🟢 Bitcoin bullshit (+ the truth)

A deeper look at crypto. Is it an attractive long-term investment?

Apr 06, 2024

(26 min read)

Digital art. strong bitcoin bull and cowering bitcoin bear. green theme.

👉 This long article gets cut off in email! 

View on the web by clicking the title.

We were sitting in our dark, dingy, asbestos-caked office 1.3 miles from the beach in San Diego in 2013.

It had been more than 4 years since blockchain and Bitcoin had been invented in January 2009.

I hadn’t even heard of it.

A coworker excitedly introduced us to the concept.

I dismissed it as a scam.

Within a year, I changed my mind and bought some in January 2014.

Over the past 10 years, I’ve heard endless bullshit about Bitcoin, both for and against.

Let’s dismantle all of that garbage and then look at what matters and figure out whether there is anything interesting going on.

⚠️ Before continuing, though, please read an article that I spent many days writing:

🟢 What I learned managing $210 billion

Ryan Walsh 🟢

Mar 2

Read full story

As you’ll see there, I recommend a cautious approach to managing wealth.

Bitcoin, on the other hand, is risky territory.

But it’s fascinating.

I couldn’t stop myself from writing this article for myself (to explore my thoughts).

✅ Bullshit reasons in favor of Bitcoin

And my response under each heading.

Track record of strong returns

Past performance is not indicative of future results. Ever.

What would the world look like if investments ever worked that way?

There would be no uncertainty, and we’d all already know which assets to buy.

Liquidity (it’s tradable 24 hours a day, 365 days a year)

This is a nice feature but doesn’t inherently make something valuable.

If I opened a market where you could trade used dental floss 24/7, it doesn’t mean you should.

Portfolio diversification

(Its price movements are relatively uncorrelated with those of stocks, bonds, and other traditional asset classes.)

So is pure chance or gambling.

I only want assets in my portfolio that have a positive expected return (not net zero or negative expected return).

If there is a reason to expect a positive return from crypto, then its low correlation to other assets would be icing on top.

Media spotlight

Media outlets are incentivized to prioritize sensational content over our best interests.

Fads are temporary.

I’d never want to risk substantial money on the persistence of a specific trend.

Who knows when one will end?

What happened to people who put their wealth in Beanie Babies or Pokémon?

Increased adoption over time

Palm Pilot had a faster adoption than color TV, the VCR, or cell phones.

Palm Pilots were so useful. Until smartphones came along.

What’s popular changes.

When choosing which assets to hold in a long-term portfolio, I look for something that will endure for decades or centuries.

Impressive technical invention

I’ll never forget working at Eckerd as a cashier in December 2001.

Each day, the Atlanta Journal Constitution newspaper headlines said that the new Segway scooter would revolutionize the design of cities. Exciting!

But so over-hyped. Cities haven’t changed because of Segway scooters at all.

Neat technology does not always fulfill its promise (or lead to value).

Scarcity

Central banks have continually printed cash, inflating away its purchasing power.

The Bitcoin protocol defines that there can never be more than 21 million bitcoins.

Mere scarcity of an item in itself isn’t sufficient to make it an attractive investment.

I painted a picture of a goose by a lake.

But unlike Pablo Picasso’s painting, mine won’t fetch $230M at auction even though it’s the only one of its kind.

Bitcoin’s scarcity can be beneficial (and is), but that alone can’t be the main reason we value it.

❌ Bullshit criticisms of Bitcoin

Too much volatility

Which kind of volatility?

The volatility of the BTC-USD exchange rate would become less and less relevant if more goods and services were priced directly in BTC.

What matters is whether Bitcoin’s purchasing power is volatile.

It still is, but maybe this will decrease enough for BTC to be useful as a currency someday.

Also, if you’re not using Bitcoin as a currency (and just want it as an investment), high volatility is acceptable, as long as your expectation of its increase in value makes the risk worthwhile. See the charts in later sections.

Prone to user error

Bitcoin is not user-friendly. That much is true.

People lose their Bitcoin all the time (either because they lose their keys or because they got tricked into a scam, or whatever).

That’s all solvable with more education.

Security risks

There are wallets with billions of dollars in them.

If they were hackable in a cost-efficient way using technology available today, someone would have stolen the money.

What about hackers in the future using new technology such as quantum computing?

If/when current-day encryption standards fail, so much of society will break that Bitcoin might not even be the biggest concern.

Technologists (including those updating the decentralized Bitcoin network) are already feverishly working to prevent this scenario.

Scalability issues

It’s true that Bitcoin transactions are slow and expensive compared to NEAR1 and other more modern blockchains.

