we're still early days & the psychology of btc

    Status: draft

    It looks like we're in the midst of another run on btc and crypto, so I thought I'd jot down some notes on where we're at + some rumination on the sociology and psychology of crypto via reflecting on my personal relationship with the technology/market/asset.

    where we're at:

    A year ago, I thought that crypto was 10-20 years away from mainstream adoption. Interestingly, in-line with the rest of tech being accelerated by the pandemic and work-from-home. It seems as though 2020 also accelerated crypto adoption, perhaps, by decades as it did for WFH technologies like Zoom, telemedicine, etc.

    The year started off with btc in the $7k/btc range with a dip into $5k/btc during the March pandemic crash. It's currently up a run at $18.5k/btc meaning it's quite near the peak of the last all time high 3 years ago in 2017.

    The rotation into bitcoin looks to me to be the coinciding of a number of trends (this is not considering Ethereum and other alt crypto assets as I think that's a marginal consideration in this run).

    1. A general rotation into risk assets. All growth tech stocks have been doing well leading the stock market to an ATH. Bitcoin is a risk asset. It is not entirely uncorrelated from the stock market.
    2. Volatility hedge. The narrative that bitcoin as non-sovreign money provides a value haven outside of the prevailing macro environment. Increased distrust or perceived failures of govenrments. Pandemic response. Election uncertainty. Polarization of politics.
    3. Acceptability of bitcoin among institutional allocators. This has been parroted for a number of years. "201X is the year of Wall Street adoption". Anecdotally 2019-2020 this trend has actually started in earnest. It's becoming normalized for a small % of portfolio to be allocated. The Yale endowment's co-sign in 2018 among many other famous investors coming out of the wood works, having blessed crypto-assets. This is a notable change in sentiment.
    4. Accessibility — GBTC (Grayscale Bitcoin Trust) and other tickers listed on public stock exchanges are increasingly able to shift money into the asset class (~$10B in AUM at time of writing). Robinhood, Square, and, now, Paypal all also allow purchases.
    5. Supply constraint - there are many more long-term hodlers of the asset. Plus many more well-capitalized miners that are also concerned with crypto-denominated asset accumulation (rather than blinding selling into USD). In addition, with a healthy derivatives market; there are also other ways for miners to gain yield without necessarily selling (e.g. miners may sell part of their upside with call options, the right to purchase at X price).

    Now the run up likely has room to grow. Again anecdotally, this bull run doesn't have the same hysteria where your high school acquaintances one never talks to are updating facebook statuses. This is a relatively quiet run. Will it remain quiet? Maybe not. I fully expect a wild spike and crash.

    I am not a financial advisor. I don't even hold that much crypto. If crypto as an asset class piques your interest, I recommend to follow what the institutionals are likely going to do; hold 1-2% of your assets as crypto. Enough to give a portfolio exposure, but not enough to be cataclysmic if lost. "Invest what you are willing to lose" = invest an amount that one won't be anxious about if it draws down by 50% or, even literally, goes to zero.

    Bitcoin disillusionment

    Having gone through several cycles of disillusionment / interest. I've noticed an aspect of Crypto's memetic nature that made/makes it hard for me to be level-headed. Compounded with an immaturity in my understanding of investing and risk — leads to emotional peaks and valleys in my relationship with crypto.

    Yet I noticed that the more time I spent away from the "crypto community" (and crypto media), the more I could separate myself and focus on the socio-technical phenomenon and appreciate btc for what it is and isn't.

    Realizing that the noisy bitcoin and crypto maximalists on-line on crypto twitter, reddit, etc were actually NOT representative of long-term holders and the much wider adopters of crypto.

    A podcast I listened to recently had a guest who mentioned: "[crypto] draws both the smartest and dumbest people; I don't know what it is."

    To add on to that, crypto drew in many of the scummiest grifters actively pulling wool over people's eyes and hoping to catch a buck while adding net negative value to the technology. Frankly, much of crypto twitter's promotion tactics continually remind me of this.

