Showing posts with label despite or because. Show all posts
Showing posts with label despite or because. Show all posts

Wednesday, May 25, 2022

What I'm Worried About as a Crypto Investor

Much like throwing a pass in football, there are three general outcomes from crypto investing, and two of them are bad. Namely, aside from maintaining or increasing in value, crypto assets like Bitcoin and Ethereum could become nearly valueless to an investor in two distinct ways. They could go bust or they could fail to reward investors even though they prove valuable to society in general. 

I consider these two bad outcomes distinct since they are so different in every manner except for the ultimate experience for investors. In the one case we have the conjecture that cryptocurrencies are vaporware that are just riding a greater-fool wave that will ultimately come crashing down. Label this one the "worthless" scenario.

In the other case we have the concern that even though crypto and its inseparable blockchain technology are godsends, there is no way to actually profit from their benefits directly. Label this one the "unable-to-capture-worth" scenario. 

Which one you subscribe to or concern yourself with says a lot about your crypto demeanor. For me the second concern is what keeps me up at night. I am a modest investor and a big, enthusiastic supporter. I want it to win and for me to win with it. 

Others are rooting for it to lose because they don't believe or don't want to believe in it or maybe some of both. For these doubters there is often a FOMO element that partially drives the want for crypto's demise. But in many cases these are thoughtful people making intelligent arguments against.

While the case against crypto isn't completely empty, I believe the clock is running out on that perspective. As crypto assets continue to establish themselves now more than a decade into their existence, this view looks more and more like a trivial dismissal similar to thinking the Internet would not amount to much beyond a step up from a fax machine.

Much more likely is that if crypto investors are left holding the bag the value has melted away from investors flowing to the benefit of all of society in general. Tyler Cowen made this case recently in his Bloomberg column:
So you can be bullish on crypto’s future without being bullish on current crypto prices. For a simple analogy, Spotify and YouTube have greatly expanded music’s reach, but overall the price of recorded music has fallen, and many performers earn much less than did their peers in the LP era. Or consider the agriculture sector, defined broadly: It has done very well over the last few centuries, but food prices have fallen rather than risen, due to higher output and greater competition.
I consider the unable-to-capture-worth scenario the serious, thoughtful worry. There are many ways this almost certainly will be true if crypto pans out for the long haul. You can make a great living as a bathroom remodeler or a plumber, but you aren't coming anywhere close to capturing all the value to consumers of indoor plumbing. 

If crypto investing fails, I think it will fail despite succeeding as a technology rather than because of it failing to ever deliver.
 

P.S. I take it as a very positive sign for crypto assets that the serious ones (Bitcoin, Ethereum, etc.) are becoming more and more correlated with the performance of "real" financial assets like stocks and bonds. It is an unfortunate economic fact that assets tend to become more highly correlated together as they mature making investing more difficult as some of the benefits of diversification erode.




Saturday, March 19, 2022

Who You Gonna Call? Trustbusters!

David Henderson has written two very good pieces recently at the Hoover Institution's Defining Ideas. They are a two-part discussion on antitrust: Let Freedom Rein In Big Tech and A Populist Attack on Big Tech. I particularly like his conclusion:
The more regulations there are to enforce a government official’s idea of competition, the more likely it is that those regulations will hamper actual competition. Companies that give their own products and services an advantage in the marketplace are simply harvesting the value of an asset that they took big risks to create. Competition is dynamic, not static. But heavy regulation will make markets more static. Let’s keep competition dynamic by not penalizing successful competitors but by leaving the market open to alternative business models.
Do read the whole thing in both cases. 

He makes many excellent points--ones that I myself had in some notes for a future piece on antitrust. (Of course, he makes them much better and more fully than I could.)

Sometimes one must be patient for competition to work it’s magic. Just because a monopoly, oligopoly, or other sinister market-dominant firm seems entrenched today, does not mean it will always be or that the cost of immediate correction is worth bearing. Forced correction may not even be feasible. 

At any one point in time there are a lot of reasons the world is the way it is. The challenge for the trustbuster is to know with very-high certainty that the current state of the market is suboptimal ("inefficient" is the eye-of-the-beholder term of choice) and that a better world can and should be achieved through government action. 

