| Illustration by John J. Custer. |
Like an idiot, I did it. I bought Bitcoin. Or 0.0134 Bitcoins, to be exact.
Late to the party, I admit. The cryptocurrency began the year priced at $1,000 per coin; in mid-November it was hitting a record high of $7,998. Other currencies — one of which, Ethereum, I also poured my hard-earned, actually real money into — have had similar trajectories. Friends had made 750 percent returns in less than a year, and my Fear Of Missing Out overcame me.
Like any FOMO investor, I first purchased the thing — and then tried to understand it.
The trade press was of no help. Though The New York Times and other mass-market outlets have provided fair, if shallow, coverage of cryptocurrencies, the trade press was completely unreliable. In a digital-age perversion of regulatory capture, the myriad websites dedicated to covering Bitcoin et al. have an immense price-up bias. These media outlets are often owned by people with Bitcoin; at the very least, they can persist only if cryptocurrency does too. I suspect that many of the journalists covering cryptocoins also own them, which is no different than a sell-side analyst pumping up a stock he or his family is invested in. (I am fully aware that the same charge could be leveled against Institutional Investor and Alpha vis-à-vis active asset management.)
Instead, I turned to an old friend and someone I’ve envied for a few reasons, one of them being his early entrance into Bitcoin: Cameron Winklevoss, one half of the famous Winklevoss twins, who for years have been cryptocurrency evangelists. What, I wondered, had he and Tyler seen that I and so many others had not?
“Younger people don’t want to hold gold. They want software, not hardware,” he told me a few days after my fractional purchase. “I think of Bitcoin as hard money or a commodity” — he didn’t seem too concerned about labeling it further — “and I think digital currencies are trying to dethrone gold, or be a better gold. It’s vying for the store-of-value mantle.”
Sure, but gold is . . . gold. I was having trouble wrapping my head around this, despite my recent purchase. “Yes, gold has a 3,000-year head start,” Winklevoss laughed. “But in all the ways you measure the properties of gold — like scarcity, portability, divisibility — Bitcoin is equal or better. After ten years of Bitcoin’s existence, it’s actually only 50 times smaller than gold. Can it close the gap?”
Winklevoss suspects it will. “There is a network effect to money,” he explained. “The more nodes in the system, the higher the value. Say, for example, you and I own Teslas.” (I don’t.) “The fact that we both own Teslas doesn’t really create a larger network effect, except maybe they build more charging stations. But if you get a Bitcoin wallet and I get a wallet and we start buying, it immediately adds value and it grows — and not linearly.” To drive home the point, Winklevoss turned to an example close to home. “If you’re the first user on Facebook, it’s an empty, lonely place. But at 100 users it’s way more interesting. At a billion, well, you know what it’s like.”
But after 750 percent returns in less than a year, I had to ask: How is this not a bubble?
His answer was more nuanced than one might expect from a long-term holder of cryptocurrencies — and certainly more nuanced than much of the trade coverage of the space. “With a lot of the initial coin offerings out there, I’m concerned about what is going on,” Winklevoss said. “I think the SEC will shut them down. A lot of people will get hurt.” But on other currencies he’s more bullish. “In terms of what the token or network is trying to solve, I think there is likely to be one long-term winner in a particular space. In the store-of-value use case that Bitcoin is trying to win, I think there will be one winner”: Bitcoin. In other areas, Winklevoss sees other sustainable winners. “Ethereum, for example, is a computational network where you use the ether token to run smart contracts,” he noted. “It’s vying for a completely different area of the canvas. Ether has a huge head start there. It’s theirs to lose.” But I pressed: Bubble? “Look, people say it’s a bubble, but they’re looking at it in an equity framework,” he answered. “If you buy Apple and it has a certain EBITDA and the shares double — you’ll point and say it’s overvalued.” But these aren’t equities, he argued. They’re currencies or commodities.I wasn’t entirely sold — how could 10x growth in one year not be some form of bubble? — but the point was also moot. I was now on my way to being a Bitcoin Baron, an Ethereum Emperor.
Or so I thought.
Eight days after pressing “enter” on my cryptopurchases, I received an email from Coinbase, the app I’d used for the transaction. The purchase had been nullified; apparently, my bank had found something problematic. Knowing the price l’d tried to buy at, I checked Coinbase for the thousandth time to see where it was at. It turns out that TD Bank may have my best interests at heart: My would-be portfolio had plummeted nearly 10 percent in eight days.
But you know what they say: Buy the dips.
