Bitcoin: an overnight success, a decade in the making

Is It Too Late To Buy Bitcoin? “” What about Ripple – I hear it’s cheaper? “” Ethereum? “” Why didn’t you tell me to buy sooner! “On Monday I get more and more calls from friends asking these questions. I’ve been in the crypto world since 2011, treating them as a reporter and teaching as a law professor, and calls like this are one of the few certainties in This Crazy Market. In the current craze, which is at least the fourth I’ve experienced, it’s important to remember that the best way to make money is slowly. Instead of reading crypto Twitter, anyone looking to succeed in this market should listen to the traditional investor most hostile to crypto: Warren Buffett.

When asked why more people aren’t copying his investment strategy, Warren Buffett famously replied, “Because nobody wants to get rich slowly.” This is especially true in the crypto world, where fortunes seem to be made overnight. In 2013, I wrote a story for Businessweek about a man who erased a hard drive containing 800 bitcoins. When I wrote the story, they were worth $ 200,000. You are now worth more than $ 15 million. Two years ago I lost a bitcoin poker game, the pot of which is now worth about $ 4 million. I’m not sure yet what these stories do to a person’s psyche, but as economic historian Charles Kindleberger once said, “There is nothing that disturbs a person’s well-being and judgment more than seeing a friend get rich becomes.”

The downside, however, is that easy money is not so easily valued. Making money fast is a lucky factor – whether it meant accidentally running a mining machine or by accident hearing about Bitcoin early on, chance played a huge role in the speed of getting rich.

A visual representation of the cryptocurrency Bitcoin on November 20, 2020 in London, England. The price of Bitcoin has risen sharply in the past two months to a high of around $ 18,800 and has risen almost 100% since September.
Jordan Mansfield / Getty

It is not happiness that makes people happy to get rich, but a sense of accomplishment and surrender to an ideal greater than money. Bitcoin is one such ideal for many of its early supporters who have slowly gotten rich.

Bitcoin’s value, at least for its early supporters, is based on an ideology that views the market as better at producing money than the government. Some people speak of the separation of church and state; The members of the Bitcoin community talk about the separation of money and state. This is not a new idea – economists like FA Hayek and Ludwig von Mises understood the power of the free market to produce money that was not subject to the vicissitudes of politics. Buffett’s father, a Nebraska Congressman, understood this too and was an advocate of the gold standard and solid money. Whether or not you endorse this value proposition, there are many who will. Money has a reflexive quality, and the reason dollars have value is why gold or diamonds have value – because people believe they have value.

The early Bitcoin pioneers were not driven by money but by ideology. These are people like Nick Szabo, a pioneer in cryptography as well as smart contracts who has worked at Crypto for decades. His influence came from slow work in building the intellectual edifice on which Bitcoin stands. From reading Szabo’s writings it is clear that he is not someone who is there for the money. Dedication to a cause – something we should all have – made it possible for him to endure. Another example: I asked the hardcore bitcoiner Erik Voorhees in the early days if he was paying out any money. To my surprise, he said he was almost fully paid off. He quickly made it clear, “… of dollars.”

This is similar to the way value investors can distinguish market prices from intrinsic value. My business partner Burak Alici is quick to point out that volatility does not mean risk or uncertainty. Although our company does not invest in crypto-related products and prefers boring businesses like elevators and train brakes, we are always aware that in markets the dynamics are not always right.

The only reason people like Buffett or Burak or the Bitcoin millionaires could hold out is because they marched to the beat of their own drums. This is a great way to get rich (it’s also a great way to march off a cliff). While it may seem that the Bitcoin moguls got rich overnight, this is the get-rich-quick way the band Phish referred to when someone called them an overnight success. Drummer Jon Fishman said something about the effect, “Yeah, we’ve spent 9 years becoming an overnight hit.”

Max Raskin is Associate Professor of Law at New York University and General Counsel of QVIDTVM Inc., an investment holding company. Follow him on Twitter @maxraskin.

The views expressed in this article are those of the author.

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