Original article by Taesik Yoon, Forbes
Original translation: Luffy, Foresight News
I still remember my first trip to Las Vegas vividly. I had just graduated from college a year ago, and my best friend gave me a free ticket to go for a few days. We stayed at the Hard Rock Hotel and Casino, and the party atmosphere, smaller and more intimate table areas than the big casinos on the Strip, and extremely generous giveaways made it the perfect place for someone my age.
Even 27 years later, the memory is still vivid. I remember playing blackjack for hours. We started out at a $10 minimum table, but our initial run of luck led us to increase the stakes pretty quickly. In my first two days there, I won about $1,700. But on the third day, my luck took a turn for the worse. By the end of the night, my friend had gone from winning a few hundred dollars to losing $750. He was so upset that he decided to go back to his room and go to bed early.
My situation was even worse, with my $1,700 profit reduced to just $300. But unlike my friend, I didn’t want to quit. I was not happy with the loss, so I took the remaining $300 and saw an empty table with a minimum bet of $100. I thought, why not give it a try? The goddess of luck favored me again, and within 20 minutes, I turned that $300 into $3,000. When I went home, I won about $3,600 in total. For a 23-year-old living in New York City in the late 1990s, this was a lot of money.
Lessons from initial stock investment
I bring this up because early experiences often shape a persons outlook. My first trip to Las Vegas was a perfect experience for me at the time. I gambled without hesitation, partly because of my great luck and partly because of my youth. When I was young and inexperienced, I didnt realize how foolish it was to bet $100 per hand with only $700 in my bank account.
The same is true for stock investing. I first got into stock investing when I started working for Forbes, at the height of the dot-com bubble in early 2000. Among the stocks recommended by our department in the first six months of my time were eToys, VerticalNet, and Healtheon, which catered to the then-rabid demand for all things internet-related, whether it was new websites or companies that helped develop the internet’s infrastructure. These three stocks rose 66%, 92%, and 99%, respectively, in just three months. And the biggest winner in this frenzy, Qualcomm, saw its stock price soar by about 2,600% the year before. This is not a typo.
I had some money saved up and opened my first brokerage account. The timing couldnt have been worse, as it was the beginning of the dot-com/tech crash. The first two stocks I bought were recommendations from my department within my first three months, Net Perceptions and Wind River Systems, both of which no longer exist. I dont even remember what they did. But I do remember holding on to them and watching them plummet with the market, and I ended up losing 75-80% on those positions. It was a painful lesson for me, and it made me realize that I knew nothing about stock investing and should never have gotten involved.
Become a value investor
Over the next few years, that changed. I took the CFA program, became a stock analyst, and gained experience finding bargains in nearly every industry. But my first experience buying stocks was a painful one. I lost a lot of money on the two losers mentioned above because, like many people at the time, I bought into the hype.
Influenced by my first experience with stocks and the value-oriented strategy of the stock recommendation service I worked for, I avoided market speculation as much as possible. I studied Warren Buffetts investment philosophy, read Benjamin Graham and David Dodds Security Analysis (still regarded as the bible of fundamental analysis), and began to buy stocks mainly in companies that, after my research and analysis, were trading at a discount to what I believed they were actually worth. In other words, I became a value investor through and through.
This means that I look for companies with strong future cash flow potential, and I am disciplined enough to buy only when the stock price is significantly undervalued. For example, when the stock market crashed after the 9/11 terrorist attacks in 2001, my department recommended Amazon stock when it was trading at $7.48, and I bought some myself. However, less than four months later, when we recommended that subscribers take profits when the stock price rose to $12.20, I did so. (By the way, the 200 shares I bought at that time are now worth about $880,000. Yeah, every time I think about it, I feel bad.)
But overall, I have more successful investments than failed ones, and I am relatively satisfied with my financial situation because I didnt take too much risk. Although I regret selling Amazon, it is also because of the same self-discipline that I avoided dozens, maybe even hundreds of failed cases like Kozmo.com. You havent heard of Kozmo? Thats right.
