In it for the long haul

In it for the long haul

Is the Klondike Gold rush over, and will we ever see the likes of 1,000x again (or for that matter the giant gains of firms like Pantera)? Answer: Probably not.

Five years into the life of the Pantera Capital crypto company, they flagged a 10,000% return on their investments. This success was based on a simple belief, stated back in 2013 that, “Bitcoin can do all of the things that cash, electronic fiat money, gold, bearer bonds, can do. It’s the first global currency since gold. It’s the first borderless payment system ever.” Pantera stuck to their guns throughout the five years, even as Bitcoin rose and fell, and now they have reaped the rewards.

There are similar stories of investors who were there at the start of crypto, or who got in at the right time. A combination of savviness, and perhaps a degree of luck, produced returns of 100x, or 1,000x. Catching up with an old acquaintance recently, I mentioned that I was involved in the cryptoworld. “Oh that’s Bitcoin isn’t it?” he mentioned the crypto that everyone now knows. It’s the Biro, Hoover, and Kleenex of the cryptoverse. “In that case you must be a millionaire.” When I confessed that I was not, he snorted in disbelief, because everyone who touches crypto becomes a millionaire. The mainstream press says so, therefore it must be true.

Expectations vs. Reality

It got me wondering about the realities of expectations within the cryptoverse. Is the Klondike Gold rush over, and will we ever see the likes of 1,000x again (or for that matter the giant gains of firms like Pantera)? Answer: Probably not. Volatility is flattening out, professionalism is elbowing its way into tokenized offerings, the exchanges are becoming smarter, and – here’s the biggie – the banks are now in on the act. Yes, those big baddies, who five minutes ago were lobbying for restrictions on crypto, woke up and smelled the money to be made. Along with the Tech Giants too of course. Google and Facebook and their like stood at the edges for a while and made bleating noises about ‘protecting users’, but now they too are swooping in, because now things are more stable and less scarily volatile.

Is it because they’re looking for the 1,000x returns as well? Of course they wouldn’t object to that, but their business model is more reserved. So, what are the expectations of corporates occupying the more conventional markets, where stocks and shares and other assets are still traded? What do investors outside the cryptoverse look for?

Fiat money – fuggedaboudit. In the last 100 years, the US dollar – for example – has lost roughly 90% of its value. Keep fiat in a shoebox at the back of the wardrobe for all the good it will do as an investment. OK, so gold, that’s a great store of value, isn’t it? Well, kinda, except the gold price can be pretty variable, and it doesn’t really appreciate. On the other hand, bricks and mortar can supply a goodish return on investment, and if you hang on in there, you could see a whopping 10%.
Then there’s investment into businesses – the favorite way of making big money.

Economists record that over hundreds of years, the best performing stocks return dividends averaging roughly 7%, allowing for inflation of around 3%. At the top end of the scale, a great investment might give 15%, and the occasional hyper-great investment 20%. As for 10,000x returns? In your dreams!

The financial writer Joshua Kenyon has observed: “If you expect to earn 15% or 20% compounded on your blue-chip stock investments, you are delusional: Anyone who promises returns like that is taking advantage of your greed and lack of experience. You will either do something stupid by overreaching in risky assets or arrive at your retirement with far less money than you anticipated.”

I’ve slightly edited Kenyon’s quote, but I think the point he makes is very valid, and that in no place outside of the cryptoverse is there even a hint of truly massive earnings.

This is the new normal

So if the new normal is basically, normal, then that implies smaller earnings for investors, and longer time periods in which to make those earnings. People will have to be in for the long haul if they want to make income from speculating in a cryptocurrency. And the other way of investing will be, as it is now, to back new enterprises, using the power of the cryptoverse, and the flexibility of tokenized offerings to create wealth of the sort which could be more permanent, and more widespread. As John Lennon sang, “You may say that I’m a dreamer, but I’m not the only one.”

The irony of this is that having been the wild and ungovernable kid sister of the established financial markets, it could be that the cryptoverse becomes the great repository of trust and business confidence.

We all have to grow up sooner or later.

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