I’ve been non-casually observing the cryptocurrency ecosystem since 2010. At some point along the way, I began to see patterns emerge again and again. Some are utterly hilarious, but all are interesting. But, like the 5 stages of grief, the progression is always the same. The following are my observations:
Stage 0: Bitcoin (cryptocurrencies) is/are just a scam
This is actually a very necessary stage for someone to go through. As my friend, Michael B. Casey says: there might be something very wrong with you if you don’t question that this whole thing is a scam. I mean, without knowing the tech behind Bitcoin, this all resembles a big scam. This stage can take years to get through.
Stage 1: There’s no intrinsic value
People like Peter Schiff were here for a very long time. Peter has actually moved on to stage 4, but this stage is still noteworthy for those who are gold absolutists. People usually graduate from this stage once they realize they can’t get rich from buying gold.
Stage 2: Only criminals and terrorists use it
Big government and establishment types usually never make it out of this stage. They can’t bring themselves to realize that there are much better ways to send illegal transactions than via cryptocurrency. They are also threatened by the rise of cryptocurrencies either because they exclusively hold fiat currencies like the US Dollar, only transact fiat currency trading pairs, e.g. USD to equities or have a vested interest in the currency, e.g. they are part of the government or the central bank. A self-aware person in this stage would realize that cryptocurrencies aren’t the problem, but a symptom of the problem that they are helping to create. Instead, the question should be: “What is it that we are doing to drive people to buy assets that aren’t controlled by us or our government?”
Stage 3: Governments will just ban it
This was me for a long time until I realized that this is an eventuality and that this won’t kill off cryptocurrencies. At least not for long. In fact, China has already, effectively, banned cryptocurrency at the top level yet there is a vibrant, some would say the most vibrant, market. For a long time, the popular meme “Hello Internet? China ban Bitcoin!” was the rage. The price of bitcoin would tank, but recover very quickly. What doesn’t kill crypto only makes it stronger.
Stage 4: This is just a bubble! It will crash to 0 in the next 5 minutes
I do find it strange when the same people who take their “stimmy” checks and pile the whole thing into their Robin Hood account to buy Hertz stock would turn around and say this sort of thing. Every market is manipulated by traders attempting to direct your behavior in their favor. Before you buy anything, at least know if what you are buying is cheap or expensive.
Stage 5: I don’t need crypto because my bank account and credit cards work fine
This is where most middle to upper-class first worlders ought to be. If you aren’t the type to want to learn anything new and your financial system works for you, then go with God my friend. A case could be made that some day your financial system could leave you in the lurch, but this could never happen, right? I am sure printing trillions of dollars per year and giving everyone stimmy checks will have no consequences.
Stage 6: It’s Blockchain not Bitcoin
OK, this one irritated me circa 2016, but I’ve seen many people go through it. The people stuck in this stage are bankers, brokers, cpa’s and insurance types. What they are really saying is: I am super pissed that I missed the boat on this Bitcoin thing, so I’ll downplay the Bitcoin part and promote some new vaporware that I can get in on the ground floor. What they don’t know is that if new technology did get started, they wouldn’t recognize it and they would miss out on that too.
You can’t separate Bitcoin from “Blockchain”. It wasn’t as if there was this thing called “Blockchain” sitting there and all of a sudden Bitcoin came along and started using it. The invention was Bitcoin and part of this invention was a data structure called the Blockchain, end of story. Sure, you can take the data structure and create whatever you want with it, but just saying “Blockchain all the things” doesn’t mean anything.
Stage 7: It’s too volatile
People who say anything is too volatile probably have too much invested in that thing. If they have nothing invested but still claim that something is too volatile, I need to ask “compared to what?” Compared to the Euro, yes, there is volatility because volatility in the Euro is engineered out. To me, volatility is a hint at emerging price discovery. It is also a hint that there is opportunity for people to arbitrage between exchanges, which means more market participants, which means less volatility in the future, but it is the market and only the market that brings less volatility and not some central bank.
Stage 8: I would get in, but I missed the boat already
So you missed the boat up until now, but now the boat is throwing you life preserver and you are refusing to take it? Implicit in this is the assumption that the price of these assets has peaked. The price, historically, peaked at $0.17, $1, $30, $100, $1200, $4,000, $21,000 and $44,000, yet somehow, magically, it is different this time around? What will you say when the price heads past $44,000? Did you still miss your opportunity?
Stage 9: OK I bought some, but the priced dropped a day later, so I sold
And….you made some bitcoin whale even richer. They thank you from the deck of their yacht. The trick is to not get emotional. This is not financial advice, but this is my thinking: buy and hold. Set a target price to sell a small portion of your holdings. Sell when the price hits the target. Invest 80% in something that pays you to own it. Keep a good amount liquid for when the price drops (volatility is your friend).
Stage 10: Bitcoin has value, but these other “s%*# coins” have no value
Another stage that annoys the holy living s%*# out of me. People! You came all this way and you just stop, plant your flag and say, “that’s far enough, no need to go any further”. Huh? It is like getting in your wagon headed west, you make it to Arizona and say, “well, it has been desert for a thousand miles and it is warm enough here, so let’s just stop and set up shop here”. Well, California is just a couple of hundred more miles, high taxes not withstanding. Could it be that there is nothing left to learn from any of these alt coins? Are they really all the same -and- bad?
Stage 11: This Ethereum thing looks cool, this is the future of this space
Turing complete smart contracts are very cool, but what is on the horizon? Is there anything or anyone competing with this? Does Ethereum have any drawbacks. Hint, it does.
Stage 12: Stable coins are the new frontier
Why are you making a facsimile of your crummy fiat currency in the cryptocurrency realm? I understand the banking on and off ramps almost necessitate a stable coin. I never saw the point in storing value in a stable coin.
Stage 13: Just buy the top ten coins (by market cap) like you would an index fund
Please don’t do this. In fact, buying index funds, in general, are a poor excuse for doing your own research on companies and cryptocurrencies.
Once you hit stage 13, you should be ready to take the final step which is the one that we, as a space, haven’t been able to take. That is, careful evaluation of each cryptocurrency for its fundamental qualities. With this information, we can compute its true discount rate over time. Then the market can reward coins that are doing things right and ones that aren’t serving any purpose.