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?
“I have met no one who has spent 200 hours of research on Bitcoin (beyond superficial media FUD) who isn’t a bull.”
Sounds like a bottomless Kool-Aid session to me.
“Everyone should spend 200 hours on this topic–it will do more to secure your future than many years of clinical work.”
Sounds like misguided hyperbole to me.
Do you work in the crypto space? You’re comments are sounding more and more like those from a crypto crony.
Time needed to learn #btc : “10 hours to start, 100 hours to grasp it, and 1000 hours to understand it.” @saylor
Pat O:
No. I’m not in the crypto space. But, I do devote the majority of my time to investment research –so I’ve spent >1000 hours and 18 months on the topic of bitcoin.
But maybe this time you’re right. Bitcoin might go to zero.
A little advice: don’t rule in/out investment decisions based on what something, “sounds like.” It gives the impression that one doesn’t know the topic. Do the research. We all respect informed critique.
1000 hours?!?! So if you take out hours to eat and sleep, you’re telling me I need to spend 10 hours a day for three YEARS just to understand it? All from a 9 page “white paper”? That is laughable.
How many hours to become a tulip expert?
That would be an hour a day for less than three years.
Maybe this will help in the believability of >1000 hours. For New Years resolutions last year, my wife asked if we could talk less about bitcoin next year. I smiled and said no.
The bigger question for you is, “If this guy spent >1000 hours on bitcoin…” do I ….A. say that was dumb..or B. ask oneself if maybe there something here to take a deeper look at.
Certainly, no pressure to go bullish on bitcoin, but please do tell if you decide on A or B. The answer would be fun to hear.
A.
I’ve done a little research on crypto/Bitcoin (admittedly a fraction compared to you), taken Prof. Cam Harvey’s Coursera, read some books, Podcasts. I’m informed enough to have my own opinion. I respect your desire to own Crypto. There are incredible opportunities for blockchain technologies to truly change the world of financial and other transactions as we currently know it. No doubt in my mind on that.
Here’s where we see the world differently. I don’t have 1-5% of my portfolio to gamble, so I’m going to stick to owning asset classes with a more seasoned history and with a more rational expectation of future profits. 13 year historical data on an asset is woefully insufficient for me (heck, even Mythbusters on the Discovery Channel ran longer than 13 years—apropos to the discussion I think). The pain I’d feel from losing a speculative part of my portfolio far exceeds any happiness I’d get from wild speculative profits. Those are the lessons I’ve learned of myself earlier in my investing career. If my portfolio someday knocks it out of the park, I’ve met all my financial goals, and I’m sitting pretty, then maybe I’ll reconsider.
Valuing an ‘investment’ needs to make rational sense for me to want to pursue it. There has to be a promise to a stream of future profits for me to want it in my portfolio. Otherwise, trading the asset is a zero sum game which I refuse to play. On the open market, there’s a Bitcoin buyer for every seller. With no stream of expected future returns (ie. Bitcoin doesn’t any generate any profits), any gain from trading Bitcoin was ‘earned’ at the expense of another trader’s losses, period. If everyone tried to cash it in at once, it might as well be a run on the bank. Catastrophic losses for most, with a few BIG winners. [As an aside, that is my ultimate prediction for the future of Bitcoin. For your sake, I hope I’m wrong.]
The Gordon Equation:
Return = Growth Rate + Dividend Yield
Crypto Return= Speculative Growth Rate + 0
Speculative growth, by definition, denotes a “high risk of loss”. Since a speculative growth asset is not an an attractive asset to me, I’ll pass.
Enjoy your Bitcoin, I’m presently much happier without. Respectfully, if your wife is asking you to stop talking about Bitcoin, I would heed her advice. It’s probably coming from a place of love, and she may be saving you from yourself.
Feel free to have the last word. I’m taking your wife’s advice and unsubscribing to this thread now.
