What caught my eye this week.
Just in case anyone was wondering why the price of Bitcoin bounced so sharply off the $15,600 level it hit on Tuesday, I have the answer.
That was the day I sold my Bitcoin.1
Like all degenerate punters most humans, I couldn’t help taking the subsequent bounce a little personally. Even though – equally ridiculously – I also expected as much.
Here’s a snippet of my chat from the morning that I sold:
As you can see, I bring exactly the appropriate level of decorum to my dealings in cryptocurrency.
Though for what it’s worth, this brief salvo neatly summarizes my thinking with Bitcoin.
A bit of what you fancy
I’ve had several messages recently from readers pleased to see the blow-up of crypto exchange FTX, and the stories I’ve been linking to about it in Weekend Reading.
However I’ve had to remind them that (unlike my ever-sensible co-blogger The Accumulator) I’ve not been averse to owning a bit of Bitcoin myself.
A few years ago in fact I made it my ambition to own one Bitcoin. Partly because I was interested in the technology. But also, frankly, to make the FOMO go away. (Or at least to rid myself of the hassle of having to think about whether and when to own it, which had been nagging away since at least 2017.)
I also saw diversification benefits to a small – 1% to 3% – exposure to Bitcoin, writing on Monevator:
I’d say less is more. To match [the market cap] of gold, for instance, there’s still room for a 1% position to grow into a 10% position – or to be trimmed en-route – while not doing too much damage if it bombs.
As things turned out I got to experience both. My Bitcoin sky-rocketed, and then it bombed.
A bit of all right
I first got my Bitcoin holding up to my one coin target during the Covid crash. Over the next 18 months the price went (warning, technical term ahoy) bonkers.
It was something like a nine-bagger at the peak and what I should have done was rebalance. But there were two confounding factors.
First, tax. You can’t yet tax-shelter Bitcoin in the UK. I was sitting on something like a £50,000 capital gain. Worse, I’d already racked up big taxable gains on finally selling down my legacy unsheltered tech holdings. So I sat on my Bitcoin, despite it moving far outside of my target allocation.
Secondly, a fuzzy factor. I wanted to continue to hold one Bitcoin simply because I had come to enjoy owning one of the fabled 21 million that there would ever be.
Obviously that looks even dumber right now than reason one. But there you go.
A bit on the side
On that note, over the past few months – and especially following the FTX implosion – I’ve seen numerous commentators saying “I told you so” and even doing victory laps as prices have slid.
In some cases this is fully merited. Bitcoin and cryptocurrency have not been short of skeptics.
In other cases, however, my elephantine memory reminds me that these people actually did plenty of articles or podcasts promoting crypto, dove into NFTs, or even launched crypto stuff themselves.
Fair enough. The space has been ever-interesting, if nothing else, and whatever crypto’s actual merits or otherwise, people did invest tens of billions and even make millions for a while. Just don’t pretend you never said a peep afterwards. A little intellectual honesty wouldn’t go amiss.
For my part, I mostly remain what the community calls a ‘Bitcoin maximalist’. Which means that in as much as a use case for any cryptocurrency has been demonstrated (debatable), I judge Bitcoin to be sufficient.
As I wrote in the comments to my article:
I wouldn’t hold your breathe waiting for an alternative coin on the grounds it will be ‘better’.
There are probably already better coins out there among the hundreds of candidates.
Bitcoin is valuable because people think it’s valuable and so they own/use it. And the more people use it, the more valuable it gets.
This is not a trivial point. It’s a deep, deep point, although hardly revolutionary. It underwrites the investment case in my view.
To be clear, as I said back then I don’t think you ‘need’ Bitcoin, either.
I don’t believe it goes to the moon and makes all other currencies or assets worthless or any of that baloney.
As I said only this morning to a smart friend who thinks it’s eventually a zero – maybe so.
A little bit crazy
Is this all unsatisfying, vague, non-committal?
Good, then at least it’s accurate.
Because for all the thrills and spills, the Bitcoin story seems to me as uncertain as ever. And I’m as wary of its zealots as much as its sworn enemies.
This doesn’t trouble me. As an active investor, I put money into all kinds of start-ups and growth stocks that could be game-changers or failures. I see Bitcoin just the same.
Of course, the wider crypto space clearly went bonkers in 2020 and 2021. At the least rampant booster-ism, and at the worst fraud. In retrospect – pretty much at the time, to be honest – clearly a bubble. It was one thing to see kids going crazy on Twitter, but even insiders who typically act as gatekeepers to new technology, such as VCs, also seemed to lose the plot, either cynically or because they genuinely were swept up in the mania.
