By Dr. Jim Dahle, WCI FounderWhile long-term readers know I don't put serious money into speculative investments like cryptocurrencies, foreign currencies, commodities, precious metals, or Beanie Babies, I find cryptocurrency absolutely fascinating to watch. However, one thing I cannot understand is why the market (i.e. all the people speculating in cryptocurrency) does not yet recognize that there is no way that Bitcoin is going to be the winner of this technological race.
Let's talk about why.
The Race to Be the Best Cryptocurrency
The world is up to more than 6,000 cryptocurrencies now. Cryptocurrency is not going to go away. It will only become more popular and more useful as time goes on. However, it seems obvious to me that there are not going to be 20,000 useful cryptocurrencies. In fact, I doubt there will even be 10. Most likely, 99%+ of cryptocurrency uses will be monopolized by one or two cryptocurrencies. There's a race to see which one (or possibly which few) will be the winner. Remember 20 years ago when there were a half dozen or more search engines? Yea, which one do you use now? Sure, maybe you don't use Google, but you're pretty lonely if you don't. Here's the chart:
Yup, Google won. You know why? Because it was better. It was more likely to bring you to the information you were looking for. That's the way technology works. We all use the one that is the best. Sometimes, there's a little competition—you know iPhone vs. Android and Microsoft Excel vs. Google Sheets—but in the end, there are never dozens of winners in these races. This isn't automobiles where style points count.
By market capitalization, Bitcoin is currently way ahead.
However, this is simply due to its early start and, thus, its brand name recognition. You do not have to know very much about cryptocurrency to realize that this will not last. In fact, it cannot last. Bitcoin literally cannot be the world's most useful currency long-term. It lacks too much function. It uses too much energy. It is too slow, and it is too unstable.
Better Cryptocurrencies Than Bitcoin
Look at some of the other cryptocurrencies on the list. Want something more functional than Bitcoin? How about Ethereum? Ethereum introduced smart contracts, tiny pieces of code that live on the blockchain, to the world. This was a game-changer. You've heard of Non Fungible Tokens (NFTs)? Not possible without smart contracts. But guess what cryptocurrency doesn't have smart contracts? That's right, Bitcoin. The eventual winner is definitely going to be compatible with smart contracts, thus, it cannot be Bitcoin.
Most people have heard that it now takes massive amounts of energy to mine Bitcoin. What they may not realize is just how much energy it takes to use the Bitcoin that has already been mined. It currently consumes over 80 Terawatt hours every year. Now I can't conceptualize a Terawatt hour any more than you can, but if you compare Bitcoin to countries, it comes in ahead of Austria right now. So despite the fact that almost no one uses Bitcoin for anything other than speculation, it's already consuming more energy than entire first-world countries. Imagine if we used it to buy gas, groceries, and the morning coffee? No way. We'd have rolling blackouts across the world. But if you look at that list above, there are coins that use far less energy than Bitcoin.
Take Cardano for example. If Bitcoin uses an Austria amount of energy, Cardano uses a Niue amount. (Niue is a South Pacific Island with only 1,600 residents.) At any rate, Bitcoin can't win because we don't have enough energy on the planet for it to win.
What's another big problem that keeps anyone from actually using Bitcoin day-to-day? The volatility. You just can't use a currency that is worth 1/3 less or 50% more than it was a few months earlier (for example, in a 44-day span in the spring of 2022, Bitcoin dropped 40.4%). It's too volatile. Again, take a look at that list above and see if you can spot a cryptocurrency that is dramatically less volatile than Bitcoin. Yup, that's right, Tether or the USD coin are way better from a volatility perspective. They have about 1/20th of the volatility. Maybe Bitcoin becomes less volatile in the future, but I'm skeptical that it will ever have low enough volatility to be useful as a day-to-day currency and store of value.
Bitcoin is also pretty slow. Just about everything on the list above is faster than Bitcoin. One of the fastest ones out there right now is Solana. Bitcoin does about five transactions per second and takes 30-60 minutes to achieve transaction finality. By contrast, Solana does 29,000 transactions per second and takes 2.5 seconds to achieve transaction finality. Bitcoin cannot handle the world's financial needs and, thus, it cannot be the winner.
Heck, a bunch of cryptocurrencies are jokes. They were jokes to start with and they're still jokes. The funniest part is how far the joke has gone on. I mean, look at Dogecoin. Its primary source of value is that Elon Musk tweets memes about it from time to time. It's 12th on the list despite everyone knowing that it isn't going anywhere. Heck, there are even jokes of jokes (see Baby Dogecoin and Shiba Inu Coin for details). You can create your own cryptocurrency if you want. Here's a step-by-step guide.
What Will Be the Best Cryptocurrency to Invest In?
Now my crystal ball is cloudy. I have no idea which cryptocurrency will eventually become the one that is used by everyday people. It probably has not yet been invented. In fact, I think it is entirely possible that the winner will change every decade or so as technology improves. Perhaps soon, there will be one that is more useful than Ethereum, less energy-intensive than Cardano, more stable than Tether, faster than Solana, and cooler than Dogecoin and Shiba Inu combined.
But what is incredibly obvious to me is that the winner will not be Bitcoin (even though, as of January 2024, you could begin buying spot Bitcoin ETFs through some mainstream brokerages). That means those currently on the Bitcoin train (which is the vast majority of cryptocurrency speculators) are either uneducated FOMOites or are planning to get off the rollercoaster before it reaches the top and starts plummeting to its final doom. They're essentially investing on the greater fool theory, i.e. the idea that someone dumber than them will be around to pay them more for it than they paid themselves. Well, that will work until it doesn't. Good luck timing it. Don't be left holding the bag.
Bitcoin is the AOL of the cryptocurrency market. Sure, everyone used AOL to first discover the internet, but 20 years later, who still uses it? Even your grandma moved on a decade ago, and now the company is defunct.
Bitcoin and other cryptocurrencies are not the places for your serious money. If you cannot resist the urge to speculate, do so with no more than 5% of your portfolio. And for heaven's sake, don't bet that 5% on the one that you know is going to lose.
What do you think? Why do people keep bidding up Bitcoin despite its problems? Which cryptocurrency do you see as most promising right now?
This in itself should be a clue that the comparison to AOL is way off base. Has AOL ever conjured this type of fervor? There is something here that should not be ignored and to dismiss it out of hand is a true disservice to WCI readers.
Wait until you see the post where I tell people how to speculate in crypto if they want to. Dialing into that fervor is certainly an important aspect. You definitely want a crypto with some hard core believers to prop the price up and Bitcoin certainly has a lot of those. The problem is the other issues.
I was told recently by a smart institutional investor: it is important that one stays in their lane of expertise when it comes to investing. I would add maybe doubly important if one influences thousands of investors.
You can drop the ad hominem attacks. I’ve been putting up with them for most of the week but they’re starting to get old.
Ad hominem attacks like…calling someone a fanatic for trying to explain the incorrect or misleading statements in your article? He’s simply stating bitcoin isn’t your area of expertise. Is he wrong?
You bring up ad hominem attacks quite frequently in these comments but it seems to only apply to others. I’ve noticed you’re guilty of this at least as much as anyone on this comment thread.
Forgive me as I’m still one of these young docs still learning.
From reading these comments back and forth I get the gist though that regardless of anyone’s feelings about crypto, those feelings still reinforce the general idea that this is a speculative asset class. Anybody who thinks it’s incredible is certainly entitled to feel that way, but that doesn’t change the idea that it’s still speculative.
And thus, anybody who’s spent any time reading WCI would agree that regardless of the asset class or how you feel about it, nobody should be surprised when he suggests you limit speculation to 5% of your overall portfolio.
Unless someone’s arguing that it isn’t speculative, in which case I just don’t really see that but would be interested to learn more.
Am I wrong?
Forgive me as I’m still one of these young docs still learning.
From reading these comments back and forth I get the gist though that regardless of anyone’s feelings about crypto, those feelings still reinforce the general idea that this is a speculative asset class. Anybody who thinks it’s incredible is certainly entitled to feel that way, but that doesn’t change the idea that it’s still speculative.
And thus, anybody who’s spent any time reading WCI would agree that regardless of the asset class or how you feel about it, nobody should be surprised when he suggests you limit speculation to 5% of your overall portfolio.
Unless someone’s arguing that it isn’t speculative, in which case I just don’t really see that but would be interested to learn more.
Am I wrong?
Jim, I believe you have found a new audience. Wait until they see the Tesla posts.
What’s that quote about no such thing as bad publicity? I’ve already written four other posts about crypto recently. Hopefully they all get this much attention eh?
I’m with you on this one Jim. With whole market stock funds one can understand where the returns come from – people go to work and add value to their companies every day and that gets reflected in the value of the economy in aggregate. With a currency, all you’re hoping for is demand will be more in the future than today. If it were to become stable (to be useful as a currency) then someone will be left holding the bag. Or so I think. Who knows? I could be entirely wrong about this.
So, I’m skeptical about crypto but I must say, I have watched some of my friends grow quite rich in the last few years. Good for them!
I can understand why some dislike this post. I enjoyed it, but there are some
Jeremy Grantham/Robert Miyosaki/Harvey Dent-like doomsday overtones to it which are a bit out of character for WCI. I enjoyed the article nonetheless, but I don’t see the need to gore crypto on the same level as whole life insurance, for example.