Bitcoin’s possible attractiveness as an investment doesn’t depend on its attractiveness as a currency, though.

Environmental concerns

(Cambridge Blockchain Network Sustainability Index says Bitcoin’s electricity consumption is 170.7 TWh per year, which is more than all of Egypt.)

I’m generally not worried about energy usage.

Humans will always want more energy than we have. There is “latent demand.” The increased supply of energy causes more demand of energy to be voiced.

Plus, humans will soon harness much more energy than ever before (via cold fusion, more efficient solar panels, and better batteries).

Market manipulation

Celebrities / Individuals

Due to its relatively small market size compared to traditional assets, Bitcoin markets are susceptible to manipulation by influential individuals.

For example, people like Elon Musk can “move the markets” with a single tweet, such as when he has hyped Dogecoin or Bitcoin in the past.

However, the threat of market manipulation seems to be asymmetrical.

Celebrities can pull stunts that augment interest (if only temporarily).

But it’s hard to imagine individuals having the power to repel interest.

“Satoshi Nakamoto”, on the other hand, might be a valid concern.

If someone proves that they are Satoshi Nakamoto (has the private keys of the original Bitcoin wallets), could that person’s identity or opinions harm public opinion of Bitcoin?

I’d say yes if that person has been implicated in serious shady behavior.

But A) that seems highly unlikely and B) the more the world embraces Bitcoin over time before the identity of Satoshi is revealed, the less their identity will matter.

Miner Pools

If the largest pools of miners (e.g. Foundry and AntPool) somehow combined forces, “they could potentially control more than one-half of total Bitcoin production” and coordinate a “51% attack” on the network.

This seems unlikely since there are enough investors watching out for this scenario who presumably would create competing pools of miners in time to prevent an attack.

✅ Real benefits of Bitcoin crypto

(These apply to any crypto, not just Bitcoin.)

Permissionless, intangible store of wealth

Human history has continually trended towards more technology and more individual freedom (progressive culture).

I don’t expect that momentum to change.

The internet has increasingly permeated our lives.

We increasingly depend on and appreciate of our devices (e.g. our connection to the internet).2

The 2009 invention of digital property (Bitcoin being the first) is undeniably ground-breaking.

For the first time ever, people can own something digital. Virtual. Intangible.

Critics are concerned that “it’s not a productive asset, so there must not be intrinsic value.”

But what if without producing anything it could still be valuable?

Decentralized

It seems to me that the value it adds to the world is that now people can instantly send property anywhere without needing to trust a third party.

You have access to your crypto wallets at any time, no matter which borders you walk across, who is in political power, which banks have failed, or which tech monopolies are dominant.3

This freedom would be impossible with physical cash or with bank accounts.

Tamper-proof

Transactions on the public ledger are irreversible and transparent. Recipients don’t need to worry about a bank being able to claw back funds.

Payments are as final as with cold, hard cash (but they can be done remotely over the internet).

Accessible

There are no gatekeepers who can prevent anyone from creating a Bitcoin address and receiving a transfer of funds.

Even if you live in an emerging economy and have no access to a bank, now you have a safe way of being able to save wealth.

This accessibility is particularly beneficial for individuals in countries with unstable or oppressive regimes, where traditional banking systems may be unreliable or restricted.

Now that this technology has been invented, I cannot imagine humanity not embracing it.

International

When Bridgewater recruited me from Princeton in 2006, China had just recently loosened its peg of the Chinese yuan to the US dollar (which had been creating extra demand of Chinese goods by making the USD artificially strong).

Ray Dalio showed us how China was on the rise.

The USA might not remain the superpower of the world for long, and the USD would no longer be the world’s preferred currency.

From 2006 to 2014, the CNY gained strength relative to USD (to Bridgewater’s delight, since they’d predicted it and had bought a ton).

Now that truly international currencies like BTC exist, I think it’s possible that many businesses and governments will prefer to use those instead of one controlled by a foreign central bank.

Convenience of transactions that don’t depend on banks

The following benefits would be meaningless without the main one (“Permissionless, intangible store of wealth”).

But they add to the appeal.

Availability

Can you imagine asking your bank if you could close on your new house on a Sunday?

It never happens.

Crypto works 24/7, though!

The next 2 benefits apply less to Bitcoin and more to other cryptocurrencies.

Lower fees

As the world (especially the younger generation) moves more online, the more infrastructure will need to support frequent, fast financial transactions.

Credit cards and banks currently tend to charge fees of 2.9% + 30¢. We’ve become so accustomed to this 3% loss of our income!

Soon, nobody will accept this sacrifice because there are alternatives (via crypto) whose fees are nearly 0%.

