Bitcoin buyers be Aware

There is a remarkable story over at The Hustle where a self-described middle-management cog in a corporate machine bets his family’s savings on crypto, watches it fall by 60%, doubles down (!) — and his $300k risked pays off to the tune of $13 million. He buys in at an average cost a little over $11 in 2016, watches it rise to over $1,200 and sells in the low $900s in early 2018. It never comes back anywhere near the highs. Here is the chart in the piece that shows the trajectory.

The spike here is stunning, as ETH trades at under $15 until March of 2017, rockets up to a high of $1,225, and then embarks on a theme-park-ride dip to a low of about $84. For the last 100 days or so it’s been pretty steady, and ETH currently sits at about $185, which matches the pre-spike rise back to May 20th of 2017.

The issue with this picture — and this story — is that there is no wealth creation, just wealth transfer. It’s a heck of a good story for our ETH protagonist (and frankly one could make the case that he is a more deserving recipient than Adam Neuman); however public equity sellers require public equity buyers, and the unstated reality here is that a number of ETH speculators bought in at the $900 price at which our protagonist sold, and lost millions.

The value and wealth creation of public markets is immense. And middle-manager-risks-life-savings-makes-millions is a far more compelling story than reading about the folks who collectively lost comparative millions, but the shape of this chart — and the hype around it — should give everyone pause. This is not a bet on the underlying value of the assets or the cash flows they can generate in the future, it’s a game of chance and risk (or something worse). It’s an essay for another time, but more and more it seems like the narrative of public equities in the media carries the same shape. And this is not a good trend.