A man passes by a screen showing the prices of bitcoin at a virtual
currency exchange office in Seoul, South Korea, Tuesday, Jan. 16,
2018. Prices of bitcoin and other digital currencies have skidded
after South Korea's top financial policymaker said a crackdown on
trading of crypto currencies was still possible. (AP Photo/Ahn
Young-joon)
You think you have been through hard times with crypto this
year? Let me tell you a few stories.
To set the record straight, I never expected bitcoin to rise
above $14. That was where it sat the day I finally got skin in the
game. I downloaded a wallet and sold my bowtie for 3 of these
things.
I had no idea or inkling of what would happen next. I didn’t
predict it, didn’t urge it on, never recommended that anyone buy
it, never suggested it was a new glorious way to make money. I
would have been happy if bitcoin had forever stayed equal in value
to the world’s most valuable national currency: $1.
So far as I’m concerned, that alone should have been headline
news for a century.
My writings on the topic from early 2013 were about one thing
only: this stuff really does seem to work. After years of
incredulity, and a pior decade of failures, I had come around to
realizing that cryptocurrency really was alive. It finally worked.
We have a money for the digital age: behaves like real property,
can’t be duplicated, trades without an intermediary, and functions
outside government and the central bank.
How exciting is that? For me, with a career-long loathing of
government fiat and a deep longing for sound money, it was the most
exciting thing in the world. It was the ultimate intellectual turn
on. All these amazing features of the digital world had finally
come together. My interest was purely intellectual, just as my
fascination with money as a topic had been since I first bumped
into the subject when I read my college roommate’s book on the
history of Weimar.
What I had not expected is that my celebration of this
technology would be interpreted by lazy readers as a buy signal
– or a pump and dump. I was mistaken for being a stock picker
of sorts, not because of anything I wrote but because many people
are too intellectually dim to imagine that a financial technology
can be admired for its architectural beauty completely independent
of its price.
Instead, everyone said: I’m telling people to buy! So when the
price took off, hordes of people in my social-media circles
starting screaming at me that I was personally blowing a bubble. If
I could summarize the basic message to me: I’m evil.
Then the price began to rise over the coming weeks. When it hit
$30, the trolling became incredibly intense. I had done this, they
said, and I would pay the price. How? Because the masses of people
who believed me and put their life savings into this would soon
discover that they had bought nothing but air, and they would hate
me forever.
I was reading all of this with a sense of disbelief. And there
was another effect: I became intellectually invested (despite
myself) in seeing the price rise, if only to make my critics
suffer. So I was delighted as the year went onward, as the price
marched inexorably to $1,000 by November in one of the first great
run-ups.
Let me take back the word “inexorably.” There was a moment of
incredibly intense drama in April, and I can promise you that it
would be impossible to recreate the moment. Bitcoin reached $180,
shocking everyone in the world who cared (and not that many people
actually did care). I was delighted, again, not because I was
rooting for higher profits but simply because I wanted my critics
to eat their words (they never did).
Then the fall began. The price fell 50% in two days. It was my
first experience with bitcoin bipolar disorder. Watching all this
happen, seeing my critics chortle, dealing with the demands that I
explain myself, watching my reputation collapse into ruins (or so I
believed)– it was all too much. The stress was unbearable. One word
was on my mind: defenestration. The only problem was that my office
was on the first floor.
I called a friend in Argentina who had been fascinated by this
new tech since 2011. The world he had experienced was more extreme
than anything I had yet seen. Bitcoin had reached $25 by the summer
of 2011, he reminded me, only to crash back again to $3. You want
volatility? That’s volatility. The “original gangsters” in this
market know full well what we are dealing with here.
So he counseled me by laughing uproariously at my total meltdown
panic. And he said to me pointedly:
“Jeffrey, do you understand this technology?”
“Yes.”
“Do you think it has utility and it works?”
“Yes.”
“Then think about that and forget about the price. This is about
the long term.”
I will never forget those words, except when I do forget about
the words pretty often, such as during this disastrous year in
crypto.
And right now you might be laughing at my absurdly maudlin
performance back in 2013. But please remember that nothing like
this had yet happened to this new thing called bitcoin. All I
really wanted was for this thing to reach some price (what was it?)
that would convince people that this is the real thing, a new money
for the digital age. Little did I know in those days that there is
no price that will convince the incorrigible skeptics.
I swear that bitcoin could be a million dollars and it would
make no difference. The early adopters would still feel good about
themselves. Those who have neglected it would still be calling it a
scam. My mistake in those days was believing that people were
open-minded about this technology and would come around in light of
evidence.
Yes, the world will indeed come around, in time. It took 20
years for email to become a normal part of life. That’s fast as
compared with internal combustion, the commercial use of steel, and
the printing press.
In any case, because I had become emotionally invested in a
rising price (big mistake) I had a delightful end of the year in
2013, as bitcoin reached $1K. So the next calamity when it fell
again 60% was not a shock. But those around me who bought at the
top went into deep funk.
Listen, people. Crypto is brand new. It's still an experiment.
Everything is being tested. And while it is always nice to make
money on rising asset prices, that’s not actually the point. The
range of time to think about – speaking intellectually here and not
as an advisor in any capacity, because lord knows I would never
want to bear responsibility for anyone’s investments in this sector
– is in terms of 5 and 10 and 20 years.
If you are new to this sector, you know that it’s been a grim
year for bitcoin and crypto in general, with prices falling 50-90%
from January to the present. And it’s not been straight down. There
have been bounces up and down, constant teases that finally this
winter will end, until another few weeks pass and the air grows
cold yet again.
And yet, as soon as I say that, I’m correcting myself. Year over
year, bitcoin is up from $4K to $6.5K, a 62.5% increase, which
easily beats the Dow increase of 18%. But the human mind doesn’t
work this way. We don’t think year over year. We think in terms of
trends. Bitcoin hit nearly $20K late last year. So far, then, 2018
has been a calamity for crypto, except for every single other time
this has happened.
Does it matter? It’s fun to watch, sometimes delightful,
sometimes heartbreaking, often terrifying for those who are
invested. And so it has always been with financial innovations that
enter the world in the messiest possible way, in real time, with
real people, in real markets and all the personality disorders that
come with that. Stay calm, think big, think long, and watch as the
world of money, banking, and finance gets reinvented bit by
bit.