First Look at Cryptocurrency
Knowing this, you might be surprised that I started investing in Bitcoin a few years ago. After all, many would say Bitcoin is classic hype, something that risk-averse value investors like me avoid. It doesnt produce anything on its own, and has no yield.
However, this did not stop me from getting my first exposure to Bitcoin in late 2020. I bought 500 shares of Grayscale Bitcoin Trust (GBTC), which at the time was pretty much the only option if you wanted to invest in Bitcoin through a fund. Since then, I have steadily expanded my investment base by continuing to add GBTC, as well as positions in Grayscales newly launched Ethereum Trust (ETHE) and another Bitcoin exchange-traded fund (ETF), the Bitwise Bitcoin ETF (BITB).
One could argue that these investments have generally done well given the timing of my purchases and the prices of the underlying cryptocurrencies (Bitcoin and Ethereum) then and now, and that this may have biased me in the same way I did when I first gambled in Las Vegas. But it wasnt always that way. In fact, in the terrible year of 2022, my holdings were down more than 80% from my cost price. In dollar terms, this is my biggest paper loss ever.
For many people, this would be enough to make them give up completely and never look back. But I did the opposite and continued to add to my position on the way down. Then I did something I rarely do: I bought on the way up. Take my BITB position, for example, which was not established until the U.S. Securities and Exchange Commission (SEC) approved the Bitcoin ETF earlier this year. When I bought BITB in mid-January, Bitcoin was trading at around $43,000, which was a lot higher than the price when I last added Bitcoin through GBTC (around $28,000).
Why I Hold Cryptocurrency
So why am I, a self-proclaimed old-school value investor who has shunned the hype for over two decades, continually adding to my investment in an asset that I believe has no real intrinsic value? For the simple reason that my sons believe it does.
In 2020, during the COVID-19 pandemic, my oldest son asked me if I had any Bitcoin, shortly after he started first grade. Despite all the social distancing rules in place at the time, he had heard a classmate brag about how much money his dad had made with Bitcoin and wanted to know if I had any. I told him I didn’t and I devalued Bitcoin to zero. Even so, he wanted to buy some, and he was only 6 years old.
That’s when I realized that Bitcoin was older than both of my sons. That meant that Bitcoin had always been around when they were growing up. More importantly, it had always had value to them. Since then, that perception has only grown stronger. In fact, my oldest son, now 10, checks the price of GBTC almost every day and owns 10 shares of his own, which he bought with his pocket money that he saved over the years. For him, he would rather hold those shares than cash. I also think that my own growing stake in Bitcoin has reinforced his belief that Bitcoin has real value (even though he was the one who got me into crypto investing).
My generation, and the generation before it, has probably accumulated the most wealth right now. I think that’s one of the main reasons why gold prices surged to record highs last year. We view gold as a safe haven, a store of value, and a hedge against inflation because it has done so throughout our lives. But the gold my oldest son knows is the necklace around his neck. The gold chain he’s wearing now was bought by his grandfather about 40 years ago for the same reason my son owns Bitcoin today: because to him, gold has always had value and will always have value. Sadly, my father is no longer with us. When our generation is gone, it will be up to our children to decide what has value and what doesn’t.
Some might argue that it’s unfair to compare Bitcoin to gold, since gold is a physical asset with intrinsic value in numerous tech products and other industrial applications. But let’s be honest, only about 7% of the gold mined in these industrial applications is used. The rest of the gold mined in the world is used to make jewelry, coins, and bars. I believe that the reason why gold is popular for jewelry is not only because it is beautiful, but also because people think it is scarce. This is also a big reason why gold is widely regarded as a store of value. More importantly, in my lifetime, gold has never been worth less than its actual intrinsic value.
The same is true for my sons and Bitcoin. We are all products of our times. I grew up in a mostly analog world. I’m used to associating value with tangible things. Music and movies were delivered on physical media like cassettes, VHS tapes, CDs, and DVDs. Hell, I’m old enough to remember 8-track tapes and Betamax tapes. My sons have no idea what any of those things are. Streaming from the cloud is as natural to them as renting videos from Blockbuster was to my friends and me. They’re part of a digital generation that created everything from nothing. Since the people most likely to determine Bitcoin’s value in the future don’t need (or even want) it to have a physical form, Bitcoin doesn’t need to have a physical existence.
