Confession time: I’ve been wrong a lot. This is embarrassing because supposedly, I’m a smart person. Educated. I write things that sometimes get published. But gee whiz I have been wrong.
I celebrated Bitcoin’s fall in 2018, I said Afterpay was a joke in 2019, and I said Elon Musk was doomed to bankruptcy in 2017. Musk is now the world’s second richest person, Afterpay is up about a thousand per cent, and Bitcoin just set a new all-time record in Australian dollar terms.
As the next graph shows, Bitcoins have been trading for more than $A25,000.
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Just earlier this year I was being sarcastic online about Bitcoin’s low price:
But luckily for me, I’ve been trying to learn my lesson. I recognised the pattern. I realised I might still be young(ish), but at heart I’m a cranky man who scoffs at things that are new. That means I sometimes miss out on big new opportunities. Stuff that seems insane and faddish and stupid can actually turn out to be the best investment.
Recognising this, I decided to do the opposite of what my instincts told me, and buy something that seemed modern and frivolous and therefore doomed.
So in August this year I bought Bitcoin, and then in September, when the price went down, I bought some more. Not a lot, just a fraction of a Bitcoin each time. I never invested more than I could afford to lose. It made me feel nervous to go against my gut instinct that there is no point to Bitcoin, but I couldn’t deny the mounting evidence that my gut instincts on this were terrible.
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So this time, as Bitcoin hit its new record, I feel … well, actually I have mixed emotions. Yes, I’ve made a little bit of profit (on paper, anyway), but only by proving to myself that my previous judgments were wrong.
Life lesson: Sometimes with investments, it is expensive to listen to lone voices of reason. “Lone” matters far more than “reason”. Markets are made up of many people. If one person is right and everyone is wrong, everyone will push up the price and the one person will be left behind.
Bitcoin, by the way, has set a new record in Australian dollar terms, but not in US dollar terms. The Australian dollar has fallen against the US dollar since the last Bitcoin peak in 2017, so Bitcoin is stronger against the Australian dollar than against the US dollar.
Bitcoin is traded in many currencies, and in some of them it has been at record highs for some time. For example, the Turkish Lira. It is a very weak currency these days and Bitcoin hit a record high against that currency back in July. In Argentina, where the currency is in free fall, Bitcoin hit a record high back in 2019.
But most people focus on the exchange rate between Bitcoin and the US dollar, it needs to go up more to hit a record high against the US dollar. If that happens, expect a lot of headlines.
In fact, the exact highest price at which Bitcoin ever traded is a bit of a mystery. Because Bitcoin trades on different exchanges each records a highest ever record price. This is unlike stocks which generally all trade on a single stock exchange with one central record of prices. Some exchanges put the record high at US$19,660, others say US$20,089.
I grabbed a screen shot of a trading exchange back in December 2017 that showed it trading just over US$20,000 for about 30 minutes or so on the 12th of that month.
I still don’t know if I really believe in Bitcoin. It was supposed to be a totally different asset to normal currencies. But it mostly tracks along with the stock market, rising when stocks rise and falling when they fall.
Sometimes the market appears to be manipulated, perhaps by the big Bitcoin miners who own so much Bitcoin. Plus it has limited real world uses. Bitcoin seems like something that is valuable only so long as people believe it is valuable.
And people can change their minds quickly. While I was writing this story, the price of Bitcoin fell by 20 per cent in about six hours! The record high certainly looks further away now.
I might yet get to be wrong twice on Bitcoin.
Jason Murphy is an economist | @jasemurphy. He is the author of the book Incentivology.