I see cryptocurrency investment exactly the way I see my equities and bond investments. I’ve learned my lesson by owning individual stocks and individual bonds. I’d certainly consider buying a small position in a Crypto-Index, but I’d never buy an individual cryptocurrency with my real investment money.
My ownership of the total stock market index likely includes a small position in crypto already anyway (ie. some of the companies I own have positions in crypto). For now, that’s good enough for me.
As for the Brian S guy: Dude, have some humility. You have no idea what the future holds. None. — The man doth protest too much, methinks.
Nothing seems to be more polarizing than advising to invest a small percentage of a portfolio in cryptocurrency, which I find fascinating.
I was recently pondering my international allocations in the wake of the U.S. outperforming the global markets the last 2 years. I read most international allocations estimates ranging from 0-40% with around 30% being the mode. Yet, it was a significantly less polarizing discourse.
Yes, amazing isn’t it. Everybody all fired up and when you actually ask them how much they’ve invested it’s 1% of their portfolio. Well, their 1% is not all that different from my 0% when it comes to portfolio performance, certainly not as different as one might think from the “volume” of the protests every time I write about it.
I can’t help but think of Bill Bernstein’s 4 signs of a bubble when reading these posts. See number 3 as being especially relevant. Summarized by https://awealthofcommonsense.com/2017/07/4-signs-of-a-bubble/
1) Everyone around you is talking about stocks (or real estate or whatever the fad asset of the day is). And you should really start worrying when the people talking about getting rich in certain areas of the market don’t have a background in finance.
(2) When people begin quitting their jobs to day trade or become a mortgage broker.
(3) When someone exhibits skepticism about the prospects for stocks and people don’t just disagree with them, but they do so vehemently and tell them they’re an idiot for not understanding things.
(4) When you start to see extreme predictions. The example Bernstein gives is how the best-selling investment book in 1999 was Dow 36,000.
Exactly my thoughts.
People making minimum wage (in real life, not on this forum) are telling me to buy Bitcoin.
“If shoeshine boys are giving stock tips, then it’s time to get out of the market.”
Wow this is spot on!
The vehemence is impressive for sure. The problem is that the same thing that makes it hard to say cryptocurrency is undervalued makes it is hard to say it is a bubble. There’s just no way to value it at all.
Jim is trolling all the Bitcoin truthers….
So funny how many of you all take it personally. Use your money however you wish. If you become wealthy with Bitcoin or Ether or whatever, MORE power to you.
Just don’t pretend its not gambling (more than other investments) at this point.
Brian,
Please get a grip. Feel free to argue that Bitcoin is the greatest thing since the printing press, but I suggest you avoid undermining your credibility by trying to paint WCI with a broad brush just because he has a different take on it. It is indisputable that WCI has helped thousands of people with sound financial advice. Vociferously suggesting otherwise makes you seem like a foaming-at-the-mouth zealot with no objectivity. This doesn’t seem like a fruitful approach to get your brother to see your side of things.
Dr Dahle, I admire you for all your work, this blog post included. I don’t have strong feelings on Bitcoin or crypto. I have no money in it unless some company within an index fund holds crypto (which is probably the case). All I know is I will have a very comfortable retirement without it. I am living a very comfortable present day without it. I don’t understand this asset class and the cultish conversation around it turn me off to it entirely.
Well, it’s certainly optional. I’m in the same boat as you. I’ve already met my financial goals without putting a dime into cryptocurrency. But I do find it interesting, despite the type of people that seem to be attracted to it.
Most people don’t understand that the majority of cryptocurrency is not currency at all. It’s blockchain technology.
BTC is not digital currency. It’s digital property. It’s not a replacement for fiat. It’s a replacement for gold. It’s a great way to ensure one’s hard-earned money doesn’t lose value over time. This is why the most successful corporations in the World hold a percentage of their assets in Bitcoin. If one held his or her money in Gold instead of cash between 1975 and today, the cost of real estate would actually have declined. Look at the performance of Gold vs. Bitcoin today. Gold has really lost its luster.
With Bitcoin, individuals living in unstable countries no longer have to worry about the banks closing their doors. If a war breaks out, their life savings are safe. Try saying the same for an individual hoarding their net worth in fiat or Gold, under the mattress. And what of the citizens of countries like Venezuela, where inflation runs as hot as solar flares? Bitcoin will literally save lives.
Blockchain technology will ultimately enable the tokenization of all assets, including stocks, real estate, and intellectual property. The stock market will soon be available 24/7. Investments in commercial real estate and vacation homes will no longer only be accessible to the very wealthy. Everyone will be able to own and profit from a percentage that they can afford. There will also be no greedy middlemen skimming off the top. Artists will no longer see middleman take control of their art, and will no longer be financially indebted to a company who “discovers” them. In fact, artists will have greater access to the entire World than they ever had before.
The financial industry is in the process of being flipped on its head, because of blockchain technology. Financial transactions will go from taking days to clear to milliseconds. Banks will no longer be eating up the easy money of credit card, debit card, and ACH fees. Western union will join forces with crypto or be a thing if the past.
Imagine a decentralized ride hailing service, where companies like Uber don’t take a massive cut of each passenger’s fare. Imagine almost the entire fare getting paid to the driver, and companies like Uber and Lyft getting entirely cut out of the equation. It’s already happening, through blockchain technology.
With blockchain technology there will be the metaverse. More people and places will be accessible than could ever be imagined today, without having to even set foot outside one’s house. Individuals will also have the capability to push their imaginations to the limit, with the ability to take on identities and roles they could never assume in real life. With our current pandemic of human insecurity, I can only imagine how many individuals will spend most of their waking and even sleeping hours inside the metaverse.
It’s not Bitcoin that is the AOL. It is the time we are in currently that is the age of AOL in the World of cryptocurrency, which is only just getting started. Join or don’t join. Sit on the side lines and conjecture all you want. I agree with the assertion that the original post will certainly not age well. The market cap of all cryptocurrencies currently sits at $2.6 Trillion. I’ll see you in 5-10 years, at $200 Trillion.
^ This
“Imagine a decentralized ride hailing service, where companies like Uber don’t take a massive cut of each passenger’s fare. Imagine almost the entire fare getting paid to the driver, and companies like Uber and Lyft getting entirely cut out of the equation.”
I’m far more socialist than most people here, but in this scenario, how does the rideshare company make any money? What’s their motivation to create a company like this in the first place? All of these scenarios you present has companies simply losing most/all of their profits. How does this spur innovation?
Yikes Jim. You are my primary source of financial information and have been for years. I recommend WCI to anyone who will listen to me ramble. That said, this article is a bad look and extremely off base. It’s okay if you don’t want to invest in crypto but this article shows how misinformed you are on the subject. Yes the foundation of this world changing technology is just being poured and many will fail, but to say there will only be one winner is a laughable statement. Block chains will store deeds to houses, track all logistics, secure medical records and on and on and on. Different chains will excel in different areas. But where your lack of knowledge really shines is thinking that Bitcoin is just another crypto. Other cryptos are like investing in individual stocks because they are companies, and that is extremely risky. Bitcoin is not a company. It is the absolute best store of value currently on the planet. It has scarcity unlike every other currency you named. Countries have adapted it as legal tender. And smarter people than you and I own it. I will continue to listen and support The WCI but I hope you humble yourself enough to retract this article and admit most of the points you have made, especially around Bitcoin were flat out wrong. Pretty disappointed with this one sir.
^ This
https://www.theheldreport.com/p/why-silicon-valley-doesnt-get-bitcoin
This debate remind me of this article I read a while ago. I was able to find it. The author is a BTC holder for disclaimer. Dan Held seems to argues the point that the we may be programmed to see the first iteration of a technology as something that will inevitably be replaced by a better version. We are so used to the “AOL narrative”.
Dr. Dahle, you have done a disservice to your readers by allowing them to make the same financial mistake as you have made — not to own Bitcoin. Even worse than buying whole life insurance or using a commissioned-based financial advisor, not owning at least some Bitcoin is the biggest financial mistake a high-net-worth individual can make in the present day. I have owned since 2012 and dollar-cost-averaged even till now. I have not sold a single one. I own no other cryptocurrency, only Bitcoin. Had I heeded to your advice, my net worth would be a fraction of what it is now. Bitcoin is not a stock pick. It is decentralized, global. It is everywhere — Nigeria, India, Japan, Korea, El Salvador, even Afghanistan. It had the first-mover’s advantage from an “Immaculate Conception” in 2009 and has already won the race of being the best store of value/Gold 2.0–all the other forks and imitations have/will go to zero compared to Bitcoin. Sure, Solano or Cardano may one day overtake Ethereum, but they are in a different race — DeFi. Crypto does not equal Bitcoin. Most of crypto is a scam. But read about Bitcoin’s genius with its Proof of Work, Difficulty Adjustment, disappeared inventor, and decentralized structure. Bitcoin doesn’t need any more energy than a single laptop to run, but the fact that it uses so much energy is testament to how secure the network is. It is driving greener energy and orphaned sources. You do not seem to understand Bitcoin. The next Bitcoin is Bitcoin. Just like there will be no other keyboard than the QWERTY keyboard even when other have tried to make a better keyboard — it’s already too late. You have written FUD about Bitcoin at 4k, 8k 20k, 60k, but eventually as the dollar depreciates by 20% a year, we will all be on a Bitcoin Standard. The world is changing. This is the purest, hardest money ever invented. Please read Bullish Case For Bitcoin and reconsider your position: https://vijayboyapati.medium.com/the-bullish-case-for-bitcoin-6ecc8bdecc1
It’s funny that you say you’re so pleased with your Bitcoin investment but still seem to feel the need for me to validate your decision on it.
