Max Gain, Min Pain…Taming Drawdowns: Drawdowns are the stress test of any investor. Balanced portfolios are built to diversify risks and mitigate drawdowns. But last year’s rise in interest rates turned hedges into amplifiers. Leverage was the enemy of portfolio managers, worsening the degree of drawdowns. Hindsight may show it to be technical. Ten-year bond yields in the UK surged nearly 150 basis points in one week last September alongside the purge of leveraged longs. Yields fell sharply thereafter. Bitcoin saw its fifth 50%+ drawdown into rapid policy tightening. The FTX debacle marked a low. The price is always right, matching buyers and sellers. But it isn’t always a signal to extrapolate. Every cycle is nuanced, and this one is especially so. Take the total fees paid on the Bitcoin Network. There have been three distinct spikes, including 2023. In 2017-2018, the surge in bitcoin transaction activity saw prices jump 5x, only to trace by early 2019. The rise in bitcoin prices was even more extreme in 2020-2021, with a similar surge in network fees. This time around, the price of bitcoin did a bunch of nothing as transactions and fees soared. Why? Well, this isn’t a hype cycle. The flat shape of the bitcoin forward curve tells you that bullish speculation is constrained. It is also a sign of a maturing market. Investors have seen this movie before. Today, they are applauding proof-of-concept experimentation, not chasing pink elephants. Flat curves and low volatility make leverage more enticing. Use it wisely. The key to seeing through a drawdown is to look under the hood. Leverage doesn’t afford you that time.