“ On the open market, there’s a Bitcoin buyer for every seller. With no stream of expected future returns (ie. Bitcoin doesn’t any generate any profits), any gain from trading Bitcoin was ‘earned’ at the expense of another trader’s losses, period. ”
Pat, I’m not quite following this part. As bitcoin price is near all time highs. a majority of (and sometimes essentially all) sellers are in profit.
Of course when they sell, they miss out on the future profit. Is that what you’re saying? Because if so, that seems to me the same as the equities market, no?
A thoughtful answer. Certainly, I respect anyone who has performed some diligence and made an informed decision on the appropriateness for their portfolio given personal goals and risk tolerance.
For anyone interested in additional resources, I’ve found the following three links instrumental.
1. YouTube:” Invest Answers.” The author is focused on individual growth stocks and crypto. He is bright, quantitative, conservative on price targets, an aggregator of relevant crypto news, and focuses on the highest quality asset in a given space. Most importantly, he is very right on his calls, often.
https://m.youtube.com/channel/UClgJyzwGs-GyaNxUHcLZrkg
2. FSinsight–Co-founder Tom Lee is the best analyst I have found in more than 20 years of research. He called the 2020 bottom, went long on thematic investing at that time, later nailed the energy run into this year. Thoughtful insight into bitcoin. Subscription $3k/yr.
https://go.fsinsight.com/?utm_source=googleads&utm_medium=cpc&utm_campaign=10274415561&utm_content=103308195595&utm_term=fs%20insight&gclid=Cj0KCQiA-eeMBhCpARIsAAZfxZAJBAit3Ns43T4k6wtKwLFpmjxRvWao1M8OIpDCr9evNdZUkuBM_M4aApa9EALw_wcB
3. Glassnode.com
Provides on-chain analytics for bitcoin.
They are flashing mid-bull market currently. My favorites are “Realized Hodl waves”, Mayer Multiple, ThermoCap, MVRV Z score, and long/short term holder supply in profit/loss. These are all easy to understand, just takes a little time.
Subscription $11k/yr.
I maintain that a 1% portfolio position, given the asymmetric nature of the investment, is worthy of consideration. The way this usually goes with new transformational tech is that financial advisors will slowly come to recommend a 1-2% position over the next few years, at much higher prices. Therein is the S curve adoption.
Now some news, Android (like Apple before) just started supporting the Twitter/Strike collaboration allowing near instant, free transfer of cross border payments. Funny, no one seems to care much currently–the importance of these types of innovations often take time and then come to be realized as hugely significant.
When your spouse asks you to do something, consider the number one cause of wealth loss. Hint: It has nothing to do with fiat, crypto, or any other investment.
That would be an hour a day for less than three years.
I stand corrected. I was mentally calculating the 10,000 hrs via-a-vis Malcolm Gladwell.
My error.
LOL, Charles Hodgkinson, the man who always overpromises and underdelivers
This guy is so out of touch crypto it’s funny. There is not a “best” cryptocurrency. And he obviously doesn’t recognize the fact that bitcoin is simply just a store of value. And it’s also not a “Google search engine” race. There is a utility for each type of large scale crypto. Granted the meme coins are just the BS gambling arm of the field, the rest of them have actually use cases and there’s a place for several if not hundreds of “winners” to be found in the future. He’s completely not even recognizing the magnitude of decentralized finance, staking, yield farming, and gaming lol. For this guy I would not recommend touching crypto with a 10 foot pole he is so lost. I’ve often recognized that the WCI is quite conservative and not ever on par with the crypto world per their previous articles.
Pricing the S&P’s future income streams with artificially suppressed near zero interest rates equates fundamental value but bitcoin is gambling?
Did I get it right?
Yes. and to add to your point. Notable we are pricing the stock market in the unit of the US dollar, which is rapidly devaluing in purchasing power. People will say, “Wait, the dollar is getting stronger relative to other currencies.” This is true but requires context. 1. The strengthening of the US dollar is a reflection of a “perceived” flight to safety and out of more “at risk”currencies–this is a macro cautionary sign that economies are at risk. 2. All countries are printing money so all the ships are sinking in purchasing power, the US dollar is just sinking more slowly, so it appears to be going up relative to the rest of the sinking fleet.