Additionally, these steep fees have been preventing many smaller transactions from happening at all.

(You’d never send someone $0.50 or $1 if you also had to pay >$0.30 fee on it!)

The world will expand with many more opportunities once people have crypto wallets built into their browsers and are able to send microtransactions.

Social media will feel a lot different. People will be able to tip pennies at a time, for example (instead of merely clicking “❤”).

Microtransactions are already popular within apps, such as in the video games that kids play these days. But they currently depend on trusting a 3rd party with your money (when you fund your account ahead of time).

Going forward, apps will use public open source crypto protocols so that you remain in control of the full amount of your funds until you choose to send some anywhere (even in tiny amounts).

And did I mention Western Union (and banks in general) charging $20-$100 for wire fees?

Ugh. No more. Send money directly from your digital wallet to your friend’s.

Last week, I sent $42,036 in a crypto transfer that completed in only 8 seconds (not 3+ business days, like ACH). The transaction fee was $0.006 (not $20-45, like a wire).

Speed

Domestic wire transfers are usually processed within 24 hours, while international wire transfers can take anywhere from 1 to 5 business days, depending on the complexity of the transaction and any unforeseen delays in the banking network.

With crypto (such as NEAR or Solana), transactions finalize within seconds.

🤷 Possible benefits of crypto (e.g. Bitcoin)

Deflation

Fiat currencies’ buying power gets inflated away over time (which feels like an invisible tax):

chart of Purchasing Power of $1 USD Over Time

Has your employer given you monthly (or at least annual) cost-of-living adjustments to your pay?

(Raises that reward you for gaining skills over time don’t count.)

Has your income increased enough since 2010 (via cost-of-living adjustments alone) to compensate for the fact that each dollar buys you 30% less than it used to?!

For most of us, the answer is no.

Many people advocate storing wealth in Bitcoin as a protection against inflation (sort of like inflation-linked bonds offer).

Bitcoin will stop issuing new coins after 21 million bitcoins exist. Since the “money supply” cannot increase further, inflation cannot happen.

If you can earn and spend in BTC someday (rather than worry about a fluctuating exchange rate with USD), you will never worry that the amount of goods that you can buy with BTC will have decreased over time because of some central bank deciding to issue more money (reducing the value of yours via inflation). (No central bank can create more BTC to inject into the economy.)

However, other experts worry that deflation can harm the economy:

“If the price of the good I want is lower in the future than it is today, I will wait to purchase it. If everyone thinks this way, the economy slows.”

I haven’t seen strong enough arguments from either side.

What will happen with AI?

AGI (superintelligence) is fast approaching too.

Likely it will change the nature of many tasks within many jobs and will create certain new jobs while eliminating many more.

Does this prediction encourage or discourage investing in crypto?

The upcoming tsunami of AI could encourage crypto for various reasons (which I plan to learn more about):

Deepfakes are dangerous. (E.g. especially before elections, we’ll want to know for sure which videos are actually recorded by presidential candidates rather than spoofs.) Will cryptocurrencies be part of the solution (of identification and verification)?
The development and training of AI can require lots of crowdsourcing (human tasks), and there haven’t been good ways to pay small amounts to large numbers of people (because of the high transaction fees).4
We’ll want to empower AI agents to act on our behalf, making many transactions for us. We might feel more comfortable giving our AI agents small amounts of crypto directly rather than giving them our bank passwords (as you might trust a child with $20 cash but not your credit card).
Probably universal basic income will become necessary to prevent social uprising that can occur when wealth gaps increase. Distributing funds directly to each individual might be easier via crypto.

❌ Real criticisms of Bitcoin

Lack of intrinsic value

When you buy a house, you or someone else will live in it, so it’s inherently valuable.

When you buy shares of a company, you participate in the profits of what the company produces.

Real estate and equities seem easier for me to understand the value of.

Even bonds represent an expectation of future cash flows.

Investing in crypto seems to require a belief that the world will fundamentally change. (See the “Permissionless, intangible store of wealth” section.)

Government opposition

The more threatened governments feel (such as for the following reasons), the more they will interfere with the adoption of cryptocurrencies, such as by requiring Know Your Customer controls and other stifling measures.

Oversight / prevention of criminal activity

While Bitcoin transactions are not inherently anonymous, they can be more difficult to trace than traditional financial transactions.

Governments fear a possible increase in illicit activities such as money laundering, tax evasion, or drug trafficking.

Monetary policy

Governments typically have the authority to issue and regulate currencies within their jurisdictions. Bitcoin’s decentralized nature challenges this control, potentially undermining a government’s ability to manage its monetary policy and currency.

