Opportunity Cost: Every financial decision is a trade-off with your future self.
#Bitcoin makes this abundantly clear on long timescales.
Investments are choices and choices are trade-offs. “Doing one thing means not being able to do another. We live in a world of trade-offs, and the concept of opportunity cost rules all.” –@farnamstreet
When zooming out, bitcoin has significantly out-performed traditional strategies and sectors (even when accounting for multiple ~75% peak-to-trough declines). It has continued to penalize the incurious.
“The sobering reality to keep in mind is that a man’s lot in life will be largely determined by these trades between him and his future self. As much as he’d like to blame others for his failures.” @saifedean
Holding an asset long-term doesn’t come from blind faith, it comes from deferring consumption, doing your homework, building conviction in a thesis and then constantly looking for holes in your logic.
“In AMZN’s early years, most investors were hesitant to buy it even as they loved using the service, believing each year that they’d missed it again, that the price had run away from them.” -Ross Stevens
If you smooth over some of the initial volatility, the AMZN chart below looks pretty rosy. However, it’s in that early period that the most significant returns would be later realized.
Zooming in, after the bursting of the dotcom bubble, Amazon took TEN YEARS to exceed its previous high. For an entire decade, Amazon investors were ridiculed and likely faced internal conflict over their decision.
The ones who successfully tuned out the noise had independently developed a long-term thesis, from first principles, based on a fundamental shift in consumer behaviour enabled by technological innovation. https://twitter.com/anilsaidso/status/1375222012298158083?s=20
They saw the infrastructure being built-out, the acquisitions & partnerships, the improvements in usability, but most importantly- the exponential growth in internet users. https://twitter.com/MacroScope17/status/1428392206864461828?s=20
By understanding the asymmetric payoffs of being early, if correct, this strategy recognizes the folly of trying to time such a shift and accepting the volatility that comes with nascency. “Volatility is the natural function of price discovery” –@parkeralewis
Being right when it’s already consensus thinking is largely useless for seizing significant opportunity, as the upside has already been captured by high-conviction early adopters.
In conclusion, bitcoin’s annualized returns over the past decade have been eye-catching. However, they’ve only been captured by the holders that had willingly foregone using that capital for other purposes (investment or consumption).
In the near future, all long-term investment decision (where ROI is the only consideration!) will more than likely be measured against bitcoin as the universal benchmark.
Though, like all benchmarks, many will believe they have the talent to beat it.
Sounds like bitcoin will teach opportunity cost to the entire world. Figure out how to get some, it’s still early.