I do Not think the US dollar will lose its primary currency status soon, but it is notable the British pound lost 90% of its value when it lost primary currency status.
It is worth measuring your assets’ value in real purchasing power or at least apply a realistic inflation rate to its degradation. That has never been CPI. A real look into this calls into question the bond bucket of a portfolio, because it is objectively underperforming inflation. But the salesman from the bond market will just keep selling.
Seems that perhaps owning stock (i.e., a claim on the underlying assets of businesses) is a surefire way to mitigate the risk of currency debasement, regardless of the underlying numeraire.
Yes you are technically correct. That is the name of the game. Gobble up assets with every penny before your live savings disappears.
Inflation in a negative interest environment drives people further down the risk curve in an attempt to maintain yield. Bonds instead of dollars>>Real estate instead of bonds>>Equity instead of real estate>>Art, NFTs & wine instead of equity. This cycle drives up assets prices as they accrue more and more monetary value relative to fundamental value (i.e millennials being priced out of homes, comical PE ratios). Prob why so many DC economists, wealthy investors and asset managers turn a blind eye to these systemic problems and push for reckless congressional spending packages under the guise of public virtue……they know NuMb3r gO upPp.
This process is toxic and leads to massive market booms and busts leaving a big part of American middle class prosperity essentially up to which generation you happen to be born into relative to the macro debt cycle. The bigger point is we(the people) shouldn’t have to rely on the future revenue streams of private companies to preserve wealth. A new technology was needed to do so…….
Not necessarily. For example, foreign stocks have had a headwind (particularly for US investors) the last decade due to a strengthening dollar.
Be careful with exception fallacies when trying to maintain a contrarian view. This sounds like one.
Is having some money in foreign stocks now a contrarian view?
My response was in regards to the overall thesis that despite relative American prosperity the monetary policy for the last century benefits the few and incentives highly risky economic behavior as in using equity as an inflation hedge . Forgive me if I’m incorrect in my assumption but it seems like you more or less disagree from your response. It’s a toxic death spiral for many and unbalanced risk for most. Of course a diversified portfolio that includes foreign equity is not a bad idea. What is a bad idea is to use foreign equity or any form of equity as an inflation hedge. We all do it because we have to not because it’s an appropriate risk adjusted way of hedging currency debasement.
Most of my portfolio is an “inflation hedge”–equities, real estate, inflation-linked bonds, ST bonds etc. Not to mention I own part or all of several businesses all capable of raising prices with inflation.
If you prefer to use something else, that’s your call. Low interest rate fixed debt is a great inflation hedge for instance, but one I avoid at this point for other reasons.
Don’t you think there shouldn’t be an incentive to use equities and real estate as “inflation hedges”? And would you agree that using these assets in bigger proportions in one’s portfolio to simply PRESERVE wealth is a systemic problem that’s playing out in real time? For example, it’s almost fringe to conclude that a 60:40 portfolio will be able keep up with debasement over the next 20 years(average millennial investment horizon). At the same time new generations are being priced out of starter homes for the same underlying reasons. Combine that with hyper-politicized society, poor financial education and it sounds like a we have recipe for a civil catastrophe. In a debt driven economy we need net inflation to prevent insolvency and drive forward growth. The problem with that is the central planners are comically bad at controlling the volatility associated with that debt. I think it’s just math at this point to replace a portion of debt and real estate in one’s portfolio with a non-discretionary financial instrument that cannot be debased. Poor risk management to not. Positive societal externalities as well.
“Inflation hedge” is a bit of a broad term. Basically, I want my portfolio to grow faster than inflation. So it is composed primarily of risky assets like stocks and real estate that generally have returns higher than inflation. Inflation isn’t good for them, but they seem to do okay long term with inflation. That’s my incentive and I’ve built my portfolio primarily to beat inflation over my lifetime. I’m not sure you think I should not feel an incentive to do that.
