#MGoMoney: The Market & Your 401K/Investments

You might want to pause for a moment on those assumptions about who I am and what I know/don't know. Michigan's connections to startups and silicon valley? You're talking about me buddy :)  Plenty of insider knowledge here, usually just hang around for the football.

And I couldn't agree more with your advice not to be one those stupid people who take out debt or morgage their houses to go all in on Bitcoin.  DYOR and don't invest more than you can afford to lose.

Appeals to authority are cheap. However, we're still at that early stage of the conversation where they're useful (I'm happy to refute your specific points as well and will do so). But I also can't resist hitting on your references because yours made me laugh too.

I've read and listened to every word both Jamie Dimon and Warren Buffet have said on crypto.  Warren Buffet openly admits he doesn't understand it -- from CNBC:

Buffet said he would not take a short positiion on bitcoin futures. "We don't own any, we're not short any, we'll never have a position in them" he said. "I get into enough trouble with things I think I know something about," he added. "Why in the world should I take a long or short position in somehitng I don't know anything about."

Jamie Dimon is a more complicated case because he actually understands crypto quite well.  This is where we actually are getting into some of the conflict of interests you mentioned because JP Morgan is building Quorum (a private enterprise version of Ethereum) which is one of private "competitors" to public crypto blockchains.  So just note that Jamie has a large vested interest in the "Blockchain not Bitcoin" idea. This is complicated too but cryptocurrencies are essentially the accounting layer for processing transactions and are essential to core of decentralized blockchain technology. It's hard to grasp And a lot of his argument goes along some of the lines you've been mentioning talking about government regulation's impact on the open chains and that they'll surely shut it down before they gets too big.  These are complicated and valid challenges to a nascent technology, which smart people can disagree on. The only real thing we can be sure of is that no one knows exactly how governments are going to respond to this potentially very disruptive force in global trade.  My perspective is that governments and regulators have a lot less ability to control this than they may think; cryptocurrency networks are inherently global and dencentralized networks (think tor rather than napster) and thus the major point of regulation is really the onramps from fiat currencies into crypto. There are already countries positioning themselves as crypto & innovation friendly in the desire to attract an absolutely massive number of talented developers and new companies.  So people who like to ban things *cough* *cough* China...  will simply see the technology move to other more friendly countries and the opportuniy to regulatory arbitrage across countries is very real.   

There was a recent committee before congress with the heads of the CFTC & SEC. On the whole the sentiment was mixed but from some important regulators it was -- yes there are scammy things going on which we need to stop but that the technology has great potential and the U.S. is pro innovation: https://www.banking.senate.gov/public/index.cfm/hearings?ID=D8EC44B1-F1…

There is quite clearly SEC scrutiny on ICOs that Jay Clayton kept referring to. There was also quite clearly no current intention to go after the larger currencies or platforms like BTC, ETH.  

As far as the price manipulation, yes we're all very aware.  That is the price you pay for solving the byzantine generals problem for the first time in history and creating a new currency uncontrolled by any government or regulation.  I think what we usually say about this is "zoom out" haha. 

Hacks are a really nuanced and complicated issue to understand here.  So yes there have been and continue to be a number of high profile exchange hacks as well as constant level of individual hacks of persons that don't get any press.  The reasons for this are multiple.  First off the nature of cryptocurrencies is that you and you alone own control over the abillity to move your money. Nobody (no bank, no government) is even able to rollback(DAO aside -- it is possible for the devs/community in certain catastrophic circumstances to the network as a whole) if you lose your keys or if someone takes them from you currently.  This means if you're smart and know what you're doing it's very very secure and if you're your own bank and you are bad at being your own bank it is not secure. Or if you trust an exchange to be your bank and they are a bad bank then you are not secure.  By the way the Winklevii are pretty smart dudes and run one of these crypto exchanges, just sayin.  But in some very important ways Bitcoin is actually the most secure financial network in history. The Bitcoin blockchain itself, (besides a very small PGP bug for like $19k in the very early days), has run 24/7 with 0 downtime for 9+ years without ever being hacked.  And the security mechanisms of these networks is only getting better and more professional over time (especially if you know who to trust).  I would advocate for any crypto enthusiasts out there to take a hard look at how much they keep on exchanges and how credible and professional those exchanges are.  This is probably one of the riskiest areas for the "newbies" and requires significant effort and understanding to properly secure yourself.  But it is very possible to do so.  

