Bitcoin’s crash is a reminder of the importance of high barriers to entry

As Bitcoin faceplants, at around $57,000 or so as of publishing this post for a decline of over 25% after peaking in March on what is likely a trajectory to $20,000 or lower, I am reminded of a useful heuristic: “Anything that is hyped or promised as a shortcut to wealth for the masses will always be short-lived and end badly for most participants. Always.” The rug will always be pulled sooner than expected. Instead of $100k Bitcoin as many saw was inevitable or had set their sights on, the rug was yanked at $74k. [0] Those hoping they can sell before the herd does will wake up to find they are part of the herd. Over and over. It was true hundreds of years ago; it is true now.

Past and current examples include:

-Dutch tulips (This is probably the first and most infamous bubble of them all.)

-Beanie Babies (People became neurotic about preserving the hang tags, as that is where all the value was. Otherwise you have a worthless hacky sack.)

-Stamp collecting, numismatics (popular informercial fodder during the ’90s and early 2000s)

-Commemorative plates (Same as above. Apparently ‘limited run’ is not that limited as thousands of such plates flooded eBay unsold.)

-Home flipping (Repairing and reselling homes can work, provided one does not over-leverage and the market doesn’t crash like in 2006-2010, but it’s seldom a path to quick riches as promised by informercials.)

-Baseball cards, comic books (during the ’80s and ’90s especially)

-Fracking as a career (The industry of fracking has not gone away, but I remember a lot of hype about fracking careers from 2014-2016, which given the subsequent collapse of oil prices didn’t end well.)

-Reselling shoes or other apparel on Etsy or Shopify (This was lucrative early on but became saturated fast.)

-Self-publishing on Amazon (Same as above, around 2011-2013, when authors actually wrote their stories, until the market became flooded by low-quality, outsourced writing.)

-Meme stocks, NFTs, etc. (‘Bored Apes’ for example have lost 90% of their value.)

That’s not to say these are always worthless, but they are typified by huge swings in prices and protected declines that last for decades, such as collectibles, or forever, such as tulips.

There are exceptions, notably MTG cards, which for decades continue to appreciate, especially the most sought and powerful of ‘rares’ like the ‘Power 9’ suite and ‘dual lands’. The success of MTG cards as an investment can be explained by not only scarcity and limited print runs for the oldest of rares, but crucially, their in-game utility and the large community built around the game. People buy MTG cards not just for collecting, but also for in-game use, further boosting demand. By comparison, baseball cards and sports memorabilia are inert, with no utility or active community (even though baseball is popular, collecting baseball cards is not). Or Batman and Superman comics books in which the titular characters first make an appearance, have appreciated significantly over the decades.

Other exceptions include Substack, but for different reasons, owing to high cognitive barriers to entry and reader loyalty that endures for far longer than fad cycles. Despite the post-2022 rise of LLMs/AI and predictions of Substack’s business model being a bubble or unsustainable, top authors continue to see record revenue and traffic years after the blogging platform gained popularity during Covid for championing free speech and creative control for writers, at a time when other platforms sought to limit discussion and debate. Success at Substack, unlike cryptocurrency or home flipping, is inaccessible to the masses; you need a high verbal IQ and preferably academic credentials, which excludes most people. So the market cannot get as saturated as easily compared to the above examples.

Same for lucrative tech jobs. Despite a few dips here and there like in 2022-2023, 2000-2003, or 2008 and endless pronouncements by the media of a ‘bubble in tech’, demand and salaries remain high. Even if many tech employees describe their jobs as mind-numbing or are overqualified, the bar for being hired is high enough to prevent oversaturation. The barriers to entry for buying crypto, however, are as low as depositing money into a trading app such as Robinhood and pressing some buttons. They make it idiot-proof. For self-publishing on Amazon, Ai can now write the book. It’s little surprise those markets became saturated fast, leaving the majority of participants poorer as result when the pendulum swings from scarcity to surplus, as it always does. Or in the case of Amazon, Ai-knockoffs of Fifty Shades of Grey or Harry Potter fanfics no one wants to buy.

