The Apostates Who Are Selling Bitcoin
A 21-year-old Argentine from Buenos Aires recently flew to Spain and rented a huge house in Barcelona overlooking the sea for a month. He invited three friends from Argentina to spend the month with him, with maids and a cook, a pool, sauna and padel court. He threw a party for 150 people with huge TV screens to see a major soccer match, replete with Chandon, Citadelle, Macallan, and Ciroc. He then rented a boat for the next week to sail around Mallorca and Formentera, and then rented two Range Rover Velar for the month. Where did the money for this lavish lifestyle come from? A $100,000 profit on a bitcoin investment.
The bitcoin bull market has made millionaires out of a lot of ordinary people, but the peculiar thing about this huge wealth creation is that not a lot of it is being spent. The bitcoin community closely resembles a cult, and its adherents are discouraged from ever selling and taking profits. People who don’t invest in bitcoin are called “nocoiners,” and are routinely shamed and harassed on social media. Those who sell their bitcoin and leave the cult are branded as apostates and receive the same treatment. I invested in bitcoin for over a year, and sold it in January for a massive profit. I have been hassled online ever since.
There have been investment cults going back through the decades, from dot com stocks in 1999 to homebuilder stocks in 2006, to the Nifty Fifty stocks in the 1960s. An investment that works tends to attract more sponsorship. But there is something very different about bitcoin, which was created in secrecy by a person or group of persons known as Satoshi Nakamoto, with a libertarian vision of creating a scarce digital asset that would be secure from the money printing and currency debasement of central banks.
Bitcoin adherents, known as maximalists, believe that bitcoin is the only safe store of value, and if you listen to them, the hordes of anonymous Twitter accounts with #Bitcoin in their bios, you would be led to believe that all of their personal wealth is tied up in Bitcoin — and that they will never sell. It’s not so much a trade to them; they’re not trying to buy low and sell high — they truly believe that one day, the world’s fiat currencies will vanish, and we’ll all be using bitcoin to purchase goods and services. That utopian vision persist in the face of overwhelming evidence to the contrary.
And yet, if everyone refused to sell their bitcoin, there wouldn’t be much daily trading activity, and bitcoin trades billions of dollars of volume each day. People are selling all the time. But who?
Brian Venturo, the owner of Atlantic Crypto, a large bitcoin mining operation, said “The largest holders sell nothing. All of the trolls on crypto twitter likely have next to nothing. A lot of the selling on a daily basis is chain to chain movement, people selling bitcoin to buy XYZ coin.” Bitcoin miners use stacks of powerful computers to solve complex mathematical equations to release a “block” of bitcoin. If the bitcoin they receive exceeds the value of the energy they expended by running the computers, they turn a profit.
But the big holders of bitcoin don’t generally work, being independently wealthy, so what are they doing for money for day-to-day expenses? They must be selling slices of bitcoin to fund current consumption. Nic Carter, partner at Castle Island Ventures, a venture capital firm that invests in blockchain startups, and also a large holder of bitcoin, said “I certainly sell Bitcoin occasionally to buy things, I see it as portfolio rebalancing. Most bitcoiners have a weird moral hangup on selling bitcoin, but you have to actually consume at some point, otherwise why accumulate wealth?”
Some bitcoin investors are selling bitcoin to pay for more pedestrian concerns. A hedge fund manager from New York I spoke with who is a large bitcoin investor said that he sells bits of his bitcoin holdings to pay his child support, which is substantial.
What constitutes a large bitcoin investor? Venturo said that the largest investors probably don’t hold more than 100 bitcoin, and that the largest investors of all might hold 1,000. The current price of bitcoin is about $50,000, so 100 bitcoin would be $5 million, and 1,000 would be $50 million. There are a handful of “whales” that own more than that, who have the ability to move markets when they sell.
Some bitcoin investors recycle their gains into other investments. One individual investor who asked not to be named said that the proceeds of his sales went into physical gold, cash, and two stock market investments. He added that he’s about to build an addition onto his house, so the cash will be used for that. A second individual investor said that all the people he’s spoken with hadn’t purchased anything other than stocks with their bitcoin winnings. If this is true, it’s not hard to imagine how a downturn in bitcoin could bleed over into stocks and other financial assets. It’s important to note that stocks and bitcoin tend to move together, and that large drops in bitcoin tend to presage corrections in the stock market.
Another investor I spoke with said that he planned to use the bitcoin profits to purchase an engagement ring for his girlfriend, and another said that he would use the winnings to finance his household expenditures for a year. The total value of bitcoin is now well over $1 trillion, and the total value of all cryptocurrencies is close to $2 trillion, so a crash in crypto assets could have a measurable economic impact, as consumption drops in response to crypto losses. The number of true believers in bitcoin seems to be quite small, and most people view it as a way to save, invest, or spend.
As for your humble reporter, I am using my bitcoin profits to pay an architect to design plans for a new house about 15 minutes down the road, on a piece of land I purchased in December. I was a bitcoin maximalist for a while, a true believer, but when the price went high enough, I forgot about the ideology and started thinking about the things I could buy with it — and turned the bitcoin into cash, since everything is still denominated in dollars. It is rare that idealism is rewarded in the capital markets. Bitcoin investors can buy real, tangible things with their profits — perhaps they should do so before it is too late.
