

Also, this doesn't mean the DCSAY strategy is going to beat any DCA. The timing I experienced was extremely good, pretty much nailing the entry in 2022's bear market. Different entry points would lead to different pictures, some nastier and some prettier. This is another interesting line of analysis that I'll hopefully tackle some other time in the series.

I hope you enjoyed this and the last couple of episodes. With this episode, we'll conclude the barrage of numbers and metrics. Next month will be time to reflect a bit and celebrate the second anniversay of the Operation. As always, thanks for reading and I'll see you next month.