[4 minute read]
The defining term of 2021’s investment mania was “YOLO” (You Only Live Once). But 2024’s crypto rally is much more about FOMO (Fear Of Missing Out).
The explosive new ETF launches have brought an entirely new audience to the Cryptocurrency asset class. Inflows to crypto funds this year have already surpassed the amount seen in all of the insanity of 2021.1 Larry Fink, the CEO of BlackRock, recently stated that their iShares Bitcoin ETF has become the fastest-growing exchange-traded fund in the entire history of the ETF industry.2
To its supporters, bitcoin is a blank canvas on which can be painted all sorts of narratives. As Scott Melker recently pointed out:
Bitcoin is a hedge against inflation, a store of value, digital gold, scarce, idiosyncratic, a diversifier, an alternative investment, censorship-resistant, a geopolitical hedge, open and transparent, cross-border, auditable, a high-return, 24/7, anti-fragile asset.
Meanwhile the best reasons not to own bitcoin are obviously the wildly-charged philosophical debate as to whether it has any “intrinsic value” at all and, more sensibly, volatility. The chart below shows it’s been either death or glory for bitcoin in any given year.
Even with those kinds of drawdowns, Bitcoin’s sheer size means it’s now reasonable to assume it’s here to stay for at least the medium term. Bitcoin’s market cap is now roughly $1.5tr, vs about $45tr for the S&P 500, $50tr for the U.S. bond market, $120tr for commodities, of which about $13tr is gold.3 This makes Bitcoin a meaningful asset class, and the ETFs have “worked.” So far.
My friend Dave Nadig also wrote an excellent recent piece that asked what this means for the Ultra High Net Worth landscape:
Moving back to 30,000 feet: this is a transfer of economic power from two classes: slow hyperagents – those who currently bend the global ruleset around them, and average joes now “participating” because folks like Fido are nudging. That power is transferred to a new class – early crypto natives. Early crypto natives become the new “elite,” who, on moving back into the fiat world, arrive with the pocketbooks to be hyperagents, dominating politics, dictating policy and accelerating the slide into corporate oligopoly.
In short, the crypto-literate have now found themselves with vastly more power, money and influence than they themselves probably expected. For obvious reasons, this community tends to have a strongly anti-authoritarian streak. The implications of this wealth-transfer will persist well beyond the boom and bust cycles.
What to do?
The decision to actively trade anything is usually a recipe for anxiety. And with bitcoin it’s even worse. There’s a huge amount of spurious technical (price chart) analysis. But this technical analysis is also self-fulfilling because (more so than other asset classes) the price itself is the signal. Much of the recent rally seems to be driven by inflows and fear-of-missing-out. These are two of the largest gravitational forces in finance, and tend to have persistent momentum.
You will also need to be well-versed in technical catalysts and potential volume drivers. For example, on May 15th holders of the ETFs will have to file their 13Fs. This holds the potential for even more “social proof” if big names (or prior public skeptics) show up as having been holders of the asset class.
The decision to “buy-and-hold” bitcoin longer term is making much more of a philosophical decision. Since the start, my personal approach has been to allocate only as much to it as I’m willing to set on fire. But the volatility does make it an appealing side-bet; as you can see in the chart above.
Your individual advisor at Sapient will have a better idea on your own personal circumstances.
If you’re not currently a client, contact us to arrange a meeting.
Tom Morgan: A New Chapter in my Story!
Just over three years ago, Tom Pence of Sapient Capital read one of my articles and called me out of the blue. He saw something interesting, differentiated and a little bit crazy in me. The team at what was then called The KCP Group hired me to do my dream job. I was to find meaningful ideas for curious people. What followed was the best 3 years of my life, by a wide margin.
I owe them that immense debt.
Moreover, if you’ve enjoyed any of my writing over the last few years, you have them to thank too. I get rather a lot of messages saying how much people have valued me being so truthful about my own previous struggles. My freedom to share was granted by the innovative role Sapient created.
But if you’ve been reading my work over the last three years you will have noticed that my interests have slowly been pulled in a broader direction. I am now captivated by the top-down and bottom-up changes I can feel coming in the air.
Fate has an uncanny habit of putting you in a position to see if you follow your own advice. So as someone who talks about needing to respect the power of your own curiosity, Sapient has graciously allowed me the freedom to set out upon that new journey.
The team at Sapient will remain great friends. From time to time, they will occasionally seek my insights on topics of interest to their clients, which I will happily oblige.
If you’re an existing Sapient Capital client YOU ARE NOW UNSUBSCRIBED from What’s Important, my monthly longform pieces.
If you want to retain access to my work, you can resubscribe to What’s Important here.
All Sapient’s other content will be available to you as usual without any action required on your part.
Thanks to all of my friends in the Sapient network for all of your dialogue and support over the years. I look very forward to keeping those lines of communication open as I move forwards.
With love
Tom