I have a friend who switched their career to live in this world, and I’ve seen the excitement close-up. To me it seemed mostly like an almighty brainstorming session, rather than a sector generating genuinely impactful innovation. Yet with billions flying around just the same.
I’m happy I dodged 99% of that and if you did too then pat yourself on the back.
For few months in 2021 every other Tweet or blog post was about an NFT, a new coin, or another billion ploughed in by the VCs. You can see why people got carried away. As with the meme stock frenzy, there but for the grace of God…
A bit part in your life
Some of you will be fuming by now, as always happens when anyone writes about crypto.
Did I miss the memo about all the fraud and corporate collapses happening all over the place?
No, but what you’re describing is companies failing. And people, too. Not Bitcoin failing.
Bitcoin’s blockchain hasn’t been hacked. The system of mining coins hasn’t been comprised. Like it or hate it, if anything the collapse of centralized exchanges makes the case for Bitcoin stronger.
I’m a pragmatist. There is something revolutionary about being able to create a unique instance of a digital token and to transfer it – without double-counting, or counter-party risk – to someone else.
That one simple thing could yet be used to underpin various forms of digital infrastructure, from financial settlement and title deeds to NFTs.
Or Bitcoin could be digital gold. (Personally, I see almost no chance of Bitcoin ever replacing Visa and Mastercard or similar for everyday payments.)
Or, of course it could well end up as a digital relic that kicks around for $10 a Bitcoin, with occasional and unremarked upon booms and busts.
The spectrum of potential outcomes is probably still interesting enough for me to want to rebuild my Bitcoin position. Not until after the 30-day capital gains tax window has passed, of course.
But I’m in no rush. I’d rather buy something like Bitcoin – where there is probably no intrinsic value, just like with gold – when prices are rising, not falling.
Anyway all this is definitely not investment advice, even more so than usual. Nobody needs to touch crypto with a bargepole! This is just an update for those who wanted it, and digital toilet paper for everyone else.
Have a great weekend all.
From Monevator
Is now a good time to invest? – Monevator
Why the personal savings allowance is suddenly important again – Monevator
From the archive-ator: Do you run a tight ship or are you just a tightwad? – Monevator
News
Note: Some links are Google search results – in PC/desktop view click through to read the article. Try privacy/incognito mode to avoid cookies. Consider subscribing to sites you visit a lot.
UK economy to be worst hit of all G7 nations, says OECD – Sky News
The restaurants shrinking their menus to survive the cost-of-living crisis – BBC
Demand for rental property up 23% in a year, as rents hit record high – Guardian
Businesses and unions demand scrapping of planned bonfire of EU rules… [Search result] – FT
…and Brits start to think again about Brexit as recession bites – CNBC
Bank of England deputy governor hints at rate cuts if conditions change – This Is Money
Autumn Budget 2022: what was in the small print? – Which
Government inheritance tax receipts rise ahead of new freeze – This Is Money
More than 100 people arrested in UK’s biggest fraud investigation – Guardian
What matters to investors is not what should matter to investors – Klement on Investing
Products and services
Should you rent out your car with Turo, Hiyacar, or Karshare to earn extra cash? – Which
Average five-year mortgage rate falls below 6% for first time in nearly two months – This Is Money
Open a SIPP with Interactive Investor and pay no SIPP fee for six months. Terms apply – Interactive Investor
Is it time to take the annuities gamble? [Search result] – FT
The problems with Buy Now, Pay Later – Be Clever With Your Cash
Waterside homes for sale, in pictures – Guardian
Comment and opinion
Achieving long-term financial security is about investing adventurously now [Search result] – FT
The worst [US but same difference…] bond market ever – Morningstar
What next for defensive investors in bonds after a torrid 2022? – Behavioural Investment
So you want to own a football club? [Search result] – FT
How bad could it get for the UK housing market? – The FIRE Shrink
Choice is a precious asset – A Teachable Moment
Tail feathers – Fortunes & Frictions
Nine pensioner perks and benefits to boost your income – Which
Who wants to be a billionaire? – A Wealth of Common Sense
The names have changed, but Jeremy Hunt’s budget is more of the same – The Motley Fool
Actively under-performing mini-special
Most active fund managers underperform most of the time, and other SPIVA findings – TEBI
The failure of active management [Podcast] – Peter Lazaroff
Crypt o’ crypto
Will VCs ever profit from the $41bn they poured into crypto over 18 months? – Institutional Investor
Naughty corner: Active antics
The Hustler: lessons from a young Warren Buffett – Neckar’s Minds and Markets
Investment trusts are on their biggest discounts since the financial crisis – IT Investor
The case for splitting Berkshire Hathaway’s Class A shares – Rational Walk
Are you addicted to investment porn? – The Onveston Letter
Kindle book bargains
The Black Swan: The Impact of the Highly Improbable by Nassim Taleb – £1.99 on Kindle
The Fall of the House of Fifa: How the World of Football Became Corrupt by David Conn – £0.99 on Kindle
How Will You Measure Your Life? by Clayton Christensen – £0.99 on Kindle
Your Next Five Moves: Master the Art of Business Strategy by Patrick Bet-David – £0.99 on Kindle
Environmental factors
Why parents are baffled by eco choices – BBC
Saudi Arabia’s green agenda: renewables at home, oil abroad [Search result] – FT
Off our beat
What does it mean if you’ve never had Covid? – BBC
How a Pomodoro timer app helped me regain my focus – The Verge
Bob Iger has to solve the Disney streaming problem he helped create – Vox
The leaf blower parable [Couple of week’s old, but I hate them too!] – Seth’s Blog
And finally…
“Full-time private investors like the fact that even family and friends don’t quite know what they do for a living.”
