Banking

Weekend reading: I am short Bitcoin. One Bitcoin. – Monevator

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.

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

Weekend reading: I am short Bitcoin. One Bitcoin. - Monevator

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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