Last summer I had lunch on the shores of Lake Maggiore in Italy with a couple of other investment professionals, certainly one of whom I had known for several years. A former CIO of a family office, he had left that job to begin a couple of cryptocurrency projects, including a fund and one or two corporations within the non-fungible token (NFT) space.
“Man, I’m excited to ask you something I couldn’t get an answer to,” I told him. “I have been following Bitcoin since 2011, read the original white paper by Satoshi Nakamoto and truly believe blockchain will be an important part of the future, but I have never invested.”
“Why not?!” he asked with a smile. He had made quite a little bit of money and had only been within the crypto space for a couple of years.
“I remember being really excited about Bitcoin in 2011,” I said. “But the price had already risen from $3 per coin to $17 per coin. I had no idea whether the move was over or not.”
“It wasn’t over yet,” he joked.
“I know!” I said. “And that’s what I’m upset about. I could have given a man in a parking lot $100 and a decade later I would have had $300,000.”
“Why didn’t you do it?” he asked.
“For the same reason I didn’t invest $25,000 per coin,” I said. “I really think blockchain is going to be a big thing, but I have no idea how to value Bitcoin. Is Bitcoin the future? And is it the future at $25,000, $60,000 or $1,500,000 per coin? That’s why I wanted to talk to you. You’re not a crypto bro – you’re a professional. How do you rate it?”
I used to be serious. I actually desired to know the way he made buy/sell decisions in an asset class I knew little about.
Needless to say, I used to be dissatisfied. After about 10 minutes of the usual “It’s the future”, “It’s digital gold”, “It’s a store of value” and the inevitable “You just have to believe it” I lost patience.
I agree. Crypto, blockchain and (perhaps) Bitcoin the long run. . . I cannot eat in Bitcoin. At some point I actually have to convert it into goods and services so I can live my life. That makes it a And once you invest,
Maybe it’s digital gold, but at the least with gold now we have some pricing models to fall back on. And a “store of value”? Light up. It loses 15% in a day. Not only is that this a terrible currency; neither is it a “store of value.”
In the tip I just sighed, leaned back in my chair and watched the boats drift through the breathtaking mountain landscape.
He just didn’t know. He didn’t know how one can value the asset that he had made his profession as a trader.
But who’s the smart one? I actually have been completely mistaken about Bitcoin for over a decade. And that upsets me. I take part in this asset class. But as an expert investor subject to a fiduciary standard (and my very own rationality), I should have an comprehensible reason.
So here I’m over a 12 months later and I still haven’t got a crypto investment. Yes, I can brag that I missed a drawdown of $60,000 to $20,000 per coin. But that is little consolation once I could have invested $1,000 or less.
This jogs my memory of a two-hour presentation by a successful and revered pension fund manager that I heard at Old Parkland, essentially the most exclusive office space in Dallas, Texas. The audience consisted mainly of family office managers and employees.
I didn’t expect a Bitcoin pitch. But that is exactly what now we have. In hindsight, I must have seen it coming. The speaker began with a really compelling evaluation of how the US dollar was mismanaged – some extent I agree with and the way this showed the necessity for an alternate. And then there it was: Bitcoin.
Often people hide their argument behind the evidence, however the argument was still there: Bitcoin will succeed since the US dollar will falter.
But will it? If the US dollar collapses – an final result I don’t expect – why should Bitcoin emerge as a giant winner? As a counterexample, what happened when the Venezuelan Bolívar collapsed? Bitcoin has not emerged because the alternative of alternative. People preferred physical gold.
At the presentation in Dallas, I asked the query I all the time ask crypto enthusiasts: I didn’t mean to be argumentative, however the presenter disagreed and launched into a protracted diatribe. “Apparently I wasn’t listening,” he said, recapping his earlier statements. I finished listening.
All of which brings me to my point: Investors need a pricing model – any model – if we wish so as to add this asset class to our portfolios. We don’t include it because, as my experience at Lake Maggiore and Old Parkland shows, nobody knows what it’s value. At this point, a general, rough rule of thumb would suffice. But I’m bored with the “don’t ask too many questions” hand-me-down approach.
Therefore, on behalf of the skilled investing community, I respectfully ask every crypto expert to create a compelling, coherent blueprint for how one can make buying and selling decisions in a cryptocurrency portfolio.
Please do not forget the part about sales decisions. Without sales discipline, we’re fanatics, not investors. Then perhaps I’ll finally have the reply to the query I’ve been asking myself since 2011: At what price?
If you enjoyed this post, do not forget to subscribe.
Photo credit: ©Getty Images/MicroStockHub
