March 19, 2021
Exponential curves tend to bring out the crazy. These unpredictable events deliver big winners, and big losers, and the media rides along. Cryptocurrencies are the exponential du jour.
Apparently not content with the Swiss Franc as a store of currency value, digital currency entrepreneurs decided to consume a massive amount of electricity building their own. From week to week the proposed need for this product changes, from distributed transaction histories, to a substitute for gold, to fodder for Elon Musk's Twitter feed and a headache for Tesla's CFO, to illicit transactions. Well, illicit transactions seems to be steady as a use case. We'll see about the rest.
There are at least two good investment lessons here.
1. It's not scientific, but an observation: many people bestowing praise on cryptocurrencies tend to own them or have some upside in their proliferation. This is different from the early days of the Internet: people used Amazon or AOL but didn't have a direct financial interest in their success. When you see this pattern, it pays to wear your skeptical hat.
2. Imagine being a professional baseball player staring down Mariano Rivera's cutter fastball. Eventually you have to swing at a qualifying pitch. You may end up off balance in the process. Your bat may end up broken. You may end up broken. But you can't just stand there.
Here in the investing world, you can. You can watch a zinger like bitcoin sail by and do nothing, feet planted firmly on the ground, balance intact, confidence building. You don't have to fall all over the place reaching to swing. This confers advantage as an investor.
We'll let someone else have the euphoria and stress of booms and busts. The general markets have enough, we don't need more. We'll just simply sit and wait for the obvious pitch.
1. How Mariano Rivera rode one pitch to the Hall of Fame. (Btw, he broke 724 bats.).
2. The baseball analogy above is not new in finance. I'm repurposing it in light of crypto.
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