I disagree with your prediction of the future (that the world will be on a Bitcoin standard), but fully admit my crystal is not completely clear. The good news is that even if you’re right, I’ll be okay because I can sell everything I own for Bitcoin. I hope you can say the same.
Global bitcoin standard is unlikely in next few decades, if ever. 1-5 % of sovereign bonds, gold and silver moving onto the btc network over the next decade seems inevitable. Capital being tokenized on other more programmable Layer 1 protocols is already happening. The whole grand experiment may go bust at any time but the market sees value and it seems reckless from a risk management perspective to not have 1-5% of your current portfolio in digital assets especially if you have a long investment horizon. Really just based on your personal risk tolerance.
I also think you’re caught up on the original thesis of the btc network being a “peer-to-peer electronic cash system” as planned in the white paper. No core developer, node runner, miner, investor or enthusiast sees btc as a cash system. That function has proved impossible on the current layer 1. Move it off chain, layer-2 lightning solves this. But this change shouldn’t cast doubt on the asset because function and purpose can evolve through use and adoption as it has in the case of btc over the last decade.
Yes, the btc network is slow and rudimentary but it’s also powerful and highly decentralized. The high-level energy being expended by those ASICs are redundantly securing capital without the need of third party like some quasi non-govt corporate bank. There is no other comparable network. These features in conjunction with it’s deflationary monetary supply make it the greatest technological invention man have ever designed to preserve wealth.
I don’t think many understand the implication of true financial sovereignty on humanity’s existence in the form of a digital capital that cannot be manipulated, stolen or debased. Priceless?
I agree. The use case everyone was talking about a decade ago didn’t work out. That hasn’t changed the fervor with which its fans believe in it though. It doesn’t bother them at all that the use case for Bitcoin keeps getting smaller and smaller and smaller all the time. Remember LiteCoin? It was supposed to be the digital silver to Bitcoin’s digital gold. What happened to it? Oh yes, it has gone from being the #2 cryptocurrency by market capitalization to being #14. What does that make it now, digital nickel?
No, BTC is not priceless. Its value is somewhere between $0 and $15 million (the value of the entire world divided by the # of Bitcoins in the world). It takes a true fan to think it is priceless.
The use case has never really changed if capital preservation and transferability without third party counter risk
is the goal. Bitcoin’s function has never changed over the last decade. Dev groups and community wanted it to change in the form of being more scalable so Litecoin was developed and bitcoin cash forked. So bitcoin didn’t change and you’ve proved the competitors designed to “improve” on the original design are near failures. Think about that.
Oh BS. Go back and read what people were saying about it 5, 8, 10 years ago. That we were going to be buying pizzas with it. Heck, read the original white paper. The use case has narrowed dramatically. I suspect it will continue to do so.
here’s daily spending use in el salvador. not pizza but mcdonald’s and papusas.
https://twitter.com/zndtoshi/status/1460335007956881413?s=21
Lighting network use case I believe.
Data is not the plural of anecdote. I just visited four countries and made dozens of purchases. None of them could have been made in Bitcoin. It’s not a useful currency. Even if a US Citizen used it as a currency they would have a capital gain or loss to keep track of with every purchase. Not practical.
of course. lightning network only became possible in 2017. and bitcoin just became legal tender in el salvador a few months ago.
to say use case is narrowing is demonstrably incorrect
you can move the goalposts if you like
Not difficult to keep track of capital gains when using for purchasing. This is all automated by very affordable crypto-specific tax software. You just hook up the software to the API of your wallet(s) or exchange(s) and the data is imported in real time. It aids in knowing when and how much to sell to tax-loss harvest and also what your real time tax burden would be if you were to sell x-amount at its current price, using any of the three accounting methods (First in first out, last in first out, or minimization).
Narrowed dramatically? It was only ever cash for a few years when it was solely being used experimentally by cypherpunks. That narrative quickly disappeared almost ten years ago once it got into retail hands. Even as a fresh idiot in 2016 the use and narrative was “digital gold”. 2015 the lightning network began development which proves my point too. You are either exaggerating a narrative to confirm a bias or confusing bitcoin’s history with other assets.
You can believe whatever you like, but jacoavlu just used that narrative again in a comment on this thread posted 6 minutes before you posted your comment. So don’t tell me the narrative hasn’t been used for 10 years. I’m STILL hearing it, although it does seem to be gradually changing as people realize BTC isn’t a practical currency.
I hate to keep picking at this.
From what I gathered. Your main points for staying 100% clear of bitcoin and other digital assets is because:
Currently too speculative? Sure.
Is uses energy and that energy usage might go up? Duh.
Because Jacoavlu still thinks it’s cash? Lightning network is what he prob means.
You think bitcoin has competitors ? No. Simply not true. Not right now. Each decade of adoption will make this more unlikely.
Any attempt to let you hang your hate on theses theses is gold bug prepper or 90’s style fanatic speculation–“Fanboy”?
Jim your blog is certainly confusing because it seems as if you’re saying that some cryptocurrency may become the currency of the future, but it just won’t be bitcoin.
The problem is, essentially all of those other cryptocurrencies are basically securities, masquerading as digital tokens. You can hear Gary Gensler saying as much. They are created and issued by known entities (non governmental), private corporations, controlled by private citizens. It’s the current fiat system 2.0. You think the guys with guns are going to let that happen.
Bitcoin is the only one that can actually purport to be money. This is the fundamental flaw in your analysis.
We’ll see who’s right in the future I suppose, but the consequences of the outcome will only affect one of us financially. I get to sit on the sidelines and simply observe.
hang you hat** on these theses*
If 5% of the world’s capital moving onto the BTC network in the next decade is inevitable, betting 1% of your assets on it seems pretty weak. Put your money where your mouth is. If it’s inevitable, go big. If that seems foolhardy to you, maybe you should ask yourself just how “inevitable” your vision of the future really is.
Right now I’m irresponsibly long. I currently have a 30% “digital asset allocation ” that needs to be trimmed down to 20%. 25% of is also in the form of ASICS miners.
But don’t worry my wife and I max out the 401K, HSA, and bd-IRA with silky smooth broad based non-thematic index funds 🙂
That’s a heck of a bet. It’s certainly paid off well so far. May it continue to do so.
A 1% investment can have a significant effect on a portfolio, when the risk/benefit is asymmetric. The increased sharpe ratio and increased total portfolio return (without increased risk) are demonstrated in Fidelity’s Digital Assets white paper from last year.
https://www.fidelitydigitalassets.com/bin-public/060_www_fidelity_com/documents/FDAS/bitcoin-alternative-investment.pdf
I recommend starting to consume information on bitcoin from numerous sources to gain different perspectives.
On the btc bull/bear argument throughout this thread:
At the market top before the financial crisis and the dot com crisis, there weren’t a lot of physicians calling for a crash. These statements aren’t meant to be attacks, simply factual observations.
I’m sure you do recommend people spend an entire career (1000+ hours a year) learning about crypto.
However, there is a word for people who do things like that, and it isn’t a compliment. Balance and moderation in all things.
At any rate, you’ve now written 10X+ the length of my post on this topic. You know we accept guest posts, right?
https://www.whitecoatinvestor.com/contact/guest-post-policy/
the flaw in this reasoning is that if bitcoin were to become the standard, the other stuff you own will likely have suffered a significant reduction in value priced in BTC terms. of course you’ll be fine. you’ll just be poorer than you would have been
There is something I didn’t buy every single that day that results in me being poorer than I could have been.
of course. but that doesn’t make your logic correct
we could have a more adult conversation over in the forum.
Are you for some reason unable to act like an adult anywhere besides the forum?
lol, I feel like we’re both acting as adults. in depth or substantive I should have said
I was thinking…maybe just like China banning bitcoin every bitcoin cycle, we should plan on the WCI bitcoin bear article before new all time highs every cycle. That would be helpful to see where we are in each cycle. There are certain somewhat anti-tech investors who have a remarkable consistency in getting each new transformative tech wrong. Some of these individuals have Repeatedly been a helpful confirmatory anti-indicator to my investment thesis. Betting I found a new one.
I remember a couple years ago when we had debate over bitcoin on a similar blog post. It’s interesting to me how you have pivoted on this point. Now, it isn’t that cryptocurrencies are worthless because they lack intrinsic value, it is that bitcoin can’t work because it is too old. At that time I questioned if you’d actually done your homework on Bitcoin. At this point, it’s clear you still have not done it.
Your AOL analogy has it backwards. There are many ways we could change the TCP/IP protocol on which the internet is based. We could make it faster and more efficient but we don’t because the infrastructure is there and it allows for free decentralized commerce with a very robust application layer built on top. Prior to this true decentralization of the internet, we had bunch of walled-gardens, such as the AOL online you mentioned. AOL online was not initially made to browse the entire internet but was a centralized basket of websites that they picked. It was the later decentralization of the internet that allowed for more freedom and commercial explosion. In this analogy, Bitcoin is the TCP/IP protocol and other platforms (decentralized-in-name-only) are AOL.
