Bitcoin is the Riskiest Kind of Asset Except for all the Other Kinds
You're buying bonds guaranteed to lose money and telling me bitcoin's the bad idea?
On September 22, 2021, US regulator Gary Gensler told college kids that passive investments can consistently earn a safe 8% return over the next 45 years.
Ok, boomer.
I remember when they told me to buy a house so I’d have financial security. One year later, the housing market crashed, leaving me $100,000 underwater. It took 13 years for that property to go back to the price I bought it at.
Now they say the stock market can’t crash, the Fed will never let it. An entire generation of Americans depends on the stock market for their retirement and, by extension, the continued growth of our economy. They continually deposit trillions of dollars each year into retirement accounts and wealth management funds without even looking at what they’re buying.
Roughly $26 trillion in household wealth sits in these accounts, generally with 50-60% exposure to the stock market. And that doesn’t include pensions that have a not-insignificant share of the market.
So you have an entire workforce putting or keeping money in the stock market, essentially on autopilot.
Those equities remain dangerously overvalued based on almost every historical benchmark. At the same time, average dividends are the lowest ever recorded, publicly-traded companies sit on the largest pile of debt in history, and those same businesses generate such woeful cashflow that they’ve collectively had to sell an additional $1.7 trillion worth of bonds so far this year.
No wonder the boomers tell everybody to buy stocks. Their wealth depends on it.
Risk is everywhere
These same people think crypto’s a risky investment. Good!
Usually, financial ruin comes from safe assets, not risky ones.
When you feel a sense of complacency or security, only to have it ripped away through circumstances beyond your control. When everything seems like it can’t fail, and then it does.
For example, some of the biggest global financial crises came from “safe” investments:
2008—US houses
1997—high-growth emerging market economies
1929—US stocks
1873—gold and railroads
What “safe” assets have risks you’re not thinking about? Here are a few:
The stock market. It always goes up—until it doesn’t.
A house. It’s the American Dream—until you can’t afford to pay the mortgage.
Bonds. They offer safety—the safest way to lose your purchasing power over time.
Gold. It’s a great hedge against inflation—except for any time after the 1970s.
Dollars. Global reserve currency—and designed to lose value forever, except against other currencies that lose value faster.
This world is full of risks, often where you least expect them.
Fail to Prepare or Prepare to Fail
There are no sure things in life, but that doesn’t mean you should stuff your cash under a mattress and pray for better times.
You have to take risks with every investment. It can’t hurt to acknowledge that truth and accept those risks. If you’re going to do that with bitcoin, why not everything else?
Growth is slowing in almost every major economy. How long until that trend threatens the world’s post-COVID recovery?
China’s dealing with major financial problems while balancing a 300% debt-to-GDP ratio. What happens if its government slips up?
A demand shock has overwhelmed supply chains almost everywhere, causing shortages across the board and sending the prices of many goods and services so high that some industries have nearly ground to a halt. What if it takes years to resolve?
The US government will run out of money in a few weeks. It may shut down tomorrow. What are you going to do if either of those things happen?
Rent and housing prices far outpace wage growth in most advanced economies. Can that continue?
On top of that, $17 trillion worth of the world’s wealth remains locked into negative-yielding bonds, with another $6.4 trillion sitting in junk bonds from unprofitable businesses that pay less than the rate of inflation.
That’s $23 trillion in otherwise-productive capital, guaranteed to lose value.
Meanwhile, bitcoin’s yielded 200% growth each year on average forever and remains in a long-term, secular uptrend.
And you think crypto is the risky bet?
Ok, no problem. Go back to 2007 and buy a house in the US. Best investment you can make!
Until it isn’t.
Mark Helfman publishes the Crypto is Easy newsletter. He is also the author of three books and a top bitcoin writer on Medium and Hacker Noon. Learn more about him in his bio.
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The world ain't ready yet. BTC rules!
The behavior of markets in the modern period, roughly since the 1920s has been remarkably consistent. But consistency is not the only thing and is not something you can count on. Value is. The whole premise of this “critique” is based on notion that risk is unattributable both in terms of particular assets or economic conditions. Which is nonsense.
1. If an enterprise is successful and building and selling products and has good management, it’s a good investment (equities, bonds) and you can check every quarter.
2. If a commodity (steel, oil, lithium, etc.) is in demand because it has a use that is stable to increasing, you can verify that it deserves the value given to it.
3. If you have an economy that is well-run and has stable and reasonably transparent institutions, you can invest in its currency.
4. If you own a piece of real estate in an area which is stable economically and/or will become desirable and you stay in it long enough, you can be assured of a decent return on your investment.
5. And, when you invest in any of these, as with ANY investment: past performance is not a guarantee of future performance. If you regularly observe verify 1 - 4, don’t worry.
And the funny bit is the whole generational (“Ok, boomer”) idiom is used to justify ignoring this. I have to hope that the next car they get, they don’t just rely on the best advertisement or are ignorant of crash, fuel, resale value statistics, etc.
It’s like the post-Boomer generation (or such folks as appear mostly in crypto or Reddit/Robin Hood promotions) is built on laziness: I was told X and when I didn’t learn anything about X it’s not my fault it’s the guy who told me X.
I really hope it is just the intellectually lazy or scamming part of all post-Boomer generations that fall for this.
And then there is this jewel:
“Usually, financial ruin comes from safe assets, not risky ones.
When you feel a sense of complacency or security, only to have it ripped away through circumstances beyond your control. When everything seems like it can’t fail, and then it does.”
You have to have a whole new definition of up and down or a weak command of the English language to say this about “safe” and “risky” assets. But this definitely serves the purpose of deflecting the critiques of crypto or Bernie Madoff’s investments. And this comes right out of the FUD playbook which, of course, appeals most to the ignorant and/or lazy.
It’s fine if the (lazy/ignorant) rich or purely lucky get suckered by this silliness. It starts to be genuinely scary and awful when regular folks start getting suckered.