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?”
“Do you think it has utility and it works?”
“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.
I head editorial at the American Institute for Economic Research founded in 1933. I've written 8 books and speak regularly worldwide on topics of money, trade, and innovation. Disclosure: yes, I have personal investments in the cryptoasset sector.
Jeffrey Tucker Contributor