I agree with you 100% that there will not be 10 winners, but probably only 1 that comes out as the global store of value and unit of account. You are certain that the winner will necessarily enable smart contracts on the Layer 1 MONEY layer. I absolutely don’t agree with that. The one and only important function of money is to hold value that cannot be debased willy-nilly. The most trusted money will become the global money. All other complex functions of finance and value can be built as applications on top–just like website applications on top of TCP/IP.
That said, your argument about smart contracts doesn’t even detract from Bitcoin, as the latest soft fork upgrade to the Bitcoin protocol (Taproot) does enable smart contracts capable of NFTs and DeFi. In fact, BTC has smart contracts before Cardano which you mentioned in your article.
All protocols have to make a choice between decentralization and efficiency/scalability. For Satoshi, the whole point was decentralization–creating a separation between church and state so-to-speak. When governments have control of monetary policy (printing of money) they will always abuse that power. Bitcoin was made to be immutable and uncensorable. It is not built for the throughput of all global transactions–nor is it needed to be, but we’ll get to that later.
Ethereum tried to enable more functionality while retaining some decentralization but did so at the costs of scalability and efficiency. Anybody making a simple transfer on Ethereum now understands that it costs 10-20x as much in gas fees as the same transfer on the base layer of BTC. As a result, they are now in the process of changing their protocol to optimize for efficiency–at the expense of decentralization by moving to proof of stake.
Solana is FAR FAR cheaper and faster to use than Ethereum. They saw where Ethereum started breaking down in 2017-2018 with increasing demand on the network. Their solution–just have fewer nodes and larger blocks. This means that the cost to run a full node on Solana is in the 6 figures just in hardware. Does that sound decentralized? These changes make very obvious attack points for any nation-state trying to shut it down.
The list goes on and there are various iterations of Layer 1 smart contract platforms putting their own optimization strategies into play, trading off one thing for another.
Bitcoin the network uses a large amount of energy. That is not debated. But that energy can come from anywhere including stranded volcanos where no one wants to live or from otherwise flared natural gas that would not only be wasted otherwise, but contribute far more to greenhouse warming. After the mining exodus from China, energy used in BTC mining is close to 70% from green sources. Your next argument might be, well that green energy should be used for other purposes. That point would be valid if you assume BTC has no value to humanity (which I of course oppose). But even if you think BTC is worthless and does not help humanity, the lost natural gas and untapped volcanic energy would not otherwise be brought to market because it is too far removed from population centers. There is also data that mining the volcanic energy (if done sufficiently) would limit volcanic eruptions of the mined area, allowing settlement of those areas. BTC also subsidizes investment in energy infrastructure and stabilizing the grid by becoming an energy buyer of last resort. It is not profitable for energy companies to overbuild their capacity beyond the average use, because there are periods of the day when use dips and production cannot be efficiently ramped down or at least is not cost effective to do so. This results in brown-outs during peak use and wasted energy during lowest usage. An on-site bitcoin miner can monetize that wasted off-peak energy and provide incentive to the energy companies to build up enough production capacity to supply peak usage. This applies to all forms of energy, including solar, wind, nuclear.
“It’s already consuming more energy than entire first-world countries. Imagine if we used it to buy gas, groceries, and the morning coffee?” This statement shows a fundamental misunderstanding of how energy is used to secure the Bitcoin network. The energy used has absolutely nothing to do with the number of transactions. The energy expended to mine an empty block (zero transactions) is the same as one that is completely full. The energy is dependent on the hashpower of innumerable miners guessing a random number for the chance to earn the block reward. This is independent of transaction volume and is much more closely correlated to the price of bitcoin. As bitcoin goes up in value, the number of miners increases and the Bitcoin protocol adjusts to make the number proportionately more difficult to guess.
Buying coffee is not done on the base layer (layer 1). It is done with layer 2, lightning network. This is what El Salvador is growing exponentially. These transactions are not settled with the base chain until the party with the BTC chooses to. Infinite transactions can occur at almost zero electrical costs without ever being settled on the base layer. The Lightning network itself is far more efficient and with higher speed and transaction volume than any of the smart contract platforms or other crypto payment networks. It adds no cost to BTC but provides the scalability, functionality and efficiency you are saying BTC lacks.
The other platforms could be easily shut down as they all have centralized points of attack by any nation state. They haven’t been shut down only because Bitcoin exists. Indeed, many digital currencies were attempted in the 90s and early 2000s and were shut down by regulators. Bitcoin cannot be shut down and because it cannot, it no longer makes sense for governments to go after the altcoins. Why would they, when they know the capital would just flow to Bitcoin? In fact, some government officials are trying to pick a winner that they know they would later be able to control. However, any attempt to control them will ultimately prove Bitcoin’s use-case. In the end all roads lead to Bitcoin.
So, the only argument is energy usage. Bitcoin uses energy and its energy use will continue to increase with the price of bitcoin. So, what is the value of a secure monetary system? How much energy use is justified? Ask yourself how much energy is expended to protect the current petrodollar US hegemony? Not just energy capital, but human capital? Is it a worthwhile trade-off to pay an electricity bill?
“Petrodollar US hegemony” I think demonstrates that the Bitcoin fanatics have basically taken over where the goldbugs left off with their worldview.
There is a difference between being fanatic and being educated on a topic. You have only a superficial understanding of how Bitcoin works. And, as demonstrated in your article, some of that understanding is actually misinformed or misunderstood. That’s probably why you’ve been wrong on bitcoin for the past decade, and why you’re wrong now. Put in the work to understand the problem that Bitcoin is solving for. If you don’t understand the problem, you won’t understand the solution.
“If you just understood it you would invest in it.” Same line the whole life guys use.
Look, if my understanding of it at this point is still inadequate in your view, how in the world do you expect the world at large to adopt it?
The problem is how you would characterize anyone who has done the work to understand BTC as a fanatic. It’s just a tactic to dismiss them by character rather than addressing the facts that contradict your uninformed assertions. Do you even read the responses for any purpose other than to compose a snarky come-back?
You’ve backed yourself into a corner over the past 8 years. Nobody likes to admit they are wrong. But, in this case, you’re going to wish you’d at least looked at it with an open mind.
I agree with Ben on this, Jim. He posted excellent commentary on many of your concerns with bitcoin but you picked one buzzword and attacked him with it instead of discussing the merits or lack thereof of his points.
You all need to keep a few things in mind.
I write my thoughts in the initial posts I publish. If you want to read them, go ahead and read them. If you don’t, then don’t. No skin off my nose. Take what you find useful and leave the rest and all that. If you think I’m an idiot when I write about cryptocurrency, don’t read what I write about cryptocurrency.
We’ve kept comments open on the blog for the last decade so if you want to share your thoughts you can do so. That’s frequently anonymously and often in ways that people would not do so in real life due to how offensive it would be. Occasionally, I’ll respond to these comments, answer posted questions, or even argue with people and their posted opinions. However, there is no underlying promise or guarantee that I will do so. In a post like this that gets 200+ comments posted within a couple of days, including many comments that are longer than the post itself, it becomes impossible to even read them all, much less respond to them. Add another 100+ comments on the WCI forum about this post, dozens more on Facebook and Twitter or in the FB Group, and there might be 500 comments about a single post. And remember there are 2500+ of these posts on the website and 30-50 more being published every month by various authors. And yes, people still post comments on all of these posts from time to time. There are >90,000 non-spam comments on this blog right now.
My point is that I could spend my entire week doing nothing but reading and responding to comments about a single popular post. That would not, of course, be a particularly good use of my time nor particularly pleasurable. Not to mention it would do little to further the mission of WCI. Given the value of my time (income/hours), it would be a terrible business/economic decision.
So criticism such as “You’re not responding to the points I’m making or the detailed analysis I left” is obviously silly. If the comment you posted is longer than my post, I probably didn’t even read the whole thing. How could I possibly find that sort of time in my life? TLDR you know?
So feel free to post what you like, but don’t think that my lack of response or my response to only part of it is some sort of a victory in an argument. It’s simply a reflection that I have better things to do than argue with you about how you invest your money. And encouraging me to have the same arguments repeatedly in multiple places on the site or across WCI communities? Really?
I didn’t expect a detailed response. I did hope you’d read it, but it was written primarily for other people browsing your blog–to correct the misinformation in your article.
I agree I’m never going to change your mind. I just wish that someone who chooses to write about a topic would find it worthwhile to learn about the topic he’s editorializing.
You quoted, “You’re not responding to the points I’m making or the detailed analysis I left” as if that’s something I said. Weird to quote something of your own creation and attribute it to someone else.
My secondary comments were regarding your characterizations of those who disagree with you as fanatics.
I didn’t expect any sort of response to my points but I did hope you’d read them and maybe look into it further–so your next blog on the topic would be coming from a more educated place.
Ben:
Your post was well informed. I’ve done the research and agree with everything said.
For any readers, there are obviously two strongly held sides on bitcoin.
I think being on the right side of this, objectively, will provide great retirements for many. So, it’s important to get this right.
As you go through the article and everyone’s comments, pay attention to which side seems to have deep knowledge and which side argues superficially.
Then read widely on the topic and listen to some podcasts. If the bears are right, it can only go to zero. If the bulls are right, it may 100x.
?–after some research, if one invests 1%, ask yourself, ” is it meaningful to my future if it goes to zero or 100x” (I believe it goes >100x over 10-15 years)?
Then consider: bitcoin has crashed 3 times > 80% and gone onto make new all time highs. Bubbles happen only once- there was no second tulip bubble. The vast majority of things that crash >80% never come back. Examples that did come back are Amazon, nflx–they are called anti-fragile.
