My Bitcoin Call, One Year Later

I often say that the least rewarding phrase to speak is, “I told you so.” Any time you have the chance to remind someone that you warned them something bad would happen,  point out that the bad thing warned against did in fact eventuate, and that they (or often, we) suffered a negative result because of their failure to heed your timely warning, it means a bad thing happened that might have been avoided. That sucks.

It is rarely a good thing when bad things happen, and suffering bad outcomes is not made better by the knowledge that they might have been avoided. That just makes it worse, because objective damage is compounded by emotional regret.

Right now I’m enjoying the rare circumstance where “I told you so” is a source of pure satisfaction, because none of those suffering the ill effects from failing to heed my advice are people I especially care about.

On January 5 of 2018, in this blog post, I stated the reasons I thought Bitcoin was in the blowoff phase of a classic bubble, and advised Bitcoin holders to immediately sell half of their position and reinvest the proceeds in assets with durable value, specifically US stocks, foreign stocks, and cash. (Real cash, not crypto-nonsense.)

Anyone who listened, and I have zero evidence anyone did, would have avoided a catastrophic loss. How big a loss? When my post went live, Bitcoin was worth $14,574 per coin. At close of business yesterday, it was worth $3,556. That is a 75% loss. You don’t need to help investors to avoid losing more than 3/4 of their wealth many times to justify your entire career as an advisor .

Last month I got an email from a guy at Morgan Creek Capital, announcing a new, diversified cryptocurrency fund. Since on the face of it this appears about as exciting as announcing a sale on luxury berths aboard the Titanic, a few days after that ship’s unfortunate encounter with the iceberg, his firm is offering a challenge to sweeten the pot, based on Warren Buffett’s famous wager against hedge funds.

Back in 2007 Buffett offered a $1 million bet to any hedge fund promoter who would take it. The hedge fund person would bet that a chosen basket of hedge funds would beat the S&P 500 over the next ten years. The winner could pocket the million, or (if Buffett won) donate the winning bet to charity.

Buffett won the bet going away. The S&P 500, with its low costs and inherent tax efficiency, also produced much higher economic returns, +7.1% annually for the S&P versus a lousy +2.2% for the hedge funds.

Recently Morgan Creek has suggested a similar bet, apparently failing to recognize the obvious outcome-by-analogy suggested by Buffett’s wager. I’ll help them out.

The trillions of dollars of actual wealth represented by the S&P 500, and the hundreds of billions of dollars of actual free cash flow produced by the companies in the index, have profound and (in the long run) growing economic value. Whereas cryptocurrencies are worthless and are likely to continue to decline in value.

I predict another big win for the S&P 500.