National security

Some governments may view Bitcoin as a threat to national security due to its potential use by malicious actors to circumvent financial sanctions or fund terrorist activities.

Competition

People had been trying to invent digital money for years.

Bitcoin was the first workable solution (actually solved the double-spend problem).

Since its release in 2009, 23,000 other cryptocurrencies have been invented.

Many of them (including NEAR, Solana, Ethereum, and others) are superior to Bitcoin in many dimensions (faster transactions, cheaper fees, programmability of smart contracts, etc).

Yet Bitcoin still represents 50% of the entire market cap of all crypto, with the #2 token (ETH) far behind at 15%.

My approach to this has been: hold a market cap-weighted basket of the top ~20 cryptocurrencies excluding stablecoins and memecoins.

Other than my unwillingness to buy into the fads like Dogecoin, I don’t feel confident enough to handpick which ones will thrive.5

What would the world look like?

I’ve been shocked not to find answers to this question:

“If the purchasing power of BTC increases and/or the BTC-USD exchange rate increasingly favors BTC holders, what does that imply for the economy? What does it mean if it happens quickly?”

In other words, does BTC’s “success” depend on something drastic and terrible happening to the USA or world (e.g. rampant inflation of USD)?

I put this question here in the “Real criticisms of Bitcoin” because (even though my current guess is that it’s not a reason to avoid Bitcoin) I wish I understood more.

Bugs

In my decades of experience as a software engineer, I’ve noticed that code tends to contain more errors than one might guess.

It worries me that Bitcoin is an imperfect project depending on active participation from imperfect humans.

There was a devastating bug in 2010 where attackers were able to give themselves 184 billion BTC (but the bug was patched within 5 hours, and the whole network forked to nullify the nefarious transactions).

There has been at least one other bug that would have enabled an attacker (if one had discovered it) “to create new bitcoin—above the 21 million hard-cap of coin creation—thereby inflating the supply and devaluing current bitcoins.”

There are many bugs and many new versions of the software that Bitcoin node maintainers need to keep upgrading to.

I suppose the decentralized nature of the project has so far kept it alive and well, but it does make me a bit nervous.

🗣️ Let’s look at what the “experts” say about Bitcoin

⚠️ Note that I could not find recent, updated opinions from most of these people.

✅ In favor of Bitcoin

Michael Saylor

(Co-founder and executive chairman of MicroStrategy, which was a business intelligence software company but now mostly just invests billions of USD into Bitcoin)

He says: If you could design a perfect money, it would be this!

The 3 risks are: will it be banned, copied, or hacked.

It won’t be banned in US or China or most other countries that value property rights.
It has already been copied 10k times, but this is the winner.
There are wallets with tens of billions of USD worth, and they haven’t been hacked.

“This is the first sound economic protocol in the history of the world.”

Paraphrasing: Money is energy. Diversified index funds have been the best option for maintaining wealth. Or real estate in desirable places (NYC, LA, London). But the USD’s buying power is deceasing, so you should short the currency and buy property outside of the country. Bitcoin is a way of doing that. 2024-04-02

He also often says owing Bitcoin is better than owning physical property because it’s great that you don’t need to pay property managers or keep repainting a building.

🤔 Saylor’s comparison to renting out physical property strikes me as a faulty. Physical property has real uses. There are no renters of Bitcoin in a comparable way. Any reason for wanting to borrow bitcoin would depend on something other than intrinsic value.

Cathie Wood

(founder, CEO, and CIO of Ark Investment Management)

“Last year we put out our bull case for bitcoin. It was $1.5 million. [Base case was $650k in 5-7 years] With this institutional green light that the SEC has provided, kicking and screaming though it did, the analysis we’ve done is that if institutional investors were to allocate a little more than 5% of their portfolios to bitcoin, as we think they will over time, that alone would add $2.3 million to the projection I just gave you. [1 BTC could go as high as $3.8 million.]” 2024-03-22

Brian Armstrong

(co-founder and CEO of Coinbase, one of the largest cryptocurrency exchanges in the world)

“Bitcoin may be the key to extending western civilization.

The natural trend of whichever country has the reserve currency is to inflate the money supply and increase deficit spending until it loses that advantage. The U.S. is somewhere on this journey, which many have discussed including Dalio in The Changing World Order.

The Yuan and Euro have their own issues and aren’t viable alternatives currently, so the assumption is the U.S. can continue to inflate, but what I think many haven’t considered is that people have an alternative now with crypto. They may start moving fiat into crypto, as an antidote to inflation.