Bitcoin is anti-fragile.
Conventional wisdom says it’s too late to invest in something that has gone up a lot. Not true: great assets go up for decades because they have value. And value is different from price.
As examples, check all the great stocks over the last couple decades.
People always read those articles that say, “if you had invested $1000 in Apple in 1984, then it would be worth…”
What is not said…”the people still holding today did their research.”
Do the work, then decide for yourself.
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I decided to leave this spammy post up on the blog as it demonstrates (along with the hundreds of these I delete every year) quite well one of the biggest problems with the cryptocurrency space.
yep. it’s a fundamental mistake to lump bitcoin with all crypto. head of the SEC is essentially explicitly saying this
You’re damaging your brand by continuing this.
Imagine if, in 2013, WCI suggested the risk conscious strategy of dollar cost averaging over time at $10 a month? Current account value would be 5 BTC @ $300k with total capital at risk of$4180.
Rather than literally having a legendary investing tale and a huge win for your community, you’ve been actively discouraging people from participating in the best asymmetric trade of history at this point.
Reading your article made me realize that you are rehashing bias affirming cyclical thoughts without exploring why they may no longer apply.
I actually lost respect for WCI here given the lack of informational clarity and absence of understanding you’re demonstrating here. This isn’t even a commentary on possible price action but you’re objectively wrong on a number of things you present as facts. You can do a better job.
Dean,
Blah, blah, blah. You speak as if the future is knowable. Imagine if WCI told us to buy Apple or Amazon or Tesla over a decade ago…… C’mon man. Just go hug your bitcoin and be thankful you outsmarted another speculator—I mean ‘storer of value’. It may never happen again in your lifetime.
What do you think the annualized returns from this point forward are going to be? And why?
BTC or no, the WCI investing tale is already legendary enough.
Let’s talk about who had the most clarity when I retire in another 25 years.
Sounds good. Enjoy your 25 your trek and I hope it’s fruitful and pleasant and that the journey along the way is just as enjoyable as the destination.
Bitcoin is always too expensive for some and always to cheap for others at any price.
WCI rarely names single entities from what I’ve seen, that’s what makes this attack (and it’s consistency) so interesting. I’ve not seen polemics against commodities, FOREX, or other less traditional markets.
Peculiar and – as it’s increasingly wrong in the face of history – damaging.
Damaging to what? What business do you think I’m in here? It’s certainly not the crystal ball business. Nobody reads WCI because of my uncanny ability to predict the future. This post has had 6 times the immediate traffic of the previous post on the blog and that is only likely to grow. Giving my take on a controversial topic doesn’t cause me to lose money, it causes me to make it.
Now if I turn out to be completely wrong and nobody is using dollars in a decade and the entire world uses BTC for everything and a BTC is worth $15 million, then I’ll have to admit I’m wrong. But at this point it still seems more likely to me that BTC goes to $0 than that it goes to $15 million. So why would I say anything else?
Yet here you are, 8 years later, still reading and commenting despite the lousy job I’m doing. Does it bother you that someone you used to respect does not share your worldview and confirm your thoughts on what you should do with $10 a month?
I’m pretty sure I’ve told you for years to do whatever you want with up to 5% of your portfolio and to take what you find useful off the blog and leave the rest. But the mere fact that I don’t put anything into cryptocurrency bothers you despite the fact that I’ve somehow managed to wildly exceed all of my financial goals without it. I find that interesting.
I could care less how you allocate, but you’re giving bad advice, that’s technically inept and full of bad takes, and it’s cost people.
FWIW, this is the first post I’ve ever read. I won’t be reading any others.
I’m glad you’re convicted enough to alienate new sources of revenue and I hope the conviction is worth it in the long run.
Sounds like you’re not my target audience then so I guess I shouldn’t worry about you leaving. You’re welcome back any time. Around here I encourage people to take what they find useful and leave the rest. I don’t expect any individual member of my audience to agree with every take I have, particularly on the more controversial areas of personal finance and investing.
Dean:
You are so right, but this is not his gig. He advises etfs and to my limited knowledge has no history of giving correct advice on leading tech.
This comes down to the block chain Trilema of decentralization, security, and scalability.
Bitcoin is the most secure bar none. This is because of its Proof of work consensus protocol (energy consumption to mine bitcoin and secure it, in my opinion creating its value) this is more secure than anything proof of stake (almost every other crypto) can offer for consensus protocols of a DLT.
The argument of what happens when bitcoin is all mined (in 2142) is a good one and one I was concerned about, because if the narrative is store of value and the miner income will have to be from transaction fees at that point in time then that’s not good for bitcoin, however the developments that are occurring in the space are encouraging ie lightening network, taproot, but if it can’t get to the point of and efficient scalable network (a transactional layer 2 on top of the settlement layer of bitcoin) then it may fail. im confident that there is alot of motivated people and big money working to make this happen. Already seeing it happen in 3rd world countries, remittances, Miami to name a few. This is the biggest threat to bitcoin which is discontinuation in adoption and slowed growth of the net work but that’s just isn’t the case at this point and as long as adoption keeps growing then bitcoin will always be king.
Bitcoin is the most decentralized ( some argue it’s not because most of bitcoins network is controlled by 4-5 large mining groups). I think time will tell but the mining network is only growing and not getting smaller even with China shutting down we’ve seen a sharp recovery in the hash rate of bitcoin. It will only continue to get more decentralized as time goes on, it’s brilliant. Proof of stake really can be manipulated by large whales and the network relies of honesty of the rich. Good luck.
Bitcoin fails in scalability and while layer 2 solutions aim to fix this it’s at the cost of the security bitcoin boasts. The scalability problem for bitcoin is the question mark as I’ve laid out above and it’s just comes down to do you think it will be solved or not. I do you don’t. That simple. To be fair this is true with every block chain you usually lack one of the 3 pillars of the block chain trilema.
Now my hedge for the future winner?? Is not blockchain. It’s hashgrapgh. Hedera (HBAR) and Constelation (DAG) seems to be a solution to solve the trilema of block chain. But I’m long bitcoin and have some hedge bets mixed in.
I would like to see a write up opinion on stable coins and staking for 8-10% apy as another article. Glad you’ve decided to start exploring the space more.
I enjoy your work and have been a long follower from the days of student doctor network even when you were posting as desperado then.
Best wishes
That would be an interesting article. Certainly the only reason to consider buying stablecoins at this point given the lack of ability to speculate with them.
thanks for the post Dr Dahle. Can’t claim to understand crypto, I’ve listened to a couple of pods. I got a bit of FOMO, have a bitcoin book on my to-read list. Haven’t purchased it yet, have a few books on the “to read” list! I’m not particularly impulsive. I’m hoping my slow reaction to FOMO is a good thing. It really strikes me how angry these crypto fans are though. If i thought I had outsmarted the majority I would probably be quietly smug. It will be interesting to see how it turns out.
Yes, the vehemence is impressive and only seems to worsen as the years go by. Makes you think about Bernstein’s four factors that demonstrate a bubble doesn’t it?
Oh…This article will Not age well. I love taking snapshots of these predictions, as I just did of this article. Like, “Walmart will kill Amazon,” or “Amazon will kill Netflix,” or “Traditional Auto will kill Tesla, ” or “The iPhone has zero chance, that is zero, or becoming a relevant cell phone.” I’ve taken large portfolio percent bets on every one of these non-consensus investments and held for at least 10 years on everyone, through tremendous volatility (at 25% BTC now). The author may know a lot about many topics, but this is not one of them. With respect to equities, since he is primarily an ETF investor, he is by definition, an investor that buys AMZN or NFLX, now Tesla once it becomes consensus i.e. ETF inclusion. These investors generally have not developed the skills needed to see around the corner on emerging tech because they rely greatly on consensus belief as the foundation of their own beliefs. This is evidenced by a recycling of consensus arguments against the new tech, in this case BTC. Bitcoin’s adoption curve, its coming back from three >80% crashes (anti-fragile), taking value from Gold this year, gaining consensus slowly across the financial industry, twitter collaboration with Strike to allow cross-border payments demonstrate it has already won the proof of work argument and store of value proposition. The more relevant conversation for interested parties is how Ethereum will stand up against Solana, Avalanche, and others (I think ETH and SOL will both do well). But the most interesting thing will be to guess the date the author 1. invests in bitcoin and 2. posts an article in support of buying bitcoin. Like the internet, everyone adopts eventually, or you’re the Amish. On the author’s adoption, my bet is mid-2025, that’s when the late majority are projected to get on board = ETF investors. Projected prices at that time range from $200k-1.5M/BTC. As I always say, someone is going to be very wrong.
If you can predict the future so well why are you wasting time commenting on a blog post? I’m pretty sure the billionaires out there aren’t doing this. Get out there and get your tres commas, modest one!