    "It's something for everyone"

    Today, it's a bit surreal to see the wide-range of support for bitcoin. It remains resilient despite a decade of toxicity of the crypto carnivores and maximalist shills, the scams and rug pulls, and the dark market arrests.

    Cathie Wood, the famous tech investor behind Ark, once was asked to defend a seemingly outlandish price target for Tesla stock on CNBC, part of her response.

    "It's something for everyone."

    And it struck me that Tesla is driven by the promise of the future as conceived by each of its investors. Every stock holder comes to Tesla with their own beliefs of its potential.

    Bitcoin is that but, perhaps, even more purely fueled by ideological narratives.. A ledger of 0s and 1s becomes money, becomes a hedge against the current and past, becomes the "future".

    Bitcoin is hopes and dreams, often, via an expression of angst. Bitcoin is being redpilled by the internet, by libertarians, by Austrians, by far right, by far left, by crypto bros, by pump and dumpers, by CNBNC, by twitter.

    Yet bitcoin, despite this wide coalition of narratives, remains with its fundamental ideological underpinnings of Austrian economics and goldbugs which are interesting but far from a totalizing view of economics.

    I found this write up of a series of Twitter surveys on the values and beliefs of what bitcoin is/isn't survey, by independent crypto researcher Hasu. It references an essay they wrote in 2018 the Visions of Bitcoin. Among the sample surveyed by researcher Hasu, there were a number these core topics:

    1. Censorship-resistance;
    2. Intermediation;
    3. Monetary inflation;
    4. Settlement guarantees; and
    5. Means vs. ends (more on that later.)

    I found the survey of different position on important bitcoin precepts to be interesting and telling. Hasu's commentary is nuanced and unpacks a lot of the details of what each topic means and their functional implications to bitcoin.

    However, I suspect most bitcoin owners, don't care to think about the technical specification and, therefore, how bitcoin may or may not (have to) change. Just as we consumers, don't bother to think about the infrastructure behind the internet services and mobile apps we use, mostly for free. Facebook/Twitter are social networks, not ever changing dynamic systems run by a corporate entity fueled by a stack of technology and strategic decisions responding to a media landscape funded by advertisers. Similarly, Bitcoin is simply magic internet post-sovreign money. It is "censorship resistant". It is "digital gold". It is "21 million".

    Big blocks? Small blocks? Medium of exchange? Store of value? What happens to miner fees once block rewards vanish? Buying into the mainstream bitcoin narrative(s) doesn't require having opinions on the particular issues (and therefore any potential problems that may arise in their unfolding).

    The narrative is that Bitcoin will continue to be Bitcoin.

    As Gwern aptly describes in his presicent 2011 essay: Bitcoin is worse or better. It's neither the most elegant system nor the worst system. It's a clever hacked together system now ossified by a social movement averse to any change. But more importantly, it kind of works, and it's what we got.

    And that's what makes Bitcoin so resilient. It's a exceedingly simple narrative. That boomers and the fringe can both get behind.

    It's something for everyone..

    Finally, I'd like to end this with a short clip from a newsletter of Bloomberg journalist, Tracy Alloway, a "reformed" Bitcoin skeptic.

    I have a confession to make: I am now bullish on Bitcoin. I'm bullish on Bitcoin because I'm bullish on cognitive dissonance in a complex society, and on people's ability to produce endless narratives for the cryptocurrency — even ones that are at times contradictory...

    The list of Bitcoin's purported uses goes on and on, and every time an obituary for Bitcoin is written, a new use case or bull argument steps in to to take its place. I used to think this was a weakness since Bitcoin could never be all these things at once. But the more I think about it, the more I realize that it's actually a strength. Bitcoin is a thing on which people can project their hopes and dreams — whether it's for a fairer society, a more inclusive financial system, or simply more money. Since hopes and dreams are endless, there will always be a fresh bull case for Bitcoin waiting in the wings. In that sense, it's really the perfect post-modern financial asset for a post-modern financialized economy.

    bitcoin is the perfect postmodern money

    The future is here, and it's simultaneously boring and intriguing at the same time. Buckle your seat belt... or don't. We're in for an interesting decade.