The crypto crash, continued

MSTR has dropped 25% today to $150, which means it has given up all its gains since the CEO, Michael Saylor, began buying bitcoin in 2019-2020. But hasn’t the price of Bitcoin still risen since then? Yes, but the problem is Mr. Saylor took on billions of dollars of debt to buy Bitcoin at above $40,000. His effective cost basis is somewhere in the low $30 thousand range, giving him an unrealized loss of $1 billion. And as interest rates rise, servicing this debt will prove increasingly difficult.

So I got this one right. Although not technically worthless, it will be soon.

Regarding the stock market, my prediction has three parts: that the stock market will go up (obviously this was wrong unless it stages a miracle recovery end of year), that Bitcoin will crash (correct), and that Bitcoin will lag the stock market (so far correct). The S&P 500, the Nasdaq, and Tesla will recover, maybe this year or next (although the date does not matter that much); bitcoin will likely not.

Even though Bitcoin has still gained 3-5x since 2018-2019, it still gets beaten by 3x tech funds. And at the rate Bitcoin is falling, it will probably be below $5,000 soon enough. Bitcoin is very close to its 2017 highs, having done nothing in almost 4.5 years, versus large gains for the Nasdaq.

For what it’s worth, I tried to warn people to stay away from all cryptocurrencies. Did it make a difference? Likely not, but at least I can say I did my part.

All these people with massive followings and newsletters hyping crypto, were all wrong. It does not matter how big your brand is or even how smart you are [1], if your reasoning or logic is wrong, nothing can help you. There is not enough money in the world or supply of suckers to ensure that all but a tiny fraction of participants in a intrinsically unsustainable investment can exit unscathed.

Noah writes:

When it comes to Bitcoin and crypto in general, there are scenarios where it does go up in the long term. In a previous post, I laid out one such scenario — a world where web3 figures out how to provide real value to consumers, and where Bitcoin serves as the onboarding process for people to get into web3.

There are no scenarios in which it goes up long term. Bitcoin and Ethereum have the same problem Linux has. Everyone knows that Linux exists even though still after decades it only has 1-2% market share for PC operating systems. There is a large infrastructure and community surrounding Linux, such as Linux hosting, development/software, and Linux support, and people have gotten rich that way, but Linux itself is always free and generates no revenue, unlike Windows or Mac OS. Like Linux, the very decentralization and transparency that makes crypto possible, also ensures that it cannot concentrate wealth as well compared to investments with reliable recurring revenues protected by intellectual property laws. ‘The blockchain’, just like Linux, php, or C++, are not going anywhere, but those are never going to be moneymakers like Google. Second, much of any purported adoption is just churn volume and does not signify meaningful economic activity or adoption.

[1] Saylor graduated from MIT, which I find hard to believe, but that is what Technology Review, which is a publication by MIT, says, so I guess does not get any more authoritative than that.