But yes, I agree with you that it would be nice to preserve wealth relatively easily with a safer asset. IBonds are doing that now even at their 0% real rate, but TIPS now sell at negative real rates so no great options for less risky assets that will keep up with inflation. If you’re not willing to go with stocks and real estate, then you’re forced to speculate on precious metals, commodities, cryptocurrencies etc.
You sound like you’re alluding to a BTC (or maybe gold) allocation in the portfolio without ever coming out and saying it directly. If that’s what you think, just say it.
Bitcoin I think would likely be the best wealth preserving technology for demonetizing equity and real estate globally. Balance things out.
I can’t imagine the best wealth preserver would be as volatile as Bitcoin has been, but it’s a free country.
The volatility is a function of its market cap, speculative nature, and lack of regulation. As market cap continues to climb and regulation increases (ie. No more exchanges allowing 100:1 leverage with ensuing liquidation cascades), volitility will diminish.
You seem pretty sure it will diminish despite all evidence to the contrary.
There has not been time for said evidence yet. There is still massive leveraged buys of bitcoin going on. Regulation is coming, but it’s slow as to be expected. There’s been more mention of bitcoin and crypto by Congressmen and by the SEC chairman this year than in prior years. This will continue and eventually regulation will have a positive influence on the stability of the entire asset class. It’s still the wild west for the time being.
How much more does market cap need to climb to start seeing any sort of decrease in volatility? It’s a trillion dollar market cap now. It was $1 billion in 2013. So it has increased 1000X over the last 8 years, yet there has been no decrease in volatility. Kind of shoots a hole in your argument about an increasing market cap making a difference, no?
I agree it’s the Wild West.
What research are you basing that statement on? Absent the spike in 2021 for obvious reasons, there has been a clear downtrend in bitcoin volitility over the years. See link below. It seems like it’s “still volatile” because you’re comparing it to the 40 trillion dollar regulated S&P index, but the down trend is clear.
https://www.buybitcoinworldwide.com/volatility-index/
What evidence are you basing that statement on? All you have to do is Google bitcoin volitility (I tried to post a link but comment didn’t go through) and you can see a clear downtrend since 2011 in peak volitility each bitcoin cycle, absent the spike in 2021 for obvious reasons. You see it as still volatile because you’re comparing it to the 40 trillion dollar regulated S&P index, not its own past.
So it’s less volatile recently if you don’t look at the recent volatility?
I see it as volatile because it is. It certainly hasn’t reached a level of volatility that is even in the same neighborhood as other risky assets like stocks and real estate.
In the context of wealth preservation volatility is irrelevant in the long term. It’s just makes it difficult to use as a transactional currency.
It’s not irrelevant if you can’t sleep at night with it.
No, I misspoke and meant 2020 where I typed 2021 above (the pandemic volitility spike). The reason 2020 is an outlier is that all risk assets were volatile obviously, so bitcoin volitility was higher, but not as high on a relative basis (ie. If s&p was going up and down by 10% a day in 2017 like it was in 2020 you’d better believe bitcoin volitility would have been higher in 2017 than it was in 2020). Just look at the chart and the trend is clear.
WCI, with all other features and positive externalities accounted for you couldn’t sleep with a 1-5% allocation to btc? Seems irrational. Especially in the context of every other asset being over-monetized.
You are implying that Bitcoin is not over-monetized like everything else. I submit that you have no idea if it is over-monetized or not and neither does anyone else.
If I am not willing to commit 5% of my portfolio to an asset class, I don’t invest in it at all. And no, I’m not willing to put 5% into an asset class that I have no idea how to value. I know how to value a stock, a bond, a real estate property, and even a commodity. But I have no idea what a BTC is really worth. It might be $100, $1000, $10,000, $100,000 or $1 million. Nobody knows. That’s why it is so volatile.