For a few people at the top to get rich necessitates many at the bottom will enter too late and lose. All of these shortcuts suffer from the same fundamental problem of an imbalance of too much supply and not enough demand, except for those who were early and already secured their spot in a saturated market. Sure, someone can point to Bitcoin and say it’s still above $50k and has not collapsed as predicted by many, but still, this represents a negative 20+% real return since early 2021, when it fist crossed that threshold, and 3 years of stagnation is sobering for something that is regularly touted as the ‘greatest investment of all time,’ which for later entrants turned out to be more of a dud.

The failure of Christ to return in 1844 as prophesied by Baptist preacher William Miller, appropriately called the Great Disappointment, the same feeling is felt by many of today’s crypto investors who were promised that a digital abstraction in the likeness of a dog, for example, would lead to riches. Except replace William Miller with the likes of Michael Saylor, Tom Lee, or Cathie Wood. If always being wrong is good for ratings, then ratings must be very high, as the financial media keeps promoting her:

If only repeating something made it true. This may work in politics, but not investing.

There are not enough bipedal organisms on earth, or the universe for that matter, for everyone to get rich reselling shoes on Shopify. The literacy rate in even fantasy worlds is not high enough for everyone to get rich self-publishing fiction on Amazon. There are not enough neophiles for everyone to get rich starting a life-hacking podcast. How many more productivity podcasts does the world need? How many more John Travolta lookalikes espousing health advice can anyone possibly follow? Or life coaching? How much motivation does anyone really need to support an e-economy of a thousand podcasts telling us to ‘rise and grind’? How much Squarespace or Weebly webhosting can anyone buy in a lifetime, or many, if Bryan Johnson is finally able to become immortal?

It sounds clichéd to say, but it’s true: to ‘get rich fast’ you typically have to get in early or be among the first. By the time the media is talking about it, it’s too late. The times I made a lot of money fast it was because I was among the few people who was doing it. I was working with a clique of a handful of others who were doing that same thing, and I knew almost exactly how many other people were also in my niche, fewer than a dozen perhaps. If someone else entered I would know about it, that is how close I kept tabs on things and how small it was. Compare that to thousands of drop-shippers or self-publishers.

However, society seems to have an inexhaustible demand for 20-30-somethings who are reasonably intelligent, obedient, and can sit still for hours at a time–hence the enduring success of the loathed or maligned ’email job’ and the permanent rise of the ‘laptop class’, that has defied the boom and bust cycles seen elsewhere. There is no shortage of demand for these jobs , as Covid showed, when suddenly the world went on lockdown and ‘WFH’ became the new elite status as other jobs and sectors were downsized. The decade following the Great Recession also saw huge demand for email jobs, like in tech, insurance, or finance. The promise or fears of automation and Ai has left this type of job untouched. Resetting an account password after a data breach or scheduling a ‘facetime’ meeting is apparently still out of the reach of automation.

When young people go into debt to get degrees, it’s not owing to a lack of originally, impulsiveness, or poor financial literacy, as often blamed by the lecturing Twitter blowhards with their large followings, but the college-to-career pipeline is still the best path to wealth for the median young person who finishes (failing to graduate confers no advantage, and I agree that efforts should be made to filter for college preparedness better, but that is for a separate post). It’s not that college is that good, but the alternatives are even worse or too luck or timing-dependent, whereas decent-paying white-collar jobs are always in demand. Your odds of achieving financial independence, whatever that entails, are better with college compared to staking your hopes and dreams that ‘Tom Lee’ is right and Bitcoin will finally get to $200,000 after ‘the halving’. We’re not talking the sort of person who can listen to 6 hours of self-help podcasts after an ice plunge, or the guy whose parents are bankrolling his Andrew Tate lifestyle, but the average person without wealth or well-connected parents, otherworldly-levels of motivation, or podcaster connections.

[0]If it’s widely expected market participants will take profits at some predefined target, like $100k, then why not sell at say $100k-ε , before the masses do. But if you anticipate people knowing this sell at $100k-ε, why not cut ahead of the line and sell at $100k-2ε? Iterate, and you get $74k at the highest price, not $100k as widely expected or hoped for.