Stories about the future
Whenever we invest in something, we’re trying to predict the future. We’re telling ourselves a story that we think or hope will come true.
If I put money in a US Treasury bond, one story I might be telling myself is that the US government will pay me back with interest when the bond is due, and that they US dollar is likely to remain relatively stable through the maturity of the bond.
If I put money in bitcoin, one story I might be telling myself is that I think bitcoin is becoming “digital gold”, and has a lot of room to appreciate. Another story I might be telling myself is that bitcoin is likely to become a world reserve currency. Another story might be that I don’t know enough, but I feel that there is enough of a chance that one of the above might happen that I want to allocate a small percentage of my assets to bitcoin. Another story might be this.
So our investment decisions are often based on our assessments of the probabilities of different futures.
But it’s hard to predict the future.
I have a very clear memory from the late fall of 1999, when I was a freshman in college, of realizing that all of my friends were buying Christmas presents on Amazon. Hmm… I thought, this is so clearly the future. I should buy some Amazon stock.
I didn’t, of course, and periodically over the last 20 years I’ve looked back and thought that that was a time that I missed a good investment because I didn’t act on my intuition (or even my “special knowledge” as a college student in 1998).
But then the other day I looked at Amazon’s price chart, and I realized that I could have bought Amazon in 2008 for about the same price that I could have bought it for in 1998. So, even though my story was right, I would likely have had to have been very patient to get a good return.
In some ways more interesting than the question of whether I should have bought Amazon in 1998 is whether I would have been able to hold it through 10 years of middling performance. While I could see pretty clearly in 1998 that we were going to be buying a lot more things online, I certainly couldn’t have predicted that Amazon would become what it has become today, and I don’t know if I would have had the patience to wait.
For many of us who are bullish on bitcoin and other cryptocurrencies, we see a future in which value is transferred using blockchains (or similar applications of cryptography). Just like it seemed clear to college students in 1998 that it made sense to buy books online, it seems clear to many who have transacted in cryptocurrency that this method of transacting, and this method of storing value, is the future.
What’s less clear, and much more difficult to predict, is exactly how that future will play out, and how long it will take. What does it mean that bitcoin was first? How will cryptocurrency and blockchain applications interact with existing institutions and infrastructure? How will governments react?
The truth is, no one knows for sure the answers to these questions (and many others). All we can do is make the best judgements we can about the probabilities of different futures, continually adjust our judgments based on new information and learning, and make investment decisions accordingly.
I’m a partner at INBlockchain, an investment group out of China (our principles). I try to share short, semi-formed thoughts here fairly often, because I find that writing stuff down helps me understand things better. Please point out the holes in my thinking, and please feel free to follow and share.