But I will fully grant to you that if you do not rebalance all the way to $0, a sub 5% allocation to BTC isn’t going to sink your ship. So if you want to continue to bet on BTC, knock yourself out. You don’t need my permission to buy it. But that’s one pitch that I’m going to let go right by.
If you consider it as digital gold, it would imply a market cap of 10 trillion, give or take a few trillion, implying a price per bitcoin of about 500K per coin. If it ends up demonetizing real estate or other non-digital asset, this would be more. So there are some frameworks to think about it that would give you an idea of how to value it outside of cash flow or yields.
Uhhh….you do realize how different that is from anything else, right?
No I wasn’t implying that at all. Bitcoin is 100% monetary value. It has no other purpose and thus makes it quite an effective tool for that purpose. I’m sure you don’t really mean you know how to value those assets with any accuracy and I don’t even know if that’s possible with broad based indices. If you did you’d buy low and sell high and be wealthier than Warren Buffet.
I sure do know how to value those other assets. I value a business by what it can be liquidated for (book value) or often as a multiple of earnings. A bond is easily valued based on the credit rating of the borrower and current interest rates. Real estate can be valued using cap rates, net operating income, comparables, and other measures. But cryptoassets? It’s the Wild West by comparison.
I agree that Bitcoin’s uses are becoming more and more limited all the time compared to what people were telling us it would be used for in 2022 back in 2012.
So then I’m assuming the reason you haven’t leveraged yourself and purchased as many underpriced assets as you possibly can based on your accurate fundamental analysis is simply because of our perfectly efficient markets? Everything is priced correctly I guess.
I detect a bit of sarcasm.
Just a bit 🙂
I get your point. You’re trying to avoid speculation at all costs. Bitcoin is complete speculation. I hope you appreciate my point tho at least a bit. Bonds don’t work and the monetary premium on equities and real estate is highly speculative as well. I’m not saying to hedge speculation with more speculation but to diversify some of that speculation with another form of speculation that has positive externalities for society and higher potential upside.
“Don’t work” is an overly broad term. You’ll need to specify for what they don’t work. They certainly work for some financial needs.
The amount of speculation in stocks and real estate pales in comparison to the amount in cryptoassets.
The positive externalities for society do not require YOU to invest in the asset.
I see you mention the “higher potential upside” but don’t seem to mention the higher potential downside. Mostly because I don’t think you believe it is there. I think it is.
Specifically treasuries, who do they work for?
I understand the downside. I’ve ridden out 3 corrections. ~84, 50 and recently 53% since my intro in 2017 and it’s still outperforming the rest of my portfolio and every other asset on earth over the last decade. To be fair I had less capital to invest at the time while in training but value is relative. Decade plus of history, use cases, and adoption makes me not care one bit about those downsides at this point in my life. Just seems like noise but I do not have a crystal ball.
I’m think the ESG narrative is mostly brainless. The right incentives fix the world not cherry picking stocks based off some social movement. So fair, but I do think it would be pretty elegant to see treasuries loose demand(the people’s enforcement of a debt ceiling) while homes and equities become more affordable as bitcoin appreciates in the background. And yes, I agree bitcoin is more speculative by comparison. However, I don’t think you can prove to me that a millennial with lets say for example a portfolio of 60% equity, 20% RE % , 10% private debt and 10% btc is adding a significant amount of uncompensated risk in comparison to a similar portfolio without bitcoin.
I guess we really just have no idea if the risk of buying cryptoassets in general is uncompensated or not, but assuming it isn’t, then you could reduce uncompensated risk by diversifying into other cryptoassets. As well as BTC did last year, ETH did 10 times better for example. That’s classic uncompensated (i.e. individual security) risk that you could have diversified away.
I’m curious what you think of Greg Foss’ attempt at evaluating BTC valuation using credit default swaps. It’s still speculation but very interesting. You think there is any merit to this analysis?
https://rockstarinnercircle.com/wp-content/uploads/2021/04/Why-Every-Fixed-Income-Investor-Needs-To-Consider-Bitcoin-As-Portfolio-Insurance.pdf
Seems a stretch to me. I think the only reasonable way to value it (which really isn’t very good) is the cost of the energy to mine a Bitcoin. That was around $10K 6 months ago, perhaps a little higher now. But not $47K, much less $500K.