Ready for some insider knowledge? VCs are taking a variety of approaches to the space.  One of the most common is simply investing in a crypto hedge fund like polychain capital, metastable, etc -- and the crypto fund invests directly in cryptocurrencies.  There are also things like SAFT and SAFTE, (similar to SAFE notes for those in the startup know) where VCs are buying options to either tokens or equity in the companies producing the tokens.  There are also a significant number of "pre-sales" in which the VCs are still getting in earlier than the general public.  However one of the extremely positive developments of crypto has been the accesibility of intrusments of the lay person to invest in very early stage "startups" aka crypto networks.  1000x gains sound too good to be true to the normal investor fishies because it is in the current regulatory climate where you have to be an accredited investor ($1M in assets minus house or stable $200k income), but in the VC world this happens fairly regularly.  You're talking about early investors selling out and dumping on the little guy and I'm sorry but it just aint that simple or straightforward in the crypto world or in traditional startup world.    

And finally to your implied question -- "What am I investing in when I invest in a crypto?":

Depending on which ones you choose it is different, these assets defy traditional categorization and have components of different asset classes. In many ways yes you actually are investing in a technology startup for a lot of these - they have development roadmaps in which they are building various blockchain technologies which hold potential to solve problems in the future, from base layer protocols tackling scaling, to projects working on decentralized database or file storage, computational marketplaces etc.  And the way you invest in many of these is exactly "buying some random cryptocurrency".  If the technology being developed proves useful then the crypto token used on the network will have demand and appreciate in price.  Token mechanisms are difficult and poorly understood even by many building these technologies, and currently the vast majority of the current price of many techs is based on speculation. That doesn't make them worthless. I'd argue that Bitcoin has already developed sufficient technology to be digital gold aka a store of value and thus already fulfils a useful function as well as continualling proving the resilience of crypto in general. Other blockchain techs like Ethereum and those building off of them are tackling essentially a complete rebuild of the internet technology stack from the ground up.  Aka this has the potential to be the "new internet" and possibly much more impactful than the internet.  

So what is the best way to invest?  First off, just seperate your misgivings on the tech for a second and if I told you that I know of a stock or bundle of stocks which are ultra high risk (say 95% chance of failure) but the returns will be 1000x gains if they succeed how would you treat that stock?  Obviously you would not morgage your house and go all in!  Don't be greedy or stupid.  But just ignoring assets with these characteristics is in my opinion poor financial decision making. Cryptoasset have a place in any balanced portfolio at around 1-10% depending on your financial situation and your age and ability to recover from losses. Invest in a diversified mix of the top "blue chip" cryptos. Don't invest in the smaller ones until you've done an absolute minimum of 100 hours of research (and I don't mean watching youtube videos of idiots who are shiling coins they don't understand, I mean read everything in that reading list, read the top50 whitepapers, read everything by Andreas, Vitalik, Nival, etc).  Just wait, your info sources will be telling you the same thing at some point in the next 5-10 years.  Now I'm going to make some assumptions about you -- if you can't wait that long for returns then maybe it's best you wait on the sidelines and let the younger generation take the reins.  

If you want some better examples for the proof of authority why not go Ray Dalio?  He called it a speculative bubble in the short term and has less conflict on interest than Dimon. Doesn't say anything bad about crypto tech long term though - because he's smart.  You could go Krugman with his recent NYT article but then again he said by 1995 the internet  would be no more important than the fax machine sooooo yeah.  And you really put more faith in Dimon or Buffet than Andreessen when talking tech innovation?  Yeesh.