Beware The Bitcoin Charlatans

Be skeptical and size any allocation appropriately.

The picture in the header of this post is from the New South Wales State Library. Library pictures have the potential to be fascinating and something I hope to do more of when the opportunity arises. As I start to write this blog post Bitcoin is just above $5600, having had a strong run of late. Earlier I saw what I think was a jokey Tweet that everyone now loves it again because it is above its 200 day moving average.

The nature of how Twitter's algo's work is that I see a lot of cryptocurrency oriented Tweets despite only following one or two people engaged in the space. The vast majority of Tweets make incredibly empty comments tying projected growth of Bitcoin to totally irrelevant factoids. One Tweet cited that an asset manager raised some amount of money for a fund not related to crypto so the Tweeter (huckster) extrapolated that there is plenty of growth for Bitcoin ahead. There was another Tweet where someone who manages some sort of crypto fund said that Bitcoin is the only $95 billion asset he sees with the potential for 20-50X growth.

I am not anti-Bitcoin. I am skeptical and I certainly don't rule out that it is everything the crytophiles say it is, nor do I rule out that it could go to zero. As I have said in every post I've written about Bitcoin, it is a lottery ticket and I have come to believe that sized correctly (very small), it offers asymmetric risk, a very small allocation could go to zero but if any of the seemingly wild predictions come true then that small allocation could grow into a life changing piece of money. To repeat from previous posts, if it grows into a life changing piece of money, sell it and let it change your life.

As I started to allude up above, there are a lot of charlatans out there trying to whip up excitement on the part of investors to try to draw them in and it is despicable. For now, the value of Bitcoin seems to be tied to the promise of future utility/ubiquity. I can't figure how it is anything but a means to speculate, conceding that this could change. If it ever goes to zero I can see pundits coming out of the woodwork to point out that there was never any true value to it.

Back on December 13th I disclosed having bought a very small amount of Grayscale Bitcoin Trust (GBTC) in post titled Everyone Hates Bitcoin, I Hate Bitcoin, So I Bought Some. The timing turned out to be lucky relative to the last few months so again, I don't hate the crypto concept but there are a lot of dishonest people looking to take advantage of others' greed and if the price keeps going up there will be more charlatans.

If I am correct about the asymmetric potential and you put some large portion of your portfolio into Bitcoin you are removing the asymmetric opportunity in terms of your portfolio. If you put in 25-30% and it goes poof then you would probably have to go back to the drawing board on your retirement plan as opposed to 1-2%. I went in with less than 1% and for now I am not remotely interested in selling it. I tried to learn about Bitcoin and as I have said before I don't want to know what I know and then watch it go to a bazillion without me, that would be tough to live with. But I can live with having put in a tiny amount that then goes to zero.

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