While many crypto investors hold only Bitcoin, others diversify their portfolio widely. These two strategies reflect the investors’ views on cryptocurrency generally. One is the tribalist outlook, of owning, embracing and defending a particular cryptocurrency that the investor identifies with, while the other is the maximalist strategy, believing in crypto as a whole and therefore diversifying broadly among them.
These perspectives infuse and reflect one’s feelings about cryptocurrency as well as of decentralization generally. To explore these different viewpoints and their implications, Forkast.News’ Editor-in-chief Angie Lau brought together four of the “brightest minds in blockchain,” including Annabel Huang, partner at Amber Group, a crypto financial services provider that raised US$100 million in a series B funding round this summer; Alex Mashinsky, founder of Celsius Network, a cryptocurrency lender that recently reported more than US$25 billion in assets under management; Raoul Pal, hedge fund manager as well as CEO and co-founder of on-demand financial TV channel Real Vision, and Leah Wald, CEO of Valkyrie, whose Bitcoin futures ETF was among the first approved by the U.S. Securities and Exchange Commission last month.
They talked about what Bitcoin means to them and the future of cryptocurrency in a panel discussion on “Maximalism vs. Diversification” at today’s Bitcoin & Beyond Virtual Summit sponsored by Forkast.News and AAX.
‘It’s a behavioral economics experiment‘
Three of the panelists were early adopters, immediately seeing the disruptive and innovative value of Bitcoin as far back as 2008. But Mashinsky said he wasn’t sure Bitcoin was viable until 2014, when he learned about the recovery of 200,000 lost Bitcoins (worth around US$116 million at the time) that crypto exchange Mt. Gox discovered in an old digital wallet. He realized then that “nothing could kill [Bitcoin] …. You could throw an atom bomb at it and it would still keep walking.”
“All of us go through this journey [to understand the concept of Bitcoin] and then you have a eureka moment,” Mashinsky said. “That eureka moment is really neurons — new neurons winning against all of the old neurons that told you, ‘You know everything’ — and then you realize, OK, I’m ready for Bitcoin.”
Pal likened investing in cryptocurrencies to a behavioral economics experiment. “Your incentive system is not a like button on Facebook nor a bit of dopamine. It’s money,” he said. “If people believe in Bitcoin, they will want to defend their network at all costs, and they want everybody to come to their network.”
Wald agreed with Pal that the shared fundamental belief in Bitcoin encouraged early adopters and powered the ecosystem, which would grow to include permissionless value transfer, confiscate ability, immutability and financial freedom.
“It is this very deeply, emotionally tied, living, breathing thing. And on top of it, add in behavioral economics because it is money,” she said.
Huang, whose background is in traditional banking, said Bitcoin’s consensus mechanism intrigued her, that it “has so many people participating but be able to trust each other on a trustless system.”
Huang has traveled widely and observed how local communities in many countries she has visited can form identities that shape tribal investment behaviors.
“A lot of the [people in] emerging markets bought into Bitcoin because it’s sometimes about survival, about finding a currency they can use” rather than for investment, she said. “And in some areas, especially developer-heavy areas, they tend to stick to one blockchain, because maybe the founders are rooted there and they’ve really had this network and they want to be a part of that. This is their identity.”
Coexistence and investment
All the panelists agreed that maximalism, by building a decentralized economy where all coins can coexist rather than creating conflicts, will ensure cryptocurrency’s longevity.
“All of us win together by migrating against traditional finance in the new world,” said Mashinsky.
“If our goal here is to change the outcome for humanity, then the stupidest thing is to fight with each other,” Pal agreed.
Wald raised concern about differences in the various cryptocurrencies and how that may prevent cohesiveness in the crypto community, threatening maximalism.
“I’m excited about Bitcoin. I’m excited about crypto, but maybe worried the negative narrative about electricity and how proof of work works will resonate more towards one of the coins or coin communities,” she said.
Huang said traditional institutions will be slower to diversify. Bitcoin is still “the longest standing and the more secure and the most validated of the cryptocurrencies,” she explained. “A lot of the institutional money is still trying to figure out how Bitcoin fits into their overall broader portfolio as a diversification before they will look into [other] crypto, specifically how to diversify [among] this asset class that’s so brand new to them.”
But Pal, reiterating the behavioral economics ideas, said that the lower correlation between cryptocurrencies and traditional investments like equities will ultimately draw in investors who seek a well-balanced portfolio. “Alpha is kind of a performance that is not explained by the underlying movements of the market itself,” Pal said. “From an investment point of view, the sheer alpha in this space is unparalleled.”