Please click the link to listen to the 72nd episode of my weekly crypto podcast ‘Two Minute Crypto.’ These are intended to be short, single-topic ramblings on some aspect of the cryptosphere. Consider dropping a like and or a review on iTunes or Podbean if you enjoy the podcast. Comments and critiques welcome.
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Two Minute Crypto – Accepting Risk
Welcome to Two Minute Crypto – this week given the unfolding chaos in global markets – it’s time to explore the true degree of risk which goes hand in hand with any crypto investment. For context – global markets shed trillions of dollars last week – a figure many times the total market value of the crypto space.
Despite the revolutionary aspirations, aside from Bitcoin, crypto is all cutting-edge – yet to be proven – stuff. Therefore, to assess risk as it pertains to crypto – 2 categories apply Bitcoin and all the rest.
To date, over its eleven-year history, the evidence before us would seem to indicate that BTC is hard money. It is permissionless, immutable, uncensorable and scarce. What’s more, it has a fundamentally sound and predictable monetary policy. Changing that policy while technical feasible would require the very people who support and benefit from the current iteration of the network to act against their own interests.
Given all these traits, Bitcoin can reasonably be viewed as a vehicle for a high percentage return on investment. Critically, this only holds true if the term of investment stretches over a multi-year horizon. Buying BTC and expecting double-digit returns in the short-term is a sure way to fritter away capital. Any entry into Bitcoin should carry with it an understanding of the oft-demonstrated possibility of an 80% plus retracement before a resumption of the broader macro trend of value appreciation.
Ultimately, BTC occupies a comparatively low-risk position with the crypto industry and indeed within the investment sphere as a whole. Can it fail – sure. Is it statistically likely to do so? No, no, it’s not. May there be periods of time and events that might lead you to believe it was going to fail – absolutely but in time the broader adoption of BTC into the financial system seems a good and asymmetric bet.
And then we have the rest – all 5 thousand plus of them – promising you everything from enterprise-level smart contracts to dependable decentralized oracles and data sovereignty. Many of these projects have been in development for years and sport large teams and extensive partnerships. However, none of them represent sound money and each and every one is a promise of future potential rather than a global battle-tested decentralized network ala Bitcoin.
To be clear, many of these projects represent remarkable investment opportunities and some of them will doubtless end up being life-changing opportunities or those that successfully pick the very few from the noisy many. Nonetheless, however promising, each and every one of these chains is extremely high-risk. All your capital is at risk.
Now add in the current market context. Where might the low-risk path lie with investing in crypto?
The answer is clear – Bitcoin. This in no way argues that BTC is immune to the ills of the world economy – far from it. That perspective is at best a hypothesis and likely a full market cycle from being properly put to the test. For now -should global markets continue to bleed value – it is reasonable to assume Bitcoin too will see a loss of value in the short to medium term. The alts however, may face Armageddon as spooked investors scramble to offload high-risk investments. Doubtless, some will survive but which is far from certain whatever their passionate communities may argue. So, by all means – do your research and invest in alts but accept the risk – you may lose it all and for many, many reasons beyond your ability to research and or predict.
Bitcoin while not ‘indestructible’ has repeatedly proven its resilience in the face of exchange failures, community infighting, regulatory attacks, and outright state hostility. Can the same really be said of Cardano, Chainlink or Ethereum? Worthy projects all but at core – high risk and in today’s market climate ever more so.
Thanks for listening.