IMD801: It’s a good question. I’ve found I really enjoy educating people on finance and helping them make money in the stock market. I charge $0 because it is my way of giving back. To me, it is more rewarding than being an ER doctor, so I spend 95% of my time on investing. Last night, I hosted my investment club meeting on zoom with 25 people. You can speak to anyone of them about the value I’ve created for them. There are some great stories. I have no formal finance education, just growing up with a business dad and spending 3 hours a day 7 days a week for the last 20 years on it. Regarding modesty, I’m simply factual — 31% annualized return for 12 years. My superpower is holding through volatility–I sold zero shares of any position in March/April 2020. My positions large to small: TSLA, BTC, ETH, SOL,MELI,SHOP,NVDA,SQ,NTLA,TTD. I own these positions for their Future growth potential, not past performance e.g. sold all my NFLX,AMZN in Dec 2020 because I believe their future returns will be lower. Of course, ETF investors are still piling into NFLX,AMZN. Happy to help for free. Again, I would posit that I’m either very right or very wrong in my thematic investing thesis.
With that skill you should do more than just hold a 25 person zoom meeting. You should be managing money for millions of people and be rewarded with billions for doing so.
Oh…This article will Not age well. I love taking snapshots of these predictions, as I just did of this article. Like, “Walmart will kill Amazon,” or “Amazon will kill Netflix,” or “Traditional Auto will kill Tesla, ” or “The iPhone has zero chance, that is zero, or becoming a relevant cell phone.” I’ve taken large portfolio percent bets on every one of these non-consensus investments and held for at least 10 years on everyone, through tremendous volatility (at 25% BTC now). The author may know a lot about many topics, but this is not one of them. With respect to equities, since he is primarily an ETF investor, he is by definition, an investor that buys AMZN or NFLX, now Tesla once it becomes consensus i.e. ETF inclusion. These investors generally have not developed the skills needed to see around the corner on emerging tech because they rely greatly on consensus belief as the foundation of their own beliefs. This is evidenced by a recycling of consensus arguments against the new tech, in this case BTC. Bitcoin’s adoption curve, its coming back from three >80% crashes (anti-fragile), taking value from Gold this year, gaining consensus slowly across the financial industry, twitter collaboration with Strike to allow cross-border payments demonstrate it has already won the proof of work argument and store of value proposition. The more relevant conversation for interested parties is how Ethereum will stand up against Solana, Avalanche, and others (I think ETH and SOL will both do well). But the most interesting thing will be to guess the date the author 1. invests in bitcoin and 2. posts an article in support of buying bitcoin. Like the internet, everyone adopts eventually, or you’re the Amish. On the author’s adoption, my bet is mid-2025, that’s when the late majority are projected to get on board = ETF investors. Projected prices at that time range from $200k-1.5M/BTC. As I always say, someone is going to be very wrong.
You keep snapshots of predictions? Interesting hobby. You must really enjoy being that “I told you so” guy.
At any rate, if people like cryptocurrency as an asset class, I tell them to limit it to 1-5% of their portfolio. So I’ve already done what you’re hoping I’d do I suppose.
If you think it’ll be worth $1.5M+ in the future I guess you’re right that one of us will be wrong. Luckily for me there are no called strikes in investing. I can live with the FOMO. I hope you can also live with the consequences of being wrong if necessary.
there aren’t called strikes, until there are
citizens in Venezuela, Turkey, Nigeria, Weimar Germany are some examples of people that might disagree
we are fortunate to have been born into a country where we probably won’t suffer the same fate.
Good points you make. Certainly, we all enjoy being right. What is more interesting is the historical context when something goes from a crazy idea to we can’t live without it. e.g. In 1996, it was thought crazy that anyone would ever put their credit card information into a webpage for a purchase.
Your advice on 1-5% is consistent with Fidelity Digital Assets and other forward thinking incumbents. Is that to say you hold >=1% btc?
On tolerance of failure, I fully expect some of my positions to go to zero. I run my portfolio like a venture fund, except a majority of the positions don’t go to zero like they do in venture because they have generally been vetted by public markets and/or have been de-risked. The reason this works is that you only need 1 or 2 positions to go up 10 or 50x to outperform all benchmarks. Most investors have trouble comprehending a winning portfolio can have both a 100% loss on a position while another position can gain many fold over a 100%.
Drilling down further, I say I’m always late on investing but well ahead of consensus. I buy after I think an asset has been de-risked (while volatility remains at this point, chance of going to 0 goes almost to 0 = de-risked).
That was AMZN 2010, 13 years after IPO, NVDA 2015, NFLX 2010, all years after IPO.
Today, 13 years after its start, BTC has been de-risked. Millions see this as fact. Others cannot yet see this. Embedded in this is the asymmetry of the investment opportunity. As consensus builds, the investment screams upward, albeit in a volatile fashion.
Another way of judging one’s acumen in commentary about non-consensus investing is by reflecting about how many times one has made a substantial investment early in a leading technology, and been right. A majority of people’s minds don’t compute on this because consensus thinking and FUD are overpowering in their investment decisions. Interestingly, I have found most people’s minds seem to filter out their early dismissal of leading tech; a good friend completely forgot she had once told me she thought the iPhone was a stupid idea in 2007.
Going a different direction, if you are sitting at the table with Rockefeller when he is describing how Standard Oil is rapidly scaling to supply energy to the US, that is a time to have a concentrated investment. Similar to speaking to Edison when the US is being electrified. At these moments, these companies were not just ideas, but rapidly scaling industries that had been de-risked. Yet, the overwhelming majority of investors couldn’t see this because the well established railroad industry or some other slower growth industry was “the place” to invest at that time. e.g. Apple, Amzn, Msft today. Today we have the same rare moment to be highly concentrated in Tesla, Bitcoin, Ethereum, NVDA, SQ, SHOP. Unfortunately, few are able to see this now because in the case of TESLA there is no one alive with a reference example e.g. disruption of horses by internal combustion engine. Also, no one alive from >1000 years ago, when gold was rapidly scaling as a store of value. e.g. Bitcoin today.
I diversify when I don’t have a good idea. I concentrate when I see an inevitable technology on an S-curve adoption. As many know, it takes the same amount of time (in years) for a new tech to go from 0-10% adoption as it does from 10-90% adoption. Tony Seba provides some excellent youtubes on this.
No, I don’t own any. I think the range of reasonable is 0-5%. I’m at 0%. If someone is at 5%, I tell them I think that’s reasonable. If someone is at 20%, I think that’s foolish, even though it has worked out well so far (well, maybe not this week).
There are no called strikes in investing. I don’t care if I miss out on every emerging technology. I don’t have to be right about any of them to reach my financial goals. Investing is a single player game.
Sounds good, Sir.
I wish you luck in your stated goal and hope your returns can exceed the real rate of inflation.
Time Stamp: Nov 17, 2021
tsla 1092
btc 60,300
eth 4249
sol 216
meli 1487
shop 1637
nvda 292
sq 231
ntla 134
After a planet money podcast about a guy searching for his old Bitcoin wallet, I decided to do the same.
Backstory; in 2015 as a technophile I joined a mining group (coins shared according to the proportion of processing input). Using just a gaming PC (rather than a custom built mining device with multiple GPU’s) for about 2 weeks I accumulated a few fractions of a Bitcoin worth just a few dollars at the time. So I stopped; too much electricity and wear and tear on my PC.
Fast forward to today. I downloaded the 359GB blockchain and my few fractions, worth a few dollars at the time, are now worth $11,500. If that doesn’t tell you just how silly the whole thing is, I don’t know what will.
I think Bitcoin is really most akin to a pyramid scheme. In the early days of mining it was easy to get new coins but that became successively more difficult over time by design. So early adopters (the tip of the pyramid) are rewarded with lots of easy to obtain coins by using a little electricity while people today are paying $60,000 for one. That’s not how a financial system should work…at all.
WCI covered the transaction processing times, but what you didn’t mention is the transaction costs! Back in the day it was free to send coins. Today the transaction costs have ranged from $0 up to $60. Just imagine paying for a $15 lunch but having to pay $20 just to get the transaction confirmed. It’s completely impractical!
Don’t get me wrong, I support the philosophy; a digital currency free from government (and corporate) control and manipulation. But I feel like Bitcoin is the perfect modern example of an “Emperor has no clothes” situation. Unlike a currency backed by a country’s reputation and GDP, Bitcoin only has the value the next fool is willing to pay for it. It’s unwieldy, impractical, and completely unsustainable. I just hope when it collapses it doesn’t take the economy with it now that so many major financial institutions are jumping on board. It might be the most easily predictable financial disaster in history.
transaction costs are very very low currently. someone the other day moved like a billion dollars in btc for like $2 in fees. and no one had to give them permission to do that
people are using bitcoin in el salvador for daily spending with fees of pennies, far lower than visa merchant fees which can be up to 8% in developing nations
the fact bitcoin mining is far more difficult now is a feature, not a bug. It Proof of Work, which is required for hard money (like digging gold out of the ground)
If by feature you mean that early adopters are at an 18,000% advantage from 2015 vs. today, just like every other pyramid scheme out there, then I have to concede, you are absolutely correct.
you can view it in that way if you like. it is said that everyone gets bitcoin at the price that they deserve
if someone could come up with a more fair way of distributing a new monetary asset, then they could sure try. value was zero at start.
the system is and was open from the beginning for anyone to willingly participate and spend electricity to mine coins
your alternative is a monetary system that is controlled by certain people in positions of advantage, protected with missiles and bombs and guns and drones
Your alternative is not a monetary system at all, it’s simply a speculative asset. Maybe someday it will be a monetary system, but for now, it’s been around for over a decade and I still can’t use it to buy gas. I can’t even use it to buy a Tesla anymore.