Contrary to what some may assume, I don’t think this be a threat to the dollar and the U.S., I think it will be a natural check and balance that will complement the dollar, and be the best defender of long term American interests (and western civilization more broadly). It’s better to move from dollars to crypto than to another country or region’s fiat. I also think both fiat and crypto will co-exist for a long time. They are more complements than substitutes. And dollar backed stable coins like USDC, or flat coins, will play a major role in unifying these worlds.” 2023-12-03

Balaji Srinivasan

(angel investor and former Chief Technology Officer of Coinbase)

“how do you save at scale then, if governments aren’t issuing bonds? Ideally, you invest in Bitcoin. […] Bitcoin is the index asset of the entire technologically hyperdeflating economy. It’s like a combination of gold and Vanguard.” 2024-03-17

Satoshi Nakamoto

(pseudonymous person or group of people who created Bitcoin, the first and most well-known cryptocurrency)

“Commerce on the Internet has come to rely almost exclusively on financial institutions serving as trusted third parties to process electronic payments. While the system works well enough for most transactions, it still suffers from the inherent weaknesses of the trust based model. Completely non-reversible transactions are not really possible, since financial institutions cannot avoid mediating disputes. The cost of mediation increases transaction costs, limiting the minimum practical transaction size and cutting off the possibility for small casual transactions, and there is a broader cost in the loss of ability to make non-reversible payments for nonreversible services. With the possibility of reversal, the need for trust spreads. Merchants must be wary of their customers, hassling them for more information than they would otherwise need. A certain percentage of fraud is accepted as unavoidable. These costs and payment uncertainties can be avoided in person by using physical currency, but no mechanism exists [until Bitcoin] to make payments over a communications channel without a trusted party.” 2009 whitepaper

Tyler and Cameron Winklevoss

(investors who co-founded Gemini, a leading cryptocurrency exchange)

“Sued their former Harvard classmate and Facebook founder Mark Zuckerberg for cutting them out of the windfall from the social network’s massive success. They got $20 million in Facebook stock as a settlement, which ended up being worth $200 million when Facebook, now Meta, went public. The twins used some of that money to buy up 1% of all the bitcoin in the world, which at time was trading at about $10 apiece.”

Dan Morehead

(founder and CEO of Pantera Capital, one of the first and largest institutional investors focused on cryptocurrencies and blockchain technology)

“when smart people actually take the time to read and think about blockchain – not just a reactionary sound bite – 95% of them end up believing it’s going to be massively important.” 2023-07-14

Naval Ravikant

(entrepreneur, angel investor, and the co-founder and chairman of AngelList, a platform for startups, angel investors, and job seekers)

“Bitcoin is an exit from the Fed.

DeFi is an exit from Wall Street.

Social media is an exit from mass media.

Homeschooling is an exit from industrial education.

Remote work is an exit from 9-5.

Creator economy is an exit from employment.

Individuals are leaving institutions.” Jan 2, 2021

Tim Draper

(venture capital investor and founder of Draper Fisher Jurvetson, Draper Associates, and Draper University)

Said on Bloomberg that BTC will rise to $250,000 by 2025 and would have already reached it if the US bureaucracy weren’t so aggressive.

He thinks BTC will even be a useful currency via the Lightning network.

Anthony Pompliano

(entrepreneur, investor, and co-founder of Morgan Creek Digital Assets)

“My biggest takeaway from the event was how impactful the spot bitcoin ETF approvals have been to institutional interest. I knew that the approvals had been helpful, but I was blown away by the night-and-day difference between the pre-and-post approval conversations.

Many organizations are now at a point where they want to allocate to the asset, but there are bureaucratic processes that must be followed. This means that many capital flows are delayed and will take weeks or months to enter the market.

Given this detail, it is encouraging to see the price appreciation without full institutional participation, because it signals increasing future demand that will show up post-halving. If things go as planned, we should continue to see bitcoin’s price rise through the end of 2024.” 2024-03-25

Larry Fink

(chairman and CEO of BlackRock, the world’s largest asset management firm)

“Bitcoin will transcend every international currency due to broad-based worldwide demand” 2023-07-14

Nic Carter

(partner at Castle Island Ventures, a venture capital firm focused on blockchain and cryptocurrency investments)

“[I think someone at the NSA invented Bitcoin and leaked it to the public, but] This doesn’t imply the US govt secretly controls all the satoshi coins btw. In my version of this made up idea, the researcher did it without permission of the NSA, and chose to leave the coins behind so as to preserve his anonymity” 2023-09-21

Mike Novogratz

(businessman, former hedge fund manager, and investor who founded the cryptocurrency investment firm Galaxy Digital)

