TechScape: I am no longer making cryptocurrency predictions. Here’s why | Technology

I have been writing about cryptocurrency for my entire career. In that time, one point I have always stuck to is simple: Don’t listen to me for investment advice. Today I want to quantify why.

Bitcoin was created in 2009, while I was in my first year at university. As an economics student – ​​and massive geek – it sat right at the intersection of my interests. By my senior year of university 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 that summer, before crashing back to less than $3 when Mt. Gox, the original bitcoin exchange, was hacked. (This will be a topic.)

It was also the year the Guardian first covered the currency, with Ruth Whippman warning: “Its critics in the political sphere fear it could give rise to an online Wild West of gambling, prostitution and global bazaars for contraband.”

I was very much on the outside looking in. Not being a regular drug user (cf. “massive geek”), the mainstream use of bitcoin – getting pills or weed delivered by post from the Silk Road – passed me by, so I found it more of an intellectual curiosity than anything else.

This is perhaps partly because the first thing I remember hearing about bitcoin was a tale, probably apocryphal, of someone using their gaming PC to mine the currency in their dorm room during a heat wave. The air conditioner failed, the user reported in a forum post, and heat stroke gave them mild brain damage. You can see why I wasn’t impressed.

At the second big boom I covered finance for the New Statesman. And that’s where the trouble begins.

In my first published piece using the word “bitcoin” — the first time the New Statesman covered the subject — I confidently declared, “This is what a bubble looks like.” At the time, bitcoin was trading for around $40 per coin.

It has never been this low again.

I was right that a bubble was in the offing: the price of bitcoin had doubled in two months, and would double twice more before popping less than a month later. But the crash, which would have been huge for any other normal asset, was a reduction of around half, taking bitcoin to its lowest of… three weeks prior.

A decade later, the memory of this bold claim still haunts me, and I refuse to make predictions about the future of any cryptocurrency. In fact, I’ve started joking that the best way to make money, historically, is to do the opposite of what I say.

So I put it to the test.

Alex Hern bitcoin investment strategy

Obviously, I’m not giving actual investment advice. So I reviewed every article I’ve ever written that mentions “bitcoin,” and sorted them based on whether a reader would think they were good news for the crypto, or bad news. There is an element of value judgment in this, of course: you may disagree with my judgment that a story about Winklevii launching a bitcoin price tracker in 2014 is largely positive; or that a story about Mt. Gox reopening after a hack (another hack) is mostly negative. My hope is that the disagreements will average out.

I then paired the stories against the price of bitcoin on the day they were written and asked a simple question: if you had bought $10 of bitcoin every time I wrote something that seemed like bad news, and sold $10 of bitcoin every time I wrote something that seemed like as good news, how would your investment have performed?

The bottom line: you would have spent a net $420 on bitcoin, and have a crypto wallet containing around 1.1 bitcoin as a result – worth, at today’s market value, just over $22,000.

Ugh.

However, going through the details gives me some cheer. Well over half of the gain comes from a total of just seven pieces written in 2013: six negative and one positive. At the end of the run, you would have spent $50 and owned 0.7 bitcoin. These articles have an outsized influence on the overestimation, due to how much bitcoin’s value has increased in the nine years since they were published.

Bitcoin had two boom and bust cycles in 2013. The first, in April, took it to a peak of $266. The second, in December, was bigger – much bigger. The price of one coin rose to $1,238 and fell to a low of $687. The flurry of pieces I wrote about the currency when I joined the Guardian, through late 2013 and the first half of 2014, contribute much less to the bottom line, although there were more of them.

It was also the period with the most positive stories for bitcoin. In 2014, the potential of the currency was still untapped: the idea that bitcoin or the blockchain could turn out to be revolutionary was not an aborted promise, but something that could be just around the corner. In that boom I wrote as many positive stories as negative.

For every article about bitcoin hitting an “all-time high” of $269, there was another about the £1m hack of a payment processor. For every lengthy feature asking whether bitcoin was about to change the world, there was a warning from a Dutch central banker that the hype was “worse than tulip mania” (and he should know).

However, the timing of the chips didn’t quite balance out, and by the end of that boom, you would have turned 0.7 bitcoin into 0.9 while cashing out as many dollars as you deposited. And in that period these bitcoins would have gone from $100 to more than $500.

However, from 2014 until the last boom, the money you put in will start to be drowned out by the bitcoin you already own. $10 in early 2014 bought you about 0.01 bitcoin, so 10 negative shares from me would have increased your position considerably.

Three years later, it would take 30 negative parts for you to get the same amount of bitcoin. That meant the impact of the ICO boom – the first of the major expansions of the sector from a handful of cryptocurrencies to an entire ecosystem of shitcoins – was muted compared to what came before, despite stories of Iceland becoming a haven for miners and Kodak came out. a branded cryptominer, leading to a flurry of buying and selling.

And three years after that, in early 2020, a $10 investment in the cryptocurrency would net you just 0.001 BTC. That’s good news for our theoretical investor, because 2020 marked my most positive reporting on the currency. Stories such as the US government seizing bitcoins used in the Silk Road were a sign of the growing professionalism of the sector, and for the first time bitcoin was such a regular part of the tech scene that the Guardian was still in a comparative recession. covers it.

On to the final boom-and-bust cycle, where – finally – the investor starts losing and I get some of my reputation back. From its peak of $69,000 earlier this year, bitcoin has fallen by a third. I have diligently covered the collapse, which has been by far the most brutal the sector has faced. That means the tracker has sunk nearly $200 in bitcoin, and even as the overall value of its holdings has fallen from a peak of $50,000 in March to its current number.

Whnext time?

The question going forward is of course whether the pattern holds up. Will you keep making money if you buy when I’m bullish on crypto and sell when I’m bullish? Obviously – see above – I’m not about to make any strong predictions, but I doubt we’ll ever again see a price rise as sharp as we’ve seen in the last decade, which means I never will to call as a player. as bad looking as those in the first pieces from 2013.

That doesn’t mean I can’t make other terrible calls. Remember Dejitaru Tsuka, the shitcoin that was sold with my name? I broke my rules, and warned readers, “I don’t think you should buy this shitcoin, or any other.” Well, if you had bought 10 pounds worth of Tsuka when I said that, you would now have… 4000 pounds.

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