It is easy to conjure up a hypothetical better world because only in the wild through real-world experience, the so-called market test, do we truly discover all the constraints and tradeoffs. Comparing the unicorn to the horse is always subject to bias--imagined reality almost definitionally engages in willful blindness. But the trustbuster's Dunning-Kruger problem does not end there. The "can be achieved" is naively assumed through hand-waving theory. The "should be achieved" is generally ignored altogether.

In the realm of current worry, Big Tech (dunt, dunt, duh!), see MySpace, Yahoo!, and AOL along with InternetExplorer, Mapquest, Garmin, Blackberry, et al. Then consider Twitter, Facebook, and TikToc, along with Google, Apple, et al.

Also, remember when the government broke up IBM? Yeah, I don’t either. Apologists for activist government regulation will tell you the threat posed by the 13-year case that went nowhere is what reined in the highly-successful company, but this theory only works by willfully ignoring the fabulous work performed by IBM’s various marketplace competitors. Those quick to point out “you didn’t build it” rely on their own wishful agency when the real work is being done by those actually in the field. 

Why in antitrust do we grant so much benefit of the doubt to regulators and so little deference to the world as it is? Are we just that willing and hopeful that a white knight can remake that which we suppose is in error? Is it just because we don't listen to master Yoda?




Saturday, March 27, 2021

A Paradox of Choice

When well-meaning fools lament the plethora of choices we have in a free market society, they make a crucial mistake. They ignore the necessary condition for which those choices emerge and simply assume a result. 

I can imagine a very well constructed study done that proves, truly proves in a way that most all could agree, that ~99% of why a consumer chooses A versus B comes down to irrational affiliations or random luck. For example the determination of what car one chooses to buy between a Honda Accord and a very similar Toyota Camry would be shown to be nothing more than stuff like a person's prior cars happened to be Hondas or their parents bought Hondas or they buy the car they last saw an ad for or their favorite color is red and the car the dealer first showed them was red, etc.

The incorrect conclusion a well-meaning fool might jump to is that we have unnecessary redundancy in our free market economy. We should stop wasting resources on the competition because the differences between these artificial choices are illusory. Just build the Acamry and be done with it!

The fact that there are minor, subtle, and hidden differences between all such choices are lost on those drawing such conclusions. But more importantly they are making a dangerous mistake to neglect how we got to the magnificent state of the world where we have such amazing choices that a purchase decision settled by a coin flip likely leaves the consumer equally well off. 

There are no instructions from the universe for how to build the optimal mass-consumer sedan. We need a process to discover this and continually rediscover and improve upon the outcome. We need the right incentives to reward incremental success, punish incremental failure, and fully stop efforts going down a bad path. The capitalist free market is this process. It is the sine qua non for progress--as broadly defined as one can imagine it.





PS. Or maybe this is optimal?

Sunday, April 19, 2020

Despite or Because

I would like to introduce a new tagline "Despite or Because"--a method of deeper-level thinking.

Specifically, analysis attains sophistication when it is distinguishing between causation and correlation and answering the question: "Is [this result] in spite of or because of [that]?".

The example du jour is COVID-19.

As we stand today a lot remains to be seen including if our efforts will prove successful. Assuming success, we would like to know if the successful flattening of the curve and much below forecast CFR was in fact because of the federal, state, and local governments' lockdown and shelter-in-place orders or despite them?

I'm not just asking if they had no effect. Did they actually impair the battle against the virus? There are three ways I could see the extreme efforts leading to a net harm setting aside the very important social loss of wealth and way of life not to mention that an economy on a strong footing is better able to withstand and respond to a major threat.

  • By putting at risk people into high-dose exposures
  • By preventing helpfully-quicker herd immunity
  • By disallowing the virus to mutate into a milder strand (this ope is very speculative on my part and I might be very off base here)
Or did those efforts have no meaningful effect period? All of it is interesting and very hard to ask in mixed company much less get open-minded thinking on. 

Sweden, South Korea, Taiwan, and perhaps certain states and cities in the U.S. might provide the counter examples as natural experiments we would need to answer this question to some degree of satisfaction eventually