– Ian Cassel, Free Capital (forward)
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- I also dumped the small amount of Ethereum that I had hedging my bets, alongside a few other bits and bobs mostly acquired free from Coinbase for watching educational videos. [↩]
LOL… I became a “wholecoiner” when I bought 0.6btc at 16k a couple weeks ago. If I knew how I’d look in the blockchain to see if I bought any of your coin! With our luck TI, it’ll trade sideways now for a few years…
Well that was an entertaining article, thanks. I did find it a bit odd you felt it necessary to trail your thoughts on social media but without the otherside of the conversation your intent can’t be discerned. Did you hope they would dissuade you ?
I think I read that the bitcoin system is only capable of executing 7 transactions a second, so no visa and mastercard can sleep safe if that’s true.
Personally I have zero intent to get involved with crypto so I can watch happily from the sidelines but can’t help feeling that it’s a significant psychological phenomenon which future historians will cite as evidence of a more fundamental malaise which culminated in…….
@Mr Optimistic — It wasn’t social media, it was WhatsApp. Me and my friend had discussed it a couple of days earlier and they owned an ETF that (supposedly) gave exposure to the crypto sector (listed blockchain companies like miners, Coinbase, and Microstrategy, as well as vaguely related firms like Nvidia).
I was thinking of holding that ETF as a proxy for a few weeks, so was checking the Ticker, but to-date I haven’t actually bought it after all.
@mr_jetlag — Hah! Good luck!
I find it odd that the article does not mention one of the most well-known problematic aspects of Bitcoin: the staggering energy costs of mining a PoW cryptocurrency, and the associated consequences (in particular, climate change). Bitcoin currently consumes more energy than the entire country of Argentina.
If you invest in Bitcoin, you make Bitcoin more valuable, and thus provide more incentive for mining, creating even more energy waste. This is not good!
If you’re going to invest in crypto, I would suggest investing in a PoS cryptocurrency instead. Due to the way they work, PoS cryptocurrencies consume a comparatively negligible amount of energy. Good news: Ethereum moved from PoW to PoS in September. You can invest in Ethereum (or any other PoS cryptocurrency) without worrying about being part of the problem.
@Ettiene — I know all about the energy costs. This article isn’t about that; you can’t discuss everything every time. 🙂 As it happens though I believe the situation is at least somewhat more nuanced FWIW
@TI, Well balanced article. I have a similar allocation 1-3%, in Eth mainly, which to me fits with the relative risk level/volatility – back of envelope Markowitz portfolio theory. The idea of effective duration of investing asset groups is also worth considering – with crypto at the far end of the spectrum I guess, past tech centric indexes/themed ETFs.
Also looked into how to make a short/hedge on this early in the year – which isn’t my normal, but would have been a good call (put). Couldn’t find a suitable limited liability vehicle, although considered MicroStrategy as a proxy.
The amount of pollution caused by bitcoin mining is nauseating. It’s not nuanced, it’s just a waste of energy, no matter the source. It should be banned.
Secondly, I don’t see bitcoin ever getting near even minimum adoption. Exchanges can never be trusted and you have to be very tech savvy for cold storage.
@Marco probably about 90% of most of our lives is a nauseating waste of energy. Can you imagine what the energy cost of all the plastic tat currently en route from China to the UK is? Pointless car journeys? Making every single stupid thing Bluetooth enabled and USB rechargeable? I don’t disagree with your point, but it’s not reasonable to single out Bitcoin either.
