Three Personal Bitcoin Observations

"Sir, while you were giving your presentation, the price of Bitcoin went up $700". This was the comment I heard during a Q&A session last week at a banking industry breakfast. The presentation was 45 minutes at most, and the speaker was from a company that facilitates the buying and selling of Bitcoin, as well as the placement of ATM machines. To my count, they have 47 ATM locations, including Naperville and Rockford.  This is in Illinois folks, not Silicon Valley. 

The topic was meant to spur discussion around the industry implications of crypto-currency, and there was no shortage of questions. Admittedly, I had many of my own - enough to monopolize the discussion.  For example, I assumed you needed to pony up a couple thousand bucks to own Bitcoin, but learned that the "coin" is divisible up to eight decimal points.  That's right, you too can join the latest craze for $5.

I've been reading and learning about the underlying use of blockchain, and still had too many questions, but I had enough.  Time to buy and learn.  Here's three personal observations:

1. Hindsight Bias is alive and well.  Nobel Prize winner Daniel Kahneman writes about this bias, and narrative fallacies.  Our mind creates a story to help us make sense of past events, and we think we understand the past much better than we actually do.  We'll even revise our own history in light of what actually happened to help the story make more sense.  But, we all have limited information in our every day decision making, and Bitcoin's success couldn't have been predicted - even though there are plenty of people that will tell me otherwise.  I believe luck and Bitcoin holders' ability to stomach risk are responsible for the rapid price increase.  If someone had the luck and risk appetite to buy Bitcoin at whatever early price, it may not be correlated with their decision making ability.
2. Our time horizons are shorter than ever.  Several studies have been done to show that the pace of technology adoption is faster than ever.  It took 64 years for the telephone to reach 40% penetration, and smart phones just 10 years to reach the same level.  Facebook feeds and text messages can't wait a few minutes, so they are checked at stop lights and at 70mph.  Coinbase, the provider I used to make my experimental purchase, allows you to monitor Bitcoin's price change during the last hour.  This is not an asset or time horizon that belongs in your retirement portfolio.  I heard today that some people are using their credit card limits as a method to fund Bitcoin purchases; this is also out of bounds!  And the video "Everything you need to know about Bitcoin in two minutes" probably isn't enough to make your decision.
3. Blockchain will dramatically change other industries.  At it's core (as I understand), the technology is an encrypted open source record of transactions, verified by others within the ecosystem.  Because any transaction is immediately confirmed, it is indisputable and irreversible.  I think we will see this change industries that rely on third parties to confirm the legitimacy of a transaction, such as title insurance providers.  I'm sure there are many others as well.

I saw Hamilton for the first time last week, and I wonder what the Treasury Secretary would have to say about this.  Maybe in the sequel...

My own personal opinions

JRH