What did you “miss” in the bitcoin bubble?

I take almost no interest in bitcoin or any other cryptoasset as a store of value or investment (although there’s no reason the technology couldn’t be useful in other ways), but there’s one specific mistake I often see people make that I want to offer a friendly correction to.

Bitcoin are not discrete units

When people talk about stocks they frequently say things like, “if you had bought Berkshire Hathaway stock in 1964 for $19 per share you’d be worth more than Bill Gates,” or “if you had bought a share of Amazon at $20 in 2001 your investment would be worth a zillion dollars today.” That’s because, as a general rule, shares of common stock are bought and sold in indivisible units (or even in blocks of 100 shares).

Lazy journalists and thinkers try to port that logic over to bitcoin and say things like, “if you had bought a bitcoin for $1 in 2011 it would be worth $13,000 today.”

But bitcoin isn’t like stock, in that rather than being indivisible, it’s extremely divisible — into 100 millionths of a bitcoin (a “satoshi”). If $1 is the amount of bitcoin you think you should have bought in 2011 (which I consider an appropriate amount of bitcoin to own as a speculative investment), you can still buy $1 in bitcoin. Of course, instead of buying 1.0 bitcoin, you’ll be buying 0.00036615 bitcoin, but who cares?

You didn’t miss anything

I don’t know what the price of bitcoin will do tomorrow (or even what it will do today). But I don’t know what the price of the S&P 500 will do tomorrow either, and that doesn’t stop me from owning it. That’s not what investing is about. Investing is about making appropriately-sized bets based on your level of confidence (which may be no confidence!) in the best information you have available (which may be no information!).

I have no information about bitcoin and no confidence in it, so I hold a diversified portfolio of low-cost equity mutual funds. But if your own information and confidence makes you think it’s appropriate to invest 0.5%, 1%, or 50% of your portfolio in bitcoin, there’s no reason to let the price of 1.0 bitcoin stop you. If bitcoin goes up even more, you can sell it off and rebalance into underperforming parts of your portfolio, and if it goes down, you can buy more up to your desired portfolio allocation, just as you would have done if you’d bought it at $1, $10, or $100 per bitcoin.

If what you regret is not buying 100 bitcoin at $1 and then not selling as it swamped every other part of your portfolio in value, then what you’re talking about isn’t investing, it’s gambling. Gambling is, of course, extremely fun, but there’s no reason to let the price of 1.0 bitcoin stop you from gambling with an amount of money you’re prepared to lose, any more than you should stop betting when a craps player has a long winning streak or a blackjack dealer busts over and over again.