The point about Bitcoin or other cryptocurrencies that gets completely lost in mainstream media is that prices are heavily manipulated. There is no price discovery in the same sense that you see in the stock market or expect to see in other markets. This is well documented; you can find academic papers on how prices are manipulated but basically every dirty practice that has long been outlawed for stock trading is being used. All the regulatory infrastructure that you would rely on in other markets simply doesn’t exist. Companies can literally print billions of “dollars” out of thin air. Yet bitcoin is always talked about as if it had a genuine price and value.
And when – not if – other big cryptocurreny players who operate fraudulently and regularly manipulate prices are exposed the price will likely have much further to fall. (And there are bigger players than FTX, who are fairly obviously operating fraudulently and are under investigation for fraud.)
Other claimed applications for blockchain tend to be equally spurious. Why would anyone want to put title deeds on a blockchain? And if it were plausible why has nobody actually done it by now given that it has been talked about for 10 years or so? (I have attended technical meetings in my own industry where technical experts failed to identify a single plausible application for blockchains. It was never talked about again.)
Having read a bit about the tulip mania (the famous 17th century investing bubble) I was struck by how positively prudent and sane investing in that bubble appeared compared to some of the cryptocurrency nonsense. NFTs are so obviously silly it is hard to know where to start; it would be hard to come up with the concept even if one wanted to create a parody on cryptocurrencies. (You create an arbitrary and meaningless token (but it is unique, hooray!) for an object that you don’t own and try to sell it on. And the objects – that you don’t own – are often things like pixellated images of images that seem to have fallen straight out of 80s or 90s computer game graphics.)
@WhiteSheep — I think it’s worse than that. You don’t even not-own the digital object, you own a pointer to a lookup table to the digital object…
BTCE ETF is 100% physically backed by Bitcoin (or so they say). It used to be available on IB. Meanwhile they seem to have limited access for retail investors.
I’d agree a small amount of Bitcoin up to 1-2% for diversification makes sense. I think of it as an option on an unlikely but not entirely impossible future. I took some profits and don’t mind if the rest goes to zero or to the moon.
Not advice of course 🙂
Having held btc for many years the latest ructions is a case of seen it before and it will pass. A few more shake outs of the dodgy players, and a bit of regulation will be good. NFTs are another matter imho. I looked at an auction for Beeple and the set-up was not a typical auction where the market price is determined by the single highest bid. Instead, the top bid got 10 works, the next 9 got 5, then 11-100 got 1 each. As bidding progressed bidders positions dropped down the list unless they increased their bid. When the auction closed you had a situation where bidders 11-100 had paid anything from $1m (having been pushed out of a higher placing near the end) to around $20k at places 90- 100. All got 1 item, all the same. Madness. But it did reveal there were plenty of people out there with lots of money to punt on these things and $1m was small change. Btc will recover, but some of this NFT stuff is a spectacular bubble, no doubt.
Some fraction of a bitcoin holder myself, bought in 2017. Not a zealot, or a naysayer – but I always thought I’d kick myself if it 100x. There is something to the technology underpinning it, but I suspect we won’t be able to say what for another decade (or more). Bitcoin has value, mostly I think, as a brand.
Similarly for NFTs. I can see these being used for protecting and managing IP – particularly if natively integrated into the browsers of the day. Tap an image and you’ll be able to see who owns it, how to get permission to use it, what it’ll cost etc – and perhaps even all of the other instances of it on the web, derivatives etc. Maybe new business models will emerge eg some being paid to use certain images in their textual content in order to encourage others to do so.
Bitcoin/crypto-nonsense is the 21st century version of tulip bulbs, but more spivvy.
I can see no more reason to invest in them than I do investing in wine, ostrich farms, pokemon cards, old cars, vintage shaving equipment or a myriad other things some people consider to be investments.
Come to think of it, some of those things may well hold their value better than bitcoins.
Passive investing is holding you back. There’s a much better way.
https://onveston.substack.com/p/passive-investing-is-holding-you
Spoiler: there isn’t, and if there is, this spectacularly fails to make the case. Now OK that is not the page you linked to, but that page is also pretty iffy.
“Showing nominal returns instead of real returns. Trading costs, inflation, and taxes are real costs that lower investor returns, they rarely are mentioned. Passive investors often fall victim to that, as I explained in this article.”
Is he saying passive investors are subject to transaction costs, tax and inflation but active traders are not?
@Naeclue – And most of the things on your list are far more practical and enjoyable should the investment fail. Even tulips look lovely in a vase on a table.