At any rate, given your world view, chances are I won’t be convincing you of anything, even if Bitcoin fell back to $100. You’d view that as a buying opportunity.
if you begin from a position closed to the idea that a digital asset could be money, well then there’s no point in debating
you actually can use it to buy gas or a tesla, but of course even if that were demonstrated it to you, you would move your goalposts again.
i’ll see you in the forum. or not I guess
You seem to be staying right here, but I guess “I’ll see you in the forum” too as I have for years. What’s with the weird forum invitations to my own forum anyway?
Not sure where you get the idea that my position is that a digital asset can’t be money. My position is far more that BTC is not currently money that is very useful for anything but speculation.
As far as Tesla, did you miss the news? https://www.nbcnews.com/tech/tech-news/elon-musk-backtracks-says-tesla-wont-accept-bitcoin-rcna918
So sure, you can sell a Bitcoin for dollars and buy a Tesla. Just like you could sell a big pile of manure and buy a Tesla. That doesn’t make manure a useful form of money.
if you don’t feel that btc is currently money, what would it take for your opinion to change?
I said it’s not very useful as money. Whether it actually is money or not doesn’t really matter. That’s just semantics.
When people stop taking my dollars and ask me to purchase with BTC that would certainly change my opinion.
Jim, I think we’ve both said our peace. I don’t think you’re engaging honestly. I can’t reply to your post about the cargo plane anymore. I think you understand my point but don’t feel you’re willing to concede that some conclusions you’ve come to might be wrong. You know where to find me if you ever have questions. Cheers
Dishonest? At least I’m not trying to claim that full planes don’t burn any more fuel than empty ones. 🙂
“ your alternative is a monetary system that is controlled by certain people in positions of advantage, protected with missiles and bombs and guns and drones”
I consider that a feature, not a bug ;). To an extent anyway. Because elected government, high GDP, and military deterrence all = stability. Stability is one of the biggest keys to the success of any “currency” and it’s one of many glaring features Bitcoin lacks. If you truly believe in Bitcoin you’d be a fool to use it as currency knowing it could be worth 50% more in a few months or years. It’s already up 18K% in just 6 years. Of course it could be worth 50% or even 100% less too; that’s what playing around with a highly unstable, speculative ”investment” brings.
how’s your stability going nowadays?
you can say bitcoin is highly volatile. but another might say 1 bitcoin is always 1 bitcoin
maybe just maybe the volatility is in the devaluing of the USD?
i’m actually not in the camp of bitcoin will take over the world. if you came over to the forum you might find there is actually a nuanced conversation to be had
at this point though, Jim is just trolling. which is within his right to do.
He’s not trolling he’s giving sound financial advice. I consider your posts to be trolling. His advice is: Limit highly volatile speculative investments to no more than 5% of your portfolio (no matter whether we’re talking about Bitcoin or anything else). That’s the same advice Jim Cramer (I’m not endorsing his stock picking views) has been touting for more than a decade, and I’m sure you can find similar guidelines from all the other financial advice players. He might be wrong about Bitcoin not ending up on top but it doesn’t matter; Bitcoin is highly volatile and speculative and should be treated as such in a well considered financial plan.
Also 1 Bitcoin is always considered 1 Bitcoin? What have you been smoking? 1 video card from 1985 is still considered 1 video card. But if it has no usefulness, no resale value, no antique value, and can’t be installed on any modern computer, it’s still worthless. 1 Bitcoin might always be 1 Bitcoin, but if it becomes worthless and can’t buy anything it’s still worthless.
How is the USD working out for me? Quite well actually. We’ve had decades of low inflation and now a small temporary blip up to 6%. That’s a drop in the bucket compared to Bitcoin volatility. Last week when I recovered my old Bitcoin wallet bitcoins were worth $66K. This week they’re worth about $60K. That’s a 10% drop in just one week! So….dollar still wins.
framing the conversation around “its a speculative asset” is kind of a strawman argument. my point would be that whatever you want to call it, it doesn’t really matter.
there are demonstrably untrue statements in the article which are readily apparent with a little bit of research. I would give Jim the benefit of the doubt and chalk that up to lack of research rather than stating things he knows to be untrue.
Please elaborate on the straw man because you can’t just throw that term around. Is Bitcoin volatile? Yes, that’s a fact. Is Bitcoin speculative? Investopia definition: “ conducting a financial transaction that has substantial risk of losing value but also holds the expectation of a significant gain or other major value.” Again, given the volatility in Bitcoin established above, the answer is clearly yes. So there’s no straw or any other kind of man, just simple facts. There’s nothing wrong with a speculative portion to a portfolio but it should be limited because of the substantial risk of loss (like if you invested last week and you’re already down 10%). That’s just solid financial advice from a man not made of straw.
What you’ve completely failed to do, aside from trolling, is document what you perceive as falsehoods and providing *credible* sources.
you could also look up the fundamental properties of money and find bitcoin satisfies that definition. so is it a speculative asset? is it money? is it property? well perhaps one should just evaluate it on the merits and flaws instead of putting it in a box and saying that things is this box are to be dismissed
Jim says bitcoin can’t be used to buy pizza or gas. Demonstrably false. It’s happening right now in lowly El Salvador where most people don’t even have a bank account. There are examples of daily spending use all over that are easy to find. I’m happy to share examples if you need me to find them. I already posted a link once here in the comments.
Also, marginal bitcoin transactions do not consume energy. An oft repeated fallacy. Mining bitcoin and validation of blocks requires energy spend. But the energy is the same whether the block is empty, or full of transactions. Analagous to flying a cargo jet across the globe, the fuel spend doesn’t change if you add a few passengers or not. So to state that if bitcoin became global currency it would consume all the energy in the world is patently false.
Disagreement is fine. Strong feelings are fine. But we should all at least engage honestly.
Full planes actually do burn more fuel than empty planes. It’s one of those physics things.
lol see what I mean about honest engagement? make an analogy about a cargo plane adding a passenger and Jim says “full planes burn more fuel than empty planes” and “at least I’m not trying to claim that full planes don’t burn any more fuel than empty ones”
that’s trolling
You seem to be having trouble with the whole “agree to disagree” and “disagree without being disagreeable” thing. If you feel like you must continue commenting until I somehow adopt your belief system you are likely to be at it for a long time. I told you what I thought. You told me what you thought. They’re not the same thing. Nobody is being dishonest in any meaningful way. No reason to go ad hominem but really no reason to continue the discussion either to be honest.
The comments to this post are akin to arguing against Qanon. Challenge a belief system and watch the acolytes scurry to make excuses, deflect, and rationalize an irrational “investment” they see as a rational investment. In a lot of ways, Bitcoin is a microcosm of everything that is wrong in our society today.
FrugalMD my friend, I made a few specific points above, which folks don’t seem to want to address. who’s deflecting?
It’s simple. First, neither the author nor I and I venture you live in El Salvatore. Rare, outlier use cases do not an argument make. The failure of currencies in random, poor parts of the world desperately seeking any possible alternative to a poorly managed financial system is a really poor argument.
Finally, yes, perhaps mined blocks empty or full do consume the same amount of energy. However, the spike to $60 per transaction is telling. If suddenly Bitcoin were accepted everywhere, universally, what do you think would happen? Something has to give. Either the transaction price would spike to crazy levels as it has before, or new miners would consume vast amounts of energy to confirm those transactions beyond the energy production capacity of the world. There’s no such thing as a free lunch. In Bitcoin or elsewhere.
if you’re honestly interested, I’m happy to further discuss. I’ll leave that up to you, let me know.
I respect your patience in trying to articulate the value proposition.. In my experience, some people are simply wired to see things later and will get btc only after a major currency collapses, since a pandemic wasn’t enough of a reason to value hard money. I laughed when I saw your comment about getting btc when you deserve it. Interesting that one’s response to this overwhelming number of good faith responses is to fight harder for one’s side, not begin a deeper evaluation. I feel it’s appropriate for me to say this since I’ve spent 1500 hours over the last year and a half on the topic—far more than anything else I’ve done:)
Bitcoin objectively is not a speculative asset, but is volatile. Speculative carries a high chance of going to zero. An asset surviving three 85% drops and then coming back to new all time highs is not speculative. It’s called anti-fragile. But certainly also has the property of being volatile.
What is a shame is that doctors get such bad advice from advisors and this site seems to want to steer people away from what may prove to be one of the greatest opportunities for Future wealth building in history.
Jacoavlu,
Interesting you don’t address any of the above rebuttals but just want to “take it offline.” Also, how are we supposed to do that when email addresses aren’t public on here? It’s an empty invitation from someone losing a debate.
Matt,
Bitcoin is absolutely, objectively speculative. First, the definition is not necessarily going to zero, just a “substantial risk of loss.” It’s hilarious for you to say Bitcoin doesn’t meet that definition while in the same post acknowledging 85% drops! But fine, you can make up your own definition if you like and declare that Bitcoin doesn’t meet it, that’s your right and assessment. However, there is technically no reason Bitcoin couldn’t go to zero. It’s only worth what someone else is willing to pay for it. If that demand dries up, it becomes worthless. Now I’ll agree that’s unlikely to happen that way in the short term, but there’s no objective reason it couldn’t go to zero long term. Bitcoin doesn’t sell products people need, doesn’t have a balance sheet and investments, and has no inherent value aside from what people are willing to pay for it in legitimate currency.