“The Bitcoin story is spreading far and wide, and until we see countries adopting more credible fiscal policies, the narrative will only grow stronger. Bitcoin is a report card on fiscal stewardship!!” 2024-03-13

Marc Andreessen

(investor, software engineer, co-author of the Mosaic web browser, co-founder of Andreessen Horowitz, a venture capital firm)

“In 20 years, we'll be talking about bitcoin the way we talk about the internet today.” 2014

Jack Dorsey

[co-founder and former CEO of Twitter, founder and CEO of Block, Inc (formerly called Square)]

“Bitcoin and nostr are the only two truly censorship resistant technologies at scale.” Jun 16, 2023

Peter Thiel

(co-founder of PayPal and Palantir)

“Peter Thiel's venture capital firm reportedly made $1.8 billion closing out its crypto positions [in 2022] – around the time when the early bitcoin bull was still predicting the token's price to surge 100 times.

Founders Fund had cashed out almost all of its bets on digital assets by March 2022[...]

But Thiel was still backing bitcoin when he spoke at a crypto conference in Miami the following month.

‘We're at the end of the fiat money regime,’ he said, adding that the token's price could increase 100-fold from its level at the time of $44,000.”

“From late summer to early fall last year [2023], the fund invested $200 million to acquire crypto tokens, half in bitcoin and the other half in ether” “Thiel has publicly praised bitcoin, a currency based on blockchain technology that exists outside the purview of central banks, saying it is a store of value like gold and a hedge against central banks' monetary policy.” 2024-02-12

David Swensen

(Chief Investment Officer at Yale University)

“The second-largest endowment in higher education is among investors that helped a new fund focused on digital assets raise $400 million” 2018-10-05

Paul Tudor Jones II

(founder of Tudor Investment Corporation)

“I see a generational divide, and it’s a digital divide and unfortunately Joe you and I are probably on the other side of it though. I think we’re both scrambling as fast as we can to understand it and and I see it all the time in our quant groups.

I see it all the time in my kids’ friends. If you look at the smartest and brightest minds, they’re coming out of colleges today, so many of them are going into crypto. So many of them are going into the internet. It’s hard not to want to be long crypto because of the intellectual capital, just the sheer amount of intellectual capital that’s going into that space.

And clearly if you think about the ultimate dream of crypto, it’s a borderless internet, right? Where all of a sudden you have blockchain as the verification code to allow anyone on the internet to instantly connect because the blockchain verifies who they are and then that opens up just huge possibilities.

Clearly central banks and central governments are not going to necessarily be huge fans of that particularly when it comes to using cryptos and media exchange.

That's the number one thing that's holding it back is the fact that you're not going to get buy-ins from governments because they lose their ability to control the creation and the in the supply of money.

Having said that, in a world where we're starting to deglobalize and breaking down and actually probably going reverse that ability to have the borderless internet that ability to have a store of value outside of necessarily having your money denominated whether it's in rubles or yuan or dollars it becomes very attractive.

So I’ve got my modest allocation to crypto.” 2022-05-04

George Soros

(hedge fund manager)

The family office owns “some coins … but not a lot,” Dawn Fitzpatrick, CEO and chief investment officer of Soros Fund Management, said. “I’m not sure bitcoin is only viewed as an inflation hedge here. I think it’s crossed the chasm to mainstream.” 2021-10-05

Mark Cuban

(investor)

Earlier, he’d “rather have bananas than bitcoin,” warning potential bitcoin and cryptocurrency investors that digital tokens have “no intrinsic value.” 2019-10-03

But then he changed his mind.

“[How much your portfolio is in cryptocurrency?] I don't even know how much, but it's happy. You know Bitcoin in particular and Ethereum Eth to a smaller extent. Bitcoin is just driven by supply and demand. There's only going to be 21 million of them.6 The more people that buy and the fewer people that sell, that means the price is going to go up. That's just the nature of it. It's a great store of value. That's why I have an investment in it, you know, because I do feel that the demand is going to exceed the number of people selling.” 2024-03-04

Peter Diamandis

(engineer, physician, entrepreneur, founder and chairman of the X Prize Foundation)

The world tends towards 6 Ds: Digitized, Deceptive, Disruptive, Demonetized, Dematerialized, Democratized.

Bitcoin is tracking the 6 Ds perfectly.