I wouldn’t mind having some old cars to enjoy in my somewhat old age. Alas, I sold all my good MtG cards a long time ago and the good wine gets drunk fairly quickly in the jetlag household.
I don’t disagree with any of the criticisms of BTC and of Crypto in general. The space is full of scams and spivs. However the basic idea of digital assets is sound, even if ultimately it takes a different form (like those central bank coins)
Whoever wrote this article is such a loser. How many times has bitcoin died already? See it on a logarithmic scale. Keep your unlimited inflated centralised fiat jerk, you sound like you’re an idiot, work for banks or even perhaps both. I’d rather stacks sats than take your sheepish wet advice.
I don’t know who “The dude” is, but what an aggressive, opinionated, rude fool they are. To put so much spleen and personal insult into a post without engaging with the discussion in any way (except by shouting ‘fiat currency’ as if it meant something), shows someone on the losing side of an argument or with a disordered mind. To quote that well known sage Buzz Lightyear – “You are a sad, strange little man, and you have my pity. Farewell.”
re 18: I don’t think the dude can have got beyond headline, but there are anger issues that need addressing. Get some help. Seriously.
@dude to be honest I thought it was a joke to be followed by something meaningful a few stats for instance. Having realised he had just called in to vent his anger does leave you a bit disappointed. I suppose if you looked at the price of tulips on the right graph it would look quite impressive. Till it didn’t.
Despite the intemperate tone, the reference to fiat currencies (those issued by governments) is relevant. A major weakness of bitcoin etc is that they aren’t actually functional currencies, they are objects of speculation that have to be bought with money in other currencies and converted back to use for anything else. A fiat currency can – and has to – be used to pay taxes due to the issuing government which under most circumstances is enough to mean it is acceptable to pay other debts in that country.
@the dud(e)
Your detailed and reasoned arguments above aren’t terribly convincing I’m afraid
Maybe there was a point to crypto once but for years its just been an unregulated ponzi scheme whose existence was merely to defraud money from the credulous …
@The Dude (#18) – This aggression will not stand, man. Perhaps you think Bit Coin is like the rug. It really tied the room together. Yea, well, that’s just, like, your opinion, man. Obviously, You’re Not A Golfer.
#15 B. Lackdown
Wow, what an article!
“most index funds don’t pay a decent dividend so sooner or later you will be tempted to sell some shares. And depending on the country you live in you are obligated to pay capital gains tax.”
So the problem with index funds is that you have to pay CGT when you sell a bit of it every year as their dividends are a lot less than you could achieve investing actively. Because obviously, there is no tax on dividends.
“You don’t need to be a genius stock picker and researcher, all it takes is to avoid stupid mistakes and construct your portfolio in a way that the winners outweigh the losers.”
OMG!
@Dan @B. Lackdown — I feel the need to reiterate that this wasn’t the article I linked to…before my co-blogger walks off the site! 😉
“Personally, I see almost no chance of Bitcoin ever replacing Visa and Mastercard or similar for everyday payments”
This is literally not possible. By design, bitcoin can handle a maximum of about 9 transactions a second, each of which currently cost (paid in inflation effectively by the miners being issued new coins) about $1200 – yes, really. By comparison, visa alone can process about 750,000 transactions a second, which is lucky with 8bn of us on the planet now.
When Tesla announced they’d allow cars to be bought for bitcoin, I bothered to do the maths. If you paid for it with a bank transfer or card payment, the energy used wouldn’t power the car up. If you paid with bitcoin, you could drive it for three _thousand_ miles on that same energy. Craziness.
Also, gold does have some inherent value – it has substantial industrial uses, and people want to wear it as jewellery. No one wants to wear a t shirt with a hash on it. I completely agree gold is irrational to hold as an investment – but bitcoin is far more so.
@Tedious Pseudonym — You’re assuming everything is reconciled immediately to the blockchain. It’s quite easy (as many have done) to think of ways in which you can locally handle payments off-chain or between counterparties, and then reconcile to the Bitcoin blockchain at the end of the hour/day/week. The price you pay is some measure of centralization and I’m not sure what you gain versus Visa except some measure of ex-Fiat sovereignty but I think it’s possible. (But as I say unlikely to displace anything, in my view).
Sorry Seth but forget about a battery powered alternative just ban the ruddy leafblowers completely. I could understand a leaf vacuum e.g. add it to your compost all the blowers do is distribute the leaves elsewhere. And please don’t give me the H&S argument about slipping on pavement – look where you are going and wear sensible shoes!!!