Finally, your argument goes like this: Bitcoin is volatile and there’s a good chance of sharp declines, but, that’s a good thing because it’s always bounced back and therefore proves it has value. What you’re saying with this argument is “past performance predicts future results” and as we all know, the opposite of that is true. This is why every investment comes with the disclaimer that past performance does NOT predict future results. The fact that Bitcoin has had rapid, massive declines should be a warning to investors, not painted as some kind of positive feature. Just imagine if we were talking about literally any other investment/company where the value can swing by 85% suddenly.
But look, I’m not against digital currencies, nor does the author express such a view. Only that it’s volatile (we all agree), and speculative (under the “substantial risk of loss” definition), there are many digital currencies and not one of us can predict the future, and thus digital currencies should be treated accordingly in an investment portfolio for people saving for retirement, limited to about 5%.
If you disagree with this guideline then please share your own. You admit at minimum it’s volatile and unpredictable. So if you were advising your parents on what % of their retirement portfolio should be in crypto, what % would you advise? Because ultimately that’s what this whole site is about. Not trying to swing for the fences and make huge, risky investments. Simply saving for retirement and financial independence. If you’re looking for hot investment tips this isn’t the site for you. So how would you advise your parents on crypto as a portion of their portfolio?
FrugalMD – I didn’t mean take it offline. I meant, perhaps we’re best to let this die. That seemed to be WCI position and I’m kinda there too.
I’m not sure what rebuttals you’re referring to.
Cheers
Hi, Jim. Just throwing my 2 cents in. It’s useful to not compare all cryptos against each other directly, but rather think of Crypto as a unique asset class with cryptos each having their own niche therewithin. There are lots of “smart contract platforms” competing against each other – Etherium, Cardano, Avalanche, Solana, etc… These are competitors. Bitcoin is by itself in the “store of value” class. Nothing else is close. And it does its job really, really well because the founder is completely gone (?dead) and it’s the most decentralized crypto. This is why it’s so unique and coveted, and while sure another cryptos may come to take its place, you could easily argue due to its structural advantages it is Google and not AOL. Regarding electricity use, it’s a complicated relationship.. You have to account for the fact that bitcoin effectively subsidizes renewable energy by allowing renewable sources like wind/geothermal to be used 24/7 and without any “wasted” time when it’s not in demand from the grid (ie. at night). It’s not a simple “bitcoin uses X amount of energy” equation with regards to its environmental impact. Cheers, man. FYI – I thought crypto was a bubble in 2013 and 2017, but this thing just keeps coming back from the dead. Sometimes the markets are irrational but sometimes they’re just prescient albeit speculative and over-exhuberent, telling us something we don’t see yet.
Nailed it. Great comments.
I just can’t get myself to invest my hard earned money in an ‘asset class’ invented by an anonymous (maybe anonymously dead guy) using a Japanese pseudonym—inextricably weird. In any other walk of life, most would run for the hills under those circumstances.
Without any intrinsic earnings potential, how is BTC anything more than a supply-demand investment just like any other commodity?
You’re absolutely right, Pat. Bitcoin is demand-supply 100%. It’s just the best demand supply to date. On the block chain, we can see 1 billion dollar transactions being made costing less than $5 to transact. You can’t do that with gold or oil or any other commodity. And it takes about 30 minutes to finalize the transaction. And there are no middle men. It’s “digital gold” or “Gold 2.0” as some like to say, and the value proposition is that just like software is “eating the world” Bitcoin is digital gold and will eat gold’s lunch and take its market cap. Is it gold right now? Absolutely not. And it is absolutely a speculative bet at this point, but the upside potential is there to make it an intriguing investment.
These comparisons to gold are downright silly. Gold has inherent value because it’s really useful (electronics, jewelry, scientific instruments, etc.). It’s malleable, conductive, and has other properties that give it a baseline value. It had value to small, isolated tribes long before westerners came along and started trading it for currency. Even in the zombie apocalypse gold would have value while Bitcoin would be a distant, silly memory of a time long passed.
There is no great comparison for Bitcoin aside from maybe NFT’s. What is an NFT artwork worth? Whatever people are willing to pay for it. Could be $1, could be $29 million. You can’t even compare it to a legitimate currency because currencies are backed by a country’s record, stability, financial history, and GDP. Bitcoin has none of this legitimacy. Its worth is just an idea in the mind of the buyer. That doesn’t make it worthless, but just stop comparing it to gold, it’s not the same thing!
FYI I’m not against crypto at all, but let’s just be realistic and objective here.
gold became the dominant monitary asset because it best satisfied the fundamental properties of money – durability, portability, divisibility, recognizability, and finally scarcity (since it is the most scarce of the monetary metals)
bitcoin satisfies these properties better than gold
but fundamentally if one dismisses the possibility that a digital money not issued or controlled by a central authority could exist, then there is really no way to go forward in the conversation
No doubt you’ve bought the party line hook, line, and sinker. These arguments are peddled by those trying to sell the system.
Lots of things have been used for currency that meet these basic criteria and yet, the fundamental usefulness of gold to industry remains regardless of what price it’s valued at. Lots of things are portable, durable, recognizable, scarce, divisible…but they still don’t have the same usefulness as gold and therefore they are not gold substitutes and cannot be reasonably compared. Bitcoin is Bitcoin, it will never be gold because gold is actually physically real and can be used to make real, physical things. I’m not saying crypto isn’t a legitimate thing in and of itself- it is, currently. But it’s just not gold. That’s all. By your logic the canned goods in my pantry are just like gold too. Maybe they’re actually the “gold 3.0”.
“ but fundamentally if one dismisses the possibility that a digital money not issued or controlled by a central authority could exist, then there is really no way to go forward in the conversation”
You’re completely missing the point. No one here denies the existence of crypto or its current valuation. The only question addressed by this article is first, what percentage of a portfolio should be devoted to a highly volatile and speculative asset, and secondly, which crypto or combination of cryptos should you speculate on long term. Each has its own positives and negatives, which will win long term? I’m sure we can both agree not all of them. Maybe it will be Bitcoin, maybe not. But let’s start with the first point. What percentage of a retirement portfolio do you recommend having in crypto, and why? That’s a really good place to start.
I don’t think anyone has dismissed that possibility. In fact, I think most acknowledge it. Those who disagree with you are pointing out the problems with that digital money.
“Go forward” is an interesting description of this conversation. That would suggest a required ending place, perhaps where everyone agrees with your point of view? In my experience, conversations like this never end. They just go around and around and around. See the comments after any post on this website about whole life insurance for details.
Jim, respectfully, a few of the problems that you see, those are features not bugs.
The block time is 10 minutes because super fast block times requires centralization, and the point of bitcoin is to be distributed, permissionless. I can run a fully validating node on a cheap computer in my house. You can’t do that with eth or solana etc. And so they are centralized. It’s a tradeoff.
Second layer networks like lightning can be built on top of the base layer. This allows much faster (essentially instant) transactions but there are tradeoffs of course.
And the energy spend (which isn’t really the way you say it is, but regardless) is a feature because it’s a Proof of Work system. This is fundamental to the network security. It would take a tremendous amount of energy (and money and coordination) to attack the network. Not the same with a Proof of Stake system, where you can essentially just buy control of the network.
Cheers
Gold is pretty too. 🙂
Keep in mind that I’m not swayed by arguments that “Bitcoin is like digital gold” given that I don’t invest in gold either. In some ways, BTC is the new refuge of the goldbugs and those who share that particular view.
As a store of value, I can understand that 1 BTC will always equal 1 BTC. Yet, no one ever reports how much BTC they have. They report how many Dollars worth of BTC they have. The fact that the masses still value BTC relative to the evil fiat US dollar suggests to me that BTC still has a long way to go before I’d consider it anything more that speculative.
I wanted to double underline my thoughts. Here’s the end of a thread and a quote by the white coat investor from above, “There are no called strikes in investing. I don’t care if I miss out on every emerging technology. I don’t have to be right about any of them to reach my financial goals. Investing is a single player game.”
Certainly, its ok that the WCI doesn’t care if he misses every emerging tech. But, why is he writing an article to advise people on Bitcoin when he doesn’t care if he is wrong? The problem is that he is a platform that hundreds, likely thousands of physicians listen to. Like all of us, I know many physicians. They are overwhelmingly poor investors. In my view, this is because they are intelligent individuals who haven’t put the thousands of hours necessary to become a good investor and think that because they are intelligent therefore they will be good investors.
Add to that a platform run by a generalist investor giving specialist advice on tech and you have a structure set up for poor outcomes.
In my view the responsible thing for such a platform is 1. voice no opinion on emerging tech or 2. dive deep into it to understand. This cannot be obtained from superficial media such as CNBS (cnbc), Barron’s, etc. It would involve interviewing or reviewing interviews of Michael Saylor, Anthony Pompliano, Plan B, Willy Woo, Max Keiser, etc. Also, take a blockchain course. There are several good online courses at MIT. Spend 400 hours at least. I have met no one who has spent 200 hours of research on Bitcoin (beyond superficial media FUD) who isn’t a bull.
And after 1500 hours of research on Bitcoin, my level of conviction is asymptotic with certainty that Bitcoin will work and it is not AOL. Maybe more importantly, after I’ve spent several hundred hours on an investment topic, I have a habit of being very right (people will focus on the bragging aspect here. Better to focus on the diligence and outcomes aspects). Bitcoin over time will remain volatile but will go much much higher. There is no free lunch. Everyone should spend 200 hours on this topic–it will do more to secure your future than many years of clinical work.