For the Love of Bitcoin
I’m pretty dismayed that I actually have to write this post, but I feel that it’s necessary. The vast majority of the readers of my blog will have come to appreciate that I take a very measured and rational approach to explaining the reasons to my conclusions reached for the topics I discuss. You may not agree with my conclusions, but I think I have proven to be logical, at the very least. There is however a vocal minority who disagree.
After my last post, The Power of the Invisible Hand, which was the most widely read and contentious post I’ve ever written, it has now become necessary for me to give a background on my passion for Bitcoin.
When we launched Gyft in 2012, we had a dream of building a mobile gift card company in an era where “mobile wallets” were all the rage and we had many competitors. We took a very narrow focus and built a great product. Six months after launching at TechCrunch disrupt, we realized that we still had no traction. Maybe $30k in sales per month — this was largely due to the fact that credit card fraud was extremely high and we had been hit so many times that we had to decline the vast majority of purchase transactions.
While pondering what to do with the company, and possibly even closing it down, I had lunch with a friend who mentioned that the Bitcoin price was $30 again and climbing and that it hadn’t died. I had forgotten about Bitcoin. I started digging back into the Bitcoin world (I had heard about it previously, but was dismissive at first). I was sold. After purchasing a small number of Bitcoins at $40 from a friend, I started to watch the price climb up to $255 on MT.Gox, only to see it quickly come crashing down — emotions ran wild back then. Bitcoin was declared dead. I didn’t believe it.
I’ve seen this story before when the Internet “died” too in 2000. I met with Tony Gallipi from BitPay and we struck a deal to enable 50,000 merchants to accept Bitcoin in the USA within their physical stores using gift cards — apparently your Bitcoins were finally worth something! The results were spectacular (zero fraud from Bitcoin!) and we were able to scale the business up, diversifying away from only Bitcoin by also offering PayPal, improving our credit card acceptance rates, attracting more high profile merchants and eventually we sold the business to First Data in 2014 for a great exit multiple (we had only raised around $6m) to the founders and investors in about 2.5 years — this was a life changing exit for me in many ways and I really believe I owe it all to Bitcoin.
Post-acquisition, we were also able to use the Bitcoin infrastructure to create new types of gift card ledgering systems and Gyft continues to innovate in that space. I left to start Civic at the end of 2015 — my goal being to give everyone in the world a secure, decentralized digital identity using the blockchain and maybe, one day, we can even enable voting using the blockchain.
I have a diverse portfolio of investments, stemming from the fact that I have an investment fund in South Africa, called Newtown Partners, which invests in local companies and manages my investments from the Shark Tank & Dragon’s Den TV series there where I am an investor, as well as a number of investments in Bitcoin/Blockchain companies such as BitGo, Stem.io, Chronicled and funds such as Blockchain Capital and many other blockchain/bitcoin funds. I also decided to put a small investment directly into Bitcoin — representing a single digit percentage of my net worth, as I have advised others to do in the past. If I lose it, it won’t hurt and if it outperforms the rest of my portfolio, then great,but it’s not enough for me to worry about or lose sleep over.
The last thing I would want in the world is for Bitcoin to crash and burn. I’m heavily invested in the Bitcoin world. After writing my blog post on the upcoming ETF decision, I decided to sell my short term Bitcoin holdings, which represented 90% of my total holding. My long term holdings are in cold storage and I have no plans to ever sell them. I believed the market was acting irrationally and was not paying attention to the fundamentals — the ETF was a smoke screen for the problems underneath. I sold at a high of $1250. It was not life changing money but it was a sensible investment decision to exit the markets. I tweeted out concerns about the general market around altcoins in particular and the potential for a bubble around the same time. I noticed that the market was not seeing the world as I did, so I wrote two more posts — A Fork in the Road and then, The Power of the Invisible Hand. I did this to inform my readers, not to take advantage of them.
The point of my last post was simply this: If miners will not act in the best interests of the network, then the market needs to punish them by showing a reduction in the demand for Bitcoin and drag the price down to the point that it’s not profitable for them to hold out to the protocol changes being proposed. If every long term holder decided to sell just 10% of their holdings of Bitcoin, this would flood the market with up to 1.6m coins and make it uneconomical for miners to operate in the short term, forcing a decision on scaling and ending the standoff. Bitcoin works on classic game theory and economics. The balance of power is not even or decentralized — a fundamental and core tenant of Bitcoin that I ascribe to.
If you sold 10% of your holdings for the current market price of $1100, you’re probably not going to be too badly off and if you buy them back once the scaling debate is over, you may even get the coins cheaper. If I’m wrong and the price goes up, you’re taking a small portion of your investment off the table — is that such a bad thing? Times change — you need to change your mind when the facts change and that's what I’ve done. I truly believe that a hard fork is coming and with it a lot of uncertainty, unless we can change the trajectory, which is what I’m focusing on.
The good news is, if enough pressure is applied to the market and you’re a long term holder, the price will rebound once confidence is again lifted in the state of Bitcoin — so even if the decline is temporary, it won’t matter if you are in it for the long term. If Segwit gets adopted within the next 3 months and no Hard Fork, I still believe we will see a $2-3,000 coin this year, but this debate has to end without a splinter in the network.
An old adage in investing is that markets will stay irrational longer than you can stay liquid. Given the high amount of information asymmetry, FUD and dogma surrounding Bitcoin, this is correct, but the market will eventually adjust. For example, Roger Ver confirmed exactly what I wrote in “A Fork in the Road” — that he will be dumping his BTC. That will send the market spinning, for sure.
And Tone Vays, who is one of the most respected Bitcoin analysts and who has been critical about the chances of a hard fork, has recently changed his mind about the chances being low, after reading my posts.
Laura Shin from Forbes also just published this article with her independent research. Maybe I’m not so crazy, but people never want to hear what conflicts with their world view.
I have given clear reasons as to why I am largely out for the short term, and other traders are following suit. I will get back in only when we have a clear path to scaling Bitcoin, but until then I’m going to sit on the sidelines.
Therein lies the rub. By making sensible decisions and publishing it, I’m being accused of attempting to manipulate the market for personal gain (so I could buy back “cheaper coins”). Bitcoin is a passion. It’s not how I make a living or earn an income. I write these blogs because I feel duty bound to publish my market observations, not to profit from it.
The irony really is that none of these trolls argues the point when I was holding Bitcoin when I kept saying it was going up — it’s an only issue if my interests are no longer aligned with theirs.
I have an integrity that I believe is well beyond reproach, and people who know me personally will attest to this, so I wanted to set the record straight:
If I buy any coins below the $1250 price that I sold at, I will pay the entire difference over to a number of Bitcoin non-profit organizations, including the Bitcoin Foundation, where I am a board member for the further advancement of Bitcoin. I will also publish a letter from my auditor to confirm my transactions and that the money has been paid (the organizations will confirm this publicly).
My re-entry price is now essentially fixed at $1250 regardless of how low the price goes — my interest is in the long term success of Bitcoin. I’m not in the Bitcoin ecosystem because of the money and promises of riches. I think Bitcoin can be a powerful & positive change agent in the world, and quite frankly, I think we need it. This is why I do what I do.
Now, if the critics can just focus on the substance of my discourse and not question my intentions, hopefully we will be able to avert the impending hard fork which is coming — whether people believe it or not, and that will destroy value for all of us…
