Will it be too late to buy bit coins?” “What about Ripple – is that supposed to be cheaper?” “Ethereum?” “Why didn’t you tell me to buy earlier!” Since the price for bit coins has reached its all-time high on Monday, I get more and more calls from friends asking me these questions. I have been working in the crypto world since 2011, reporting as a reporter and teaching them as a law professor, and such calls are one of the few certainties in this crazy market. In the current craziness, which is at least the fourth one I’m going through, it’s important to remember that the best way to make money is slow. Instead of reading Crypto Twitter, anyone who wants to succeed in this market should listen to the traditional investor who is most hostile to Crypto: Warren Buffett.
To the question why more people do not copy his investment strategy, Warren Buffett gave the famous answer: “Because nobody wants to get rich slowly”. This is especially true in the crypto-world, where fortunes seem to be made overnight. In 2013, I wrote a story for Businessweek about a man who deleted a hard disk with 800 Bitcoins. When I wrote the story, they were worth $200,000. Now they are worth more than $15 million. Two years earlier, I lost a Bitcoin poker game whose pot is now worth about $4 million. I’m still not sure what these stories do to a person’s psyche, but as economic historian Charles Kindleberger once said: “Nothing disturbs a person’s well-being and judgment as much as seeing a friend get rich.
The other side of the coin, however, is that easily earned money is not so easily appreciated. There is an element of happiness in making money quickly – whether it meant accidentally running a mining machine or hearing about Bitcoin early on by chance, chance played a big part in the speed of getting rich.
It is not happiness that makes people happy to get rich, but a feeling of fulfillment and dedication to an ideal that is greater than money. Bitcoin represents such an ideal for many of its early supporters, who slowly became rich.
The value of Bitcoin, at least for its early supporters, is based on an ideology that sees the market as better at producing money than the government. Some people speak of the separation of church and state; those in the Bitcoin community speak of the separation of money and state. This is not a new idea – economists like F.A. Hayek and Ludwig von Mises understood the power of the free market to produce money that was not subject to the vicissitudes of politics. Buffet’s father, a Nebraska congressman, also understood this and was an advocate of the gold standard and healthy money. Whether or not you agree with this value proposition, there are many who agree with it. Money has a reflexive quality, and the reason why dollars have value is the reason gold or diamonds have value – because people believe they have value.
The early Bitcoin pioneers were not driven by money, but by ideology. These are people like Nick Szabo, a pioneer of cryptography and intelligent contracts who has been working on cryptography for decades. His influence came from the slow work in building the intellectual building on which bitcoin stands. If you read Szabo’s writings, it becomes clear that he is not in it for the money. His dedication to one thing – something we should all have – has enabled him to survive. Another example: I asked the hardcore Bitcoiner Erik Voorhees in the early days if he would pay out money. To my surprise, he said that he was paid out almost in full. He quickly clarified: “…of dollars.”
This is similar to the way value investors are able to distinguish market prices from intrinsic value. My business partner, Burak Alici, quickly realized that volatility is not the same as risk or uncertainty. Although our company does not invest in anything that has to do with cryptography and prefers boring business like elevators and train brakes, we are always aware that the dynamics of the markets are not always right.
The only reason why people like Buffett or Burak or the Bitcoin millionaires were able to persevere and hold out is because they marched to the beat of their own drums. This is a good way to get rich (it’s also a good way to march off a cliff). Although it may seem like the Bitcoin moguls got rich overnight, this is the way to get rich quickly, which is what the band Phish referred to when someone called them an overnight success. Drummer Jon Fishman said something with the effect: “Yes, we spent 9 years to become an overnight success”.
Max Raskin is an associate professor of law at New York University and general counsel of QVIDTVM Inc. an investment holding company. Follow him on Twitter @maxraskin.
The views expressed in this article are the author’s own.