Five years later, the verdict is in: Big tech beats crypto

In a post from last week I wrote:

By being right I mean one or both of the following conditions are met, although they are not necessarily mutually inclusive [2]: Bitcoin is below $25k–and or–it lags the QQQ. My thesis for years has been that ‘big tech’ is the future, not Bitcoin. Accordingly, I am invested in anticipation of the near-total domination economically and even politically by these companies. The next stage of evolution or phase of the ‘US empire/hegemony’ is these companies taking over; or in other words, a soft form of secession within the host state. QQQ, which is a fund composed of the largest and most dominant of tech companies, is a suitable proxy for this prediction. So far they are close.

Five years is long enough to vindicate my stance that big tech beats crypto. I could technically be wrong if Bitcoin goes to $200,000 next year or whatever like some of these fools keep predicting (as they predicted in 2013, 2017, and 2021), but that is not going to happen. It’s a wrap, as they say.

Five years ago to this date on December 17,2017, Bitcoin peaked at $20,000. If you think the hype is bad now, it was way worse then. ‘Reputable’ people were expecting or entertaining million-dollar price targets by 2018 or 2019 (which five years later still nowhere close).

Soon after I went bearish, having originally bought in 2013 at around $100-200/coin (see blog archives to see I was bullish on crypto) and sold in early 2018 in the teens. My rationale for investing was that Bitcoin was like a hot tech start-up, like Uber in 2010, so it had a lot of room to run on hype and FOMO alone. Once it got too big, with a market cap comparable to Facebook and other large tech companies, I knew hype would not be enough due to decreasing returns to scale, so I sold. I subsequently plowed a good chunk of those profits, after Uncle Sam got his cut, into tech funds and individual tech stocks.

So five years later, who was right? TECL (a leveraged tech fund, in orange) is up almost 488% over the past five years. TQQQ, which is the 3x leveraged version of QQQ, in purple) is up 325%. Bitcoin? Up just 185%:

Indeed, 3x tech ETFs solidly crush Bitcoin since late 2017/early 2018. And Bitcoin only matches the performance of QQQ (blue), which is a diversified large cap tech fund without leverage. Including dividends, Bitcoin loses to QQQ.

And same for the past year, in which Bitcoin again lags TECL and TQQQ:

In posts from August and December of 2021 (here and here) I recommended switching from Bitcoin to 3x ETFs. This came as a surprise to me, at least, because I assumed given that Bitcoin is often touted as ‘the best investment of all time’ that it would surely be better, but nope. Much of Bitcoin’s astronomical gains are from pre-2018, when it was possible to buy a Bitcoin for less than a postage stamp. By 2018 it got too big and issues such as scalability, market saturation, energy usage, criminal use/activity, government crackdowns, and regulation became bigger concerns.

Someone who invests in Bitcoin expecting to get rich would be better off with ‘boring ol’ index funds’, albeit leveraged ones. Or in other words, controlling for risk, although 3x tech funds and Bitcoin have about the same volatility (which is a lot) Bitcoin has less consistent upside. It’s not uncommon for Bitcoin to fall 5-10 percent in a day for no apparent reason, whereas TQQQ/TECL is flat in that same time period. Sure, Bitcoin also occasionally surges 5-10 percent for no obvious reason either, but the upside vs. downside bias is worse for Bitcoin, hence worse long-term returns compared to the 3x tech funds.

Also, if the Nasdaq goes up 3% in a week, those gains are more likely to hold compared to if Bitcoin goes up 3% in a week. This can be explained by profits, retained cash, and other fundamentals acting as a sort of floor for stock prices, whereas with Bitcoin, being more commodity-like than stock-like, has no such floor being that it does not generate profits.

Overall, index funds are a tough one to beat–ask anyone who invests in cars, numismatics, gold, or other alternatives. Even something like QQQ beats or matches Bitcoin, but with much less volatility and risk. With tech, I don’t have to worry about the SEC or ETF approvals. Large tech, unlike Bitcoin, is not under the thumb of the SEC and other regulators, but has the full blessings of the powers that be. The past five years of performance clearly confirms this, and with regulators continuing to crackdown on all cryptos, there is little reason to expect this to change.