Crypto is dead…
Or so many people would have you believe.
The recent price crash in the nascent asset class has brought out the usual motley crew of haters, skeptics, insiders and permabears.
Understandably, the sea of negativity is making a lot of people nervous, especially here in Australia.
In fact, we are number one in searching for the term “crypto is dead” on Google!
Relax mate, I say…
Because I’ve seen this movie before.
It’s not dead, in fact, quite the opposite.
Still, it never ceases to amaze me how skeptics still take such victory laps in any downturn – despite being wrong about the best performing asset of the past decade (even of the two last years !).
And yet they do.
For example, check out these two tweets from serial crypto critic Nouriel Roubini, a.k.a Dr Doom:
Notice the dates at the bottom?
The first tweet was from last week, the second from the 2018 bear market!
He was wrong then; he will be wrong this time.
Now, the thing is, Nouriel Roubini is pretty much negative about everything…not just crypto.
As the old saying goes, he predicted 10 of the last three recessions!
And, frankly, I wouldn’t trust his opinion on the allocation of my capital.
Take this article from CBS News in 2011:
‘At Roubini’s inability to accurately predict the market shouldn’t have been a surprise. Just 14 months earlier, on March 26, 2009, when the S&P 500 closed at 814, Roubini predicted: “US stocks will fall and the government will nationalize more banks as the economy shrinks to at the end of 2009.
‘Today we know that despite Roubini’s warning, the market had just started 17 days early one of the biggest bull markets in over 70 years!
‘One would have thought that this error would have taught Roubini a little humility when making predictions.‘
Look, I’m not here to pile on any particular forecaster. We all get it wrong from time to time, me more than most.
What angers me, however, is that the mainstream media publishes such opinions as if they come from some authority.
I mean, at least mention how many times (and that’s a lot in Nouriel’s case) a top expert got it wrong or his track record.
Something by which we can judge the validity of their criticism.
I guess, as this meme shows, the mainstream media has no interest in looking at this stuff:
And it’s no exaggeration to say that most of the mainstream media has a huge bias against the crypto industry.
I mean, just last week, the FinancialTimes made headlines saying that Singapore will be ‘tireless on crypto‘.
This fueled a narrative that Singapore was completely against the industry.
However, if you managed to enter the paywall to see the exact quote, you will see that the title left out a crucial word.
The real quote was that Singapore will be ‘relentlessly hard on bad players in crypto‘.
What a difference these two words make!
And the Singapore regulator himself called it a ‘to get a job‘.
Unfortunately, you can’t trust the mainstream when it comes to crypto because it disrupts the cozy monopolies they feed themselves on.
So let’s get back to cold, hard facts…
Bitcoin-enriched wallet wins
Let’s forget about opinions – mine or anyone else’s – and look at the facts for a moment.
Check this one out to get started…
If you had allocated only 5% of your total portfolio to Bitcoin [BTC] near the height of the last crypto bull run in 2017, you would actually have made better returns than someone who didn’t.
This graphic shows how:
As you can see, a 5% allocation to bitcoin would have given you 10% more return than a typical stock and bond portfolio.
And remember, this is comparing a “worst case” outcome – I’m comparing an investment near the top of a bull run in 2017 with the current huge downturn we’re in – so no one can accuse me of choose dates.
Here’s the real kicker though…
You would get this huge outperformance for less risk according to industry preferred risk measure (sharpe ratio is higher for bitcoin enhanced wallet).
You can see the results in the table at the top right.
I can’t guarantee that, of course, but I’m very confident by doing the same now and adding bitcoin to your portfolio, you’ll get even better returns over the next four years.
Especially since we are now at the bottom of the price cycle.
Surfing the S-Curve
Here’s another fact that naysayers like to avoid.
Like it or not, a lot of people love crypto…and it’s growing every year.
In effect, bitcoin just follows your typical S-curve process:
And between extreme cycles of greed and fear driven by immense price volatility, adoption is surging unabated.
Indeed, unlike most industries, price is often a leading indicator in crypto.
As venture capital firm a16Z recently pointed out:
‘Prices are a hook. Numbers drive interest, which drives ideas and activity, which in turn drives innovation. We call this feedback loop “the price-innovation cycle,” and it’s the engine that has propelled the industry through several distinct waves since Bitcoin’s inception in 2009.‘
Each cycle sees new true believers – those who survive the recession come on board – and that means adoption only goes one way.
Check out this chart comparing the pace of crypto adoption with the internet:
If this trajectory continues, there will be one billion crypto users by 2025!
But none of this raw data is stopping the critics of crypto…
As I said at the beginning, like clockwork, every time we have a down phase, they come and say “I told you so”!
Amazingly, even they play the same role in every cycle. They use the same crit arguments used in previous cyclic slowdowns.
‘Backed by nothing.’
Like I said, I’ve seen this movie before…
Does this mean that there are no huge risks?
Of course not!
But just as the dotcom revolution was underpinned by a paradigm shift in what was possible, so too is crypto.
No doubt many ideas will fail. But some will succeed. And they will lead to new ways of doing things.
Exponential changes are always hard to imagine in the moment, even when they seem obvious in hindsight:
Many people simply cannot handle the fact that crypto can be both a game-changing technological and monetary innovation as well as a dangerous new frontier for unwary investors.
The key is to go in with your eyes open, do your research, and manage your risks…as you would with any investment.
Sure, you can stay away as many did after the dotcom crash of 2000, but then you’ll miss out on what I think is the greatest monetary innovation of all time.
A hard thing for many to swallow is that opportunity exists hand in hand with fear and doubt.
Indeed, probably the strangest investment paradox is this…
Hated investment ideas are often the better kind because every skeptic is a future buyer at much higher prices.
And right now, there are a lot of skeptics.
A contrarian investor would see this moment as an opportunity…
Editor, silver morning
PS: A crypto opinion I listen to is an investment firm with an excellent track record of investing in emerging technologies. Venture capital firm a16Z has just raised US$4.5 billion to invest in Web 3.0 blockchain technologies. You can read more about their rationale here.
Ryan is also the editor of New financial investor, a monthly advisory aimed at helping investors gain the edge as decentralized finance and digital money take over the world. To find out how to subscribe and see what Ryan is saying to his subscribers right now, click here.