I’ve written about cryptocurrency throughout my career. Throughout that time, I’ve always stuck to one point that’s simple: don’t listen to my investment advice. Today I want to quantify why.
Bitcoin originated in 2009 while I was in my freshman year at university. As an economics student – and massive nerd – it was right at the intersection of my interests. In my senior year of college in 2011, the original cryptocurrency experienced its first boom-and-bust cycle. It rose from a low of $0.30 to a high of $32.34 this summer before plunging back to less than $3 when Mt. Gox, the original Bitcoin exchange, was hacked. (This will become an issue.)
That was also the year the Guardian first reported on the currency, with Ruth Whippman warning: “Its critics in the political sphere fear there could be an online Wild West of gambling, prostitution and global contraband bazaars. “
However, I was very much on the outside looking in. Not being a regular drug user (cf. “massive nerd”), the mainstream uses of bitcoin — getting pills or weed delivered in the mail from the Silk Road — passed me by, making it more of an intellectual curiosity than anything else felt.
That’s perhaps partly because the first thing I remember hearing about Bitcoin was what was probably an apocryphal tale of someone using their gaming PC to mine the currency in their dorm room during a heatwave. The air conditioning failed, the user reported in a forum post, and heat stroke left mild brain damage. You can see why I was unimpressed.
On the second big boom, I covered economics for the New Statesman. And that’s where the trouble begins.
In my first published article using the word “bitcoin” — the first time the New Statesman covered the subject — I confidently stated, “This is what a bubble looks like.” At the time, bitcoin was trading at around $40 per coin.
It’s never been this deep.
I was right that a bubble was looming: Bitcoin’s price had doubled in two months and would double twice more before bursting less than a month later. But the crash, which would have been huge for any other normal asset, was a reduction by about half, taking Bitcoin to the lows of… three weeks earlier.
A decade later, the memory of that bold claim still haunts me, and I refuse to make predictions about the future of any cryptocurrency. In fact, I’ve started joking that historically the best way to make money is to do the opposite of what I say.
So I put it to the test.
Alex Hern’s Bitcoin Investment Strategy
I obviously do not give investment advice. So I reviewed every article I’ve ever written that mentions “Bitcoin” and ranked them based on whether a reader would think they were good news for crypto or bad news. There’s an element of appreciation, of course: you might disagree with my decision that a story about the Winklevii, who launched a bitcoin price tracker in 2014, is broadly positive; or that a story about Mt. Gox reopening after a hack (another hack) is broadly negative. I hope that the disagreements will even out.
I then compared the stories to the price of bitcoin on the day they were written and asked a simple question: if every time I wrote something that seemed like bad news, you bought $10 bitcoin, and every time Had sold $10 bitcoin I wrote what looked like good news, how would your investment have fared?
The bottom line: you would have spent $420 net on bitcoin and as a result you would have a crypto wallet containing around 1.1 bitcoin – which is worth just over $22,000 at today’s market value.
When I go into the details, however, I’m a little happy. Well over half of that profit comes from a total of just seven tracks written in 2013: six negative and one positive. At the end of that run, you would have spent $50 and owned 0.7 bitcoin. These articles have an outsized impact on the overcalculation as Bitcoin’s value has increased in the nine years since their publication.
Bitcoin had two boom and bust cycles in 2013. The first in April peaked at $266. The second in December was bigger – much bigger. The price of one coin surged to $1,238 and fell to a low of $687. The spate of articles I wrote about the currency when I started at the Guardian through late 2013 and the first half of 2014 contributes much less to the bottom line, although there were more of them.
It was also the time with the most positive stories for Bitcoin. In 2014, the currency’s potential was still untapped: the idea that Bitcoin or the blockchain could prove revolutionary was not a hackneyed promise, but something that could be just around the corner. In this boom I wrote as many positive stories as negative ones.
For every article about Bitcoin hitting an “all-time high” of $269, there was another about a £1million payment processor hack. For every lengthy feature asking if bitcoin would change the world, there was a warning from a Dutch central banker that the hype was “worse than tulip craze” (and he should know it).
The timing of the pieces wasn’t quite even, however, and by the end of that boom, you would have converted your 0.7 bitcoin into 0.9, paying out as many dollars as you invested. And in that period, those bitcoins would have gone from $100 to over $500.
However, from 2014 to the recent boom, the money invested has been drowned out by the bitcoins you already own. In early 2014, $10 bought you about 0.01 bitcoin, so 10 negative pieces from me would have increased your position significantly.
Three years later, you would need 30 minus coins to acquire the same amount of bitcoin. That meant the impact of the ICO boom — the first of the sector’s major expansions from a handful of cryptocurrencies to an entire ecosystem of shitcoins — was muted compared to what came before, despite stories of Iceland becoming a paradise for miners and Kodak released a branded cryptominer, causing a flurry of buying and selling.
And three years later, in early 2020, a $10 investment in cryptocurrency would only bring you 0.001 BTC. This is good news for our theoretical investor, as 2020 has been my most positive coverage of the currency. Stories like the US government’s confiscation of bitcoins used in the Silk Road were a sign of the sector’s growing professionalism, and bitcoin has been so integral to the tech scene for the first time that the Guardian itself in a comparable one burglary still stood there covering it.
On to the recent boom and bust cycle where – finally – the investor starts losing and I’m regaining some of my reputation. From its peak of $69,000 earlier this year, bitcoin has fallen by a third. I have diligently reported on the collapse, which was by far the most brutal the sector has faced. That means the tracker has sunk almost $200 into Bitcoin, even though the total value of holdings has fallen to its current number from a peak of $50,000 in March.
what the next?
The question for the future, of course, is whether the pattern will last. Will you keep making money by buying when I’m grumpy about crypto and selling when I’m bullish? Of course – see above – I’m not going to make strong predictions, but I doubt we’ll ever see a price run as strong as it has in the last decade, which means I’ll never make a call that plays as badly as the ones in this one first pieces of 2013.
That doesn’t mean I can’t make other horrible calls. Do you remember Dejitaru Tsuka, the shit coin that was sold with my name on it? I broke my rules and warned readers, “I don’t think you should buy that shit coin, nor any others.” Well, if you’d bought £10 worth of Tsuka when I said that, you’d now have…£4,000 .
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