The “Disruptive Phase” began in 2014 when Wall Street entered the Bitcoin market. Here we began to see institutional money acknowledging digital currencies as an asset class. They started trading it, investing it, and creating products around it. In 2020, institutions such as Fidelity and PayPal launched Bitcoin funds, and companies like Square and Microstrategy have even started buying Bitcoin with their own capital. 2021-01-10

Raoul Pal

(investor and author who co-founded Real Vision, a financial media and education platform)

“All you need to know is that the world will move towards blockchain technology rather than revert to becoming Neanderthals. The rest is fucking noise.” 2023-11-29

Kevin O’Leary

(businessman, author, politician, and television personality on Shark Tank)

“I've got a 5% stake in Bitcoin and another 5% in gold, but the meat of my US portfolio? It's in OUSA or OUSM. There are other ways to play it, but in these unpredictable markets, you need companies that walk the talk, not just hype machines. Cash flow is king, my friends.” 2024-04-04

John McAfee

(computer programmer, founder of McAfee Associates anti-virus software company, and two-time US presidential candidate)

“When I predicted Bitcoin at $500,000 by the end of 2020, it used a model that predicted $5,000 at the end of 2017. BTC has accelerated much faster than my model assumptions. I now predict Bitcoin at $1 mln by the end of 2020. I will still eat my dick if wrong.” 2017-11-29

🤷 Undecided About Bitcoin

Carl Icahn

(activist investor and founder of Icahn Enterprises)

“I do think it’s here to stay in one form or another. [I’m studying the whole field of crypto and will see whether we want to invest $1B-$1.5B.]” 2021-05-27 and audio

Mary Callahan Erdoes

(CEO of the asset and wealth management division of J.P. Morgan)

[We don’t consider Bitcoin to be an asset class yet, but it depends on what our clients want, so we’ll wait and see.] 2021-07-20

Kyle Bass

(founder of Hayman Capital Management)

“[For example] If you’re in Hong Kong and you can’t seem to get a big conversion of Hong Kong dollars to US dollars, what are you gonna buy? Well you’re gonna buy anything that’s nailed down. You’re gonna buy gold, you’re gonna buy a Bitcoin, you’re gonna do whatever you can to get your money out of your regime that’s failing, and I think that’s what you’re seeing happen globally today. […] What’s going to happen is all the central banks to go print more and the price of every asset around the world—whether it’s an apartment building, an office building, of Bitcoin, or a piece of gold, or whatever—the price of everything will go up nominally, but real rates of return will come down.” 2019-08-05

Jeremy Allaire

(co-founder, Chairman, and CEO of Circle, the company responsible for USDC, one of the largest stablecoins)

He said on November 17, 2016, “It’s highly unlikely that any of us will be using Bitcoin in five or ten years. In the same way that — how many of us use NCSA Mosaic or Netscape Navigator?” “I don’t know what it will be called and when it will emerge, but it’s certainly not here today.”

But by Oct 28, 2020 maybe his views had shifted? “Bought $100 in BTC on @PayPal! Great milestone for the market!”

❌ Against Bitcoin

Warren Buffett

(co-founder, chairman and CEO of Berkshire Hathaway)

“Cryptocurrencies basically have no value and they don’t produce anything,” he told CNBC’s Becky Quick in a Squawk Box interview. “In terms of value: Zero.” “I don’t have any cryptocurrency and I never will.”

“If you ... owned all of the bitcoin in the world and you offered it to me for $25, I wouldn’t take it,” Buffett said. “Because what would I do with it? I’ll have to sell it back to you one way or another. It isn’t going to do anything.” 2022-04-30

Charlie Munger

(vice chairman of Berkshire Hathaway)

“Of course I hate the bitcoin success,” the 97-year-old Munger said. “I don’t welcome a currency that’s so useful to kidnappers and extortionists and so forth, nor do I like just shuffling out of your extra billions of billions of dollars to somebody who just invented a new financial product out of thin air.” “I think I should say modestly that the whole damn development is disgusting and contrary to the interests of civilization.”

Ray Dalio

(founder of Bridgewater Associates, the world's largest hedge fund)

“I am not a Bitcoin/cryptocurrency expert, I believe my views are not valuable enough to be relied on so I shouldn’t put them out. I know how much one needs to know in order to have a valuable opinion in the markets, so I wouldn’t bet on my own views. Still, people demand my non-expert assessment of Bitcoin and clarifications in my own words are better than distortions in the media so here it goes, presented with the warning not to rely on it. […] I suspect that Bitcoin’s biggest risk is being successful, because if it’s successful, the government will try to kill it and they have a lot of power to succeed. […]” 2021-01-28

“Personally, I’d rather have bitcoin than a bond [in an inflationary scenario].” “I have some bitcoin.” 2021-05-06

“We are in a world where money as we know it is in jeopardy. We are printing too much, and it’s not just the United States. People are going to say, ‘Where is my safe store of wealth?’ I think the question over the next number of years is really ‘What is money?’ Not just a medium of exchange but a storehold of wealth.”

