The Crypto Conundrum!
To hodl or not?
The Buzz
The recent rally on Dogecoin and other crypto currencies has obviously increased the buzz & volatility around crypto trading . To hodl or not in Cryptos is the pertinent question asked by many investors, especially the millennials. FOMO and BTD is the game plan of this Robinhood generation & are the main drivers of this frenzy! The allure of the underlying Blockchain technology is quite exciting for the new age tech savvy investors. The surge in terms of interest is also due to amplified social media chatter. Some of it’s influencers and ‘messiahs of momentum’ vouching for these cryptos big time. Remember Elon Musk had offered bitcoins payments for buying Tesla cars and eventual U-turn of the same decision? The paradox played out quite annoyingly, he was promoting the meme crypto Dogecoin on one hand and stopping bitcoins payments on the other hand!
The Under Current
Blockchain is the underling tech which runs the crypto eco-system and has been around for more than a decade and we may need it now! Adoption and understanding this new asset class took its time and it’s still evolving and now has reached a reflection point! Blockchain technology is indeed exciting, as its kind of a open-source if you want to define it from a computer software paradigm. Balaji Srinivasan, (formerly the chief technology officer at Coinbase Global Inc., the largest U.S. crypto exchange about to go public) is one of the biggest proponents in the crypto industry and has his fair share of reasons for buying Bitcoins. I am great fan of applications of crypto protocols from a #DeFi standpoint. However, needs a global adoption/acceptance protocols and a siloed individual country approach is not scalable.
The Renewed debate
One of the professors of finance who I deeply respect and a long time crypto critic, Aswath Damodaran had his share of skepticism on the crypto debate. He now has a new perspective that Ether is a better commodity than Bitcoin
“All that bitcoin bulls seem to talk about, their biggest sales pitch for bitcoin is: ‘Look at how much money I’ve made on bitcoin.’ That’s it, that’s the end of the sales pitch. That’s not a sales pitch. That tells me nothing about the substance here.”
My Musings
The Fintech enthusiast in my is all game for the Blockchain eco-system for Defi potential and the disruptive power on the world financial system, especially the central banks who rule the roost till date. At the same its time to build the necessary infrastructure to add crypto to IndiaStack
The investor in me aligns to Jason Zweig , one of my personal finance columnist - Our decision-making is far less consistent than we think it is. Investors need to recognize that, and work to counter it
The current crypto regulatory framework especially in India is still a grey area and there is need of caution or at least wait till RBI gives more clarity or the Cryptocurrency and Regulation of official Digital Currency bill 2021 is passed in the parliament (may be later this year) . This may address some of the tax considerations including LTCG. Also a global ecosystem consensus in terms acceptance would be a tipping point. That said, the decision to hodl is purely based on one’s risk appetite and even if someone still fancies his chances going ‘underweight’ on cryptos within the portfolio is prudent.
“Noise is a statistical phenomenon,” Prof. Kahneman tells me. “To see it, you have to make multiple decisions about the same case with the same information, and those situations are very rare.”
In a India context, the crypto buzz is still comparable to noise. We cant afford to take “broad framing” our decisions based on these noise which Prof. Kahneman and his colleagues call “pattern” noise. Tweets linked volatility is a classic example and rules of the game needs clearer protocols He also says
The opposite of noise is discipline. It’s just doing things in a reasoned way, organizing your thinking so it is as intentional as possible.”
Discipline here from an investing perspective is sticking to your know asset classes be it equity investing or otherwise. All asset classes do go through bubbles including stocks and cryptos and we need to start navigating through that. At least the risk management practices are more pronounced in known asset classes.
As Morgan Housel puts it rightly, two things can be true about this market
1It’s crazy
Social media has permanently changed investor behavior in ways many professional investors haven’t yet come terms with.
Game on!