Be prepared to lose everything
That being said, there are still many unknowns in the cryptocurrency market and the risks are high. Most importantly, the types of cryptocurrencies need to be reduced by about 99.9%. To compare with gold, there are 94 metals on the periodic table, but only three are truly regarded and accepted as a means of storing value: gold, silver, and platinum. In contrast, there are currently about 270 cryptocurrencies traded on the popular cryptocurrency trading platform Coinbase, and the total number of cryptocurrencies in the global market is close to 18,000!
All of my crypto holdings are concentrated in Bitcoin, with a small allocation to Ethereum. In my opinion, these two currencies have the most legitimacy in the public eye, are so ingrained into people’s worldview, and will effectively become the gold and silver of the global digital economy we live in today. I’m guessing that most of the rest will eventually go the way of Kozmo.com.
However, to invest in cryptocurrencies, you have to be prepared for the risk of the entire market going to zero. That’s why if you’re going to invest money, it better be money you can afford to lose. I’m no longer the ignorant young man in my early 20s who didn’t understand the consequences of stupid financial decisions and naively thought that I would get rich overnight by jumping into the Internet boom. I know the risks I’m taking with these investments. But I also know that the majority of the portfolio I’ve built for my family over the years is still invested in value stocks.
Sustained adoption is key
Of course, it’s one thing for something to be accepted as a store of value or medium of exchange, and therefore retain its value. For investing in Bitcoin to be worthwhile at its current price, there would have to be good reason to believe that its price will continue to rise.
A lot of this depends on supply and demand. The supply side is known and quite favorable, as the total potential supply of Bitcoin is capped at 21 million (over 19 million have been mined so far), and the rate at which this limited supply grows decreases with each halving.
This means that the key to higher prices lies in increased demand. The good news is that we continue to see favorable market dynamics that drive demand and adoption. The most significant of these events is the approval and launch of numerous Bitcoin ETFs in January 2024 that I mentioned earlier. In my opinion, this is the main catalyst for Bitcoins 66% increase in 2024 before the US election on November 5th.
Bitcoin’s impressive rally since Election Day also supports this view. The price of Bitcoin recently surpassed $100,000 for the first time. The rally was driven by market expectations that President-elect Donald Trump, a strong supporter of cryptocurrencies, would introduce policies that would further increase demand for Bitcoin and other tokens.
Therefore, adoption is key. Most importantly, buying Bitcoin must be based on the belief that demand will continue to rise. For some, this is because they tout Bitcoins key advantages, such as its decentralized blockchain technology, which allows funds to be transferred quickly and accurately around the world at little or no cost. For me, this belief comes from my view of the group of people who are most likely to determine the value of Bitcoin in the future, not in the present. Regardless of the motivation, as long as it leads to growing demand for Bitcoin, it will create a growing imbalance between supply and demand. Some Bitcoin bulls even predict that the price of Bitcoin will reach $1 million by 2030.
My oldest son was still two years away from graduating from high school. Why is this important? Because my goal in investing in Bitcoin was not to get rich overnight. It was part of my financial planning, which involved funding college educations for my two sons. Assuming they both attend traditional four-year colleges and receive no financial aid, paying for their higher education will be the largest expense my wife and I will have before retirement, far more than our next big expense, the remaining balance on our mortgage.
I know that some of you reading this will find my reasoning for buying Bitcoin ridiculous. It does go against my principles as a value investor, there is no denying that. If I am wrong, this will be the most expensive lesson my oldest son and I have ever learned. But it will not lead to my financial ruin, because my cryptocurrency holdings are a small percentage of our familys total portfolio, and even if they are all lost, it will not cause a big loss. It also should not jeopardize our ability to pay for our childrens education, because like many families, we have been making more traditional investments for their higher education.
However, my cryptocurrency holdings are not insignificant, and if I’m right, they will make this heavy financial burden seem easier. I may not be the carefree gambler I was in my youth. But even for an old-school value investor like me, the potential for huge gains is hard to resist.