Yea, prob not very good at all. Hash price is very variable. Some energy is free, some is wildly expensive depending on the source, location, locality etc. The overall hash power needed to generate btc is what matters and even that is very dynamic based on mining competition and difficulty adjustments every 2 weeks. For example, the $10K you’re using for 6 months ago was when half the network shut down after the CCP banned mining in China. It has since recovered and has made ATHs after that hash power migrated to the west. But at the very least maybe a global rolling average of the energy cost needed may be a way to gauge “base” value.
Maybe get yourself a miner and immerse yourself in the economics first hand. Try out Compass. They allow hosting and give you access to energy rates at scale for a hosting fee of course. It’s like the Airbnb of mining. I have some rigs going online next month I’m pretty excited about. https://compassmining.io/
You’re a true diehard. I’m definitely NOT getting into mining.
Haha diehard, sure. You seem passionately absolute. I hope you realize you’re more diehard in your opinion than I’ll ever be. I’m sure your principals have helped you more than they haven’t so I understand. Hopefully there’s no regrets in the future. For the both of us. Thank you for the chat. Cheers.
Well, I don’t get accused of being inconsistent very often.
There are lots of interesting investments out there. But there are no called strikes in investing. Cryptoassets are an asset class that I have decided to watch from the sidelines. Based on returns, so far that was the wrong decision. But without a functioning crystal ball, I’d still make the same decision again.
What we need is a whole life insurance product that invests and pays out in Bitcoin. /s
“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.” — Not big on these investment choices, but the point that the marketplace does not need to close or be limited to publicly traded investments is salient. There are private companies with cap tables managed on blockchain networks and slices of managed funds that are starting to be traded like public stocks.
“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.” — Another great point about the right type of disruption being caused by crypto/blockchain.
Not sure about the rest of the post, but these two comments hit the nail on the head. Just look at what Figure Technologies is doing with Provenance Blockchain.. 0.5% fees to merchant on credit transactions rather than 2.5% (Visa) or 3.2% (AMEX), and they’re building a real-time “everything” marketplace where you could trade any digital market (asset) for another – doesn’t matter if it’s a stablecoin, crypto, NFT, slice of a company, or slice of a managed fund.
Just need to look past the projects that are nothing but hype.
[Ad hominem attack removed.
If the only purpose of your comment is to insult the post’s author, don’t expect to retain the privilege of leaving comments on that author’s website. If you have something substantial to contribute to the conversation, then by all means do so.]
“Many of the things they think are bugs to be eliminated from the system, like the fact that a proof-of-work system has a real-world resource cost, are actually features that make it as secure as possible.”
“…these types of protocols [proof of work] are rather centralized experimental platforms for smart contracts, which can be speculated upon like tech growth stocks but ideally only by those who fully appreciate the risks.
Great article explaining the value of bitcoin and Btc network, particularly as a monetary asset. The time tested differences from other digital assets.
1) Proof of work – Asset tied to real world resources as opposed to POS.
2) Small block size – Anyone gets to run a node and audit the ledger, not just a large corporate data center.
3) Network effect – Try copying Twitter. Call it Smitter. See what happens.
https://www.lynalden.com/proof-of-stake/
Excuse me, I meant to add POS in that quote.
“…these types of protocols [proof of STAKE] are rather centralized experimental platforms for smart contracts, which can be speculated upon like tech growth stocks but ideally only by those who fully appreciate the risks.
Happy to see a post on crypto. Crypto is an interesting and growing asset class. It would nice to see a blog or podcast from someone who has invested in crypto and if they would share their experiences. Hopefully, they invested 2, 3 or 5 percent of their portfolio and it has grown.