Although Dalio doesn’t think of Bitcoin as a stable store of value, and he shot down the idea of stablecoins, he didn’t write off digital currencies altogether, and discussed a possible future that could include inflation-linked digital coins.

“I think you’re going to see probably the development of coins that you haven’t seen that probably will end up being attractive, viable coins. I don’t think Bitcoin is it,” he said. 2023-02-02

John Bogle

(founder of The Vanguard Group, known for pioneering index funds)

“Bitcoin: avoid it like the plague. It’s just another speculation.7 There’s not fundamental value here.” 2018

Bill Gates

(co-founder of Microsoft and co-chair of the Bill & Melinda Gates Foundation)

“I like investing in things that have valuable output. The value of companies is based on how they make great products. The value of crypto is just what some other person decides someone else will pay for it so not adding to society like other investments.” 2022-05-19

Whoa. I was surprised by this.8

Jamie Dimon

(chairman and chief executive officer of JPMorgan Chase, the largest of the big four American banks)

“My personal advice is don’t get involved.” He says it’s for illegal activity. 2024-01-17

Nassim Nicholas Taleb

(statistician, former option trader, author of the Incerto series, which covers deep uncertainty and probability)

“being critical of monetary-fiscal policy should not make you embrace bitcoin; just as being critical of wine consumption should not make you embrace cyanide.” 2023-09-12

“What will eventually kill bitcoin won't be a crash but inexorable decay. Fads are more threatened by indifference than by disgust.” 2023-08-25

Peter Schiff

(stock broker, financial commentator, CEO and chief global strategist of Euro Pacific Capital, founder of SchiffGold, a full-service, discount precious metals dealer)

“No point in pricing anything in Bitcoin has Bitcoin has no value to relate to anything else.” 2024-04-03

Paul Krugman

(Nobel Prize-winning economist)

He flagged a “crypto bubble” and the “dark side” of the crypto world.

Krugman has dismissed crypto as inefficient, volatile, and propped up by hype and speculation.

He says crypto is mostly useless, overvalued, and appeals to bank skeptics and criminals.

Elizabeth Warren

(American politician and former law professor who is the senior United States Senator from Massachusetts and a member of the Democratic Party)

She’s scared of terrorism financing.

My Conclusion

As I mentioned at the beginning, I’m risk averse enough that I’d never consider allocating a substantial fraction of my net worth into any form of alpha (crypto or otherwise).

So this exploration has been to answer (for myself) whether I think it’s worth allocating $5k-$10k more.9

Volatility

In other words, I’ve been asking myself whether I’m open to dabbling that much more in the upper right corners of these charts:

That’s a lot of volatility to tolerate.

Can you imagine stomaching a 93% drawdown?

E.g. seeing only $10k remaining in your wallet when you put in $100k originally?

Those drawdowns would be scary and life-changing if you’d invested more than you were comfortable losing.

Biases

Coincidentally, our town lost internet access for one of the days I was writing this post.

Offline, I started reading Nudge.

It reminds me of how humans have a “status quo bias” (loss aversion).

For example, would you accept a 50-50 coinflip bet where you either win $101 or lose $100?

Probably not. People don’t tend to accept the 50-50 bet until the payout is $200 (2:1)!

The authors of Nudge also state that unrealistic optimism is a pervasive feature of human life.

This rings true to me personally; as a kid in elementary school, I expected that by 2000 (when I was old enough to drive) I’d have a flying car (since they were already being developed in the early 1990s). Whoops.

These 2 biases collide.

Optimism

In the days I’ve spent researching for this post, my attention has been flooded with clickbaity, hypey videos that dream about amazing scenarios but don’t actually add meaningful analysis.

So much unfettered optimism.

Countless people are incentivized to promote Bitcoin and other crypto.

I don’t want those to cloud my judgment.

But I also don’t want to be irrationally loss averse if there is an asymmetric risk/reward opportunity in front of me.

What I notice

On the anti-crypto side, I feel a bit more aware of the critics’ opinions, the risks, and also the hollowness of certain proponents’ analyses.

On the pro-crypto side, I see a massive tide shifting.

More and more institutions and individuals are embracing crypto.

I see that people have converted from skeptics to believers.

(I don’t recall coming across any cases where a believer converted to a skeptic.)

Overall

I’m feeling optimistic that holding a diversified mix of crypto for the long term (10+ years) is a reasonable strategy for a small percentage of our (Katie’s and my) net worth.

In the coming days, I’ll take a closer look at our finances and get her reflections, and we’ll decide whether our appetite for risk has increased enough to justify shifting our alpha/beta split a smidge.