Thank you for sharing this article, WCI – I enjoyed reading your perspective.
curious what you think would be the best wealth preserver these days, honest question. It’s a real challenge in current environment. There is basically no wealth preservation without risk and near term volatility.
A balanced portfolio +/- a job or your own business. There are no easy answers, although I Bonds come close to being an easy answer if preservation is your only goal. The $10K a year limit is an issue though.
Yeah that’s about as reasonable as any, certainly a stable job and income makes it easier, it will be interesting to see how bonds perform if and when we have a significant equities drawdown, the usual “flight to safety” is going to put downward pressure on bond yields that are already almost against the floor nominally and of course negative in real terms.
wish i’d started buying ibonds sooner – and I’ve been buying them longer than most around here – I’m beginning to think that docs should be buying their limit brainlessly just like backdoor Roth as soon as they can afford it – sure they’re not perfect but we don’t hold bonds for return right?
You might be right about the I Bonds. I’m definitely late to that game.
I guess you can just look at it like WCI and tweek for an overall portfolio return instead of defining each asset as what they are “supposed” to do. If your overall return equals some average inflation rate then your “hedging”. Anything over average inflation would be “growth” but requires more risk. Problem is the entire risk curve has shifted. Bonds are done. You’re over overall return now requires speculation even for “hedging “ purposes.
I think a good T-chart or weighted pro/con list would be a good exercise in comparing wealth preserving/inflation heading vehicles.
Did a little mini analysis of market cap on the first of each year, 2014 to 2021. I found it interesting to see that the crypto market capitalization has gone from around 90% Bitcoin to now less than 40% Bitcoin. There’s significant fluctuation as you can see, but the trend seems pretty clear to me. Table is a bit ugly due to formatting, but I think it’s understandable. The far right column is the % of cryptocurrency that is not Bitcoin.
Year Total BTC Everything else % Everything else
2014 11882000000 $10,470,000,000 $1,412,000,000 11.88%
2015 $4,736,000,000 $3,500,000,000 $1,236,000,000 26.10%
2016 $7,133,000,000 $6,513,000,000 $620,000,000 8.69%
2017 $21,386,000,000 $18,604,000,000 $2,782,000,000 13.01%
2018 $615,633,000,000 $228,579,000,000 $387,054,000,000 62.87%
2019 $131,439,000,000 $67,267,000,000 $64,172,000,000 48.82%
2020 $191,542,000,000 $129,334,000,000 $62,208,000,000 32.48%
2021 $772,481,000,000 $545,909,000,000 $226,572,000,000 29.33%
2022 $2,206,006,000,000 $867,702,000,000 $1,338,304,000,000 60.67%
market cap I would argue is a pretty meaningless metric for nearly all coins. These aren’t like public traded companies. Anyone can create a coin. As you saw from your forum. If someone creates dog coin xyz with a supply of a trillion coins and a few people pay $.0001 for a few of those coins bc they think it’s going to be the next doge or shiba coin, does it make sense to say the “market cap” of that dog coin xyz is $100 million? Of course not. But all of those tiny little meaningless coins contribute to such a chart measuring “btc dominance”
Tiny coins don’t contribute much to market cap. Most of the rest of that is in the top 10.
A better counterargument is that the top 10 keep changing.
yes, and I’m not sure it’s all that insightful anyway, unless one thinks that all cryptocurrencies are trying to solve the same problem. I admit bias in that I’m not interested in coins besides bitcoin. I look at pretty much every other coin analagous to early stage tech companies, and I don’t invest in individual securities.
time will tell
Interesting that you’ve carved one out….
As someone who spends all day going over smart contract code that interacts with BTC and is seeing the main reasons for blockchain tech being eroded with POS chains… I am calling FUD, which I rarely do if the content is clear and fact based… even if I disagree. This is FUD.
Cryptocurrency is an exciting field, and it’s great to see discussions on the potential evolution of the market. It’s clear that innovation will lead to the next big winner, offering more practical and sustainable solutions!
Cryptocurrency is interesting.