I have been writing about cryptocurrency my entire career. In that time, one point I’ve always stuck to is simple: don’t listen to me for investment advice. Today I want to quantify why.
Bitcoin was created in 2009, when I was in my first year of university. As an economics student – and a huge nerd – it was right at the intersection of my interests. By my final year of university in 2011, the original cryptocurrency was experiencing 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, hacked. (This will become 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 lead to an online Wild West of gambling, prostitution and global smuggling bazaars.”
I was very much on the outside looking in though. Since I’m not a regular drug user (cf. “mass geek”), the common use of bitcoin – getting pills or weed in the mail from the Silk Road – passed me by, so I considered it more of an intellectual curiosity than anything else.
This may be partly because the first thing I remember hearing about bitcoin was a story, probably apocryphal, of someone using his gaming PC to mine the currency in his dorm room during the heat. The air conditioner failed, the user reported in a forum post, and the heat stroke left them with mild brain damage. You can see why I wasn’t impressed.
By the second big boom, I was covering the economy for the New Statesman. And that’s where the trouble starts.
In my first published piece to use 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 at around $40 per coin.
It never went that low again.
I was right that a bubble was brewing: the price of bitcoin had doubled in two months and would double twice more before bursting less than a month later. But the drop, which would have been huge for any other normal asset, was a cut of roughly half, taking bitcoin to its lowest since… three weeks ago.
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’s Bitcoin Investment Strategy
Obviously, I’m not giving actual investment advice. So I went through every article I’ve ever written that mentions “bitcoin” and ranked them based on whether the reader would think it was good news or bad news for cryptocurrency. Of course, there is an element of value judgment in this: you may not agree with my decision that the story of the Winklevies starting a bitcoin price tracker in 2014 is generally positive; or that the story of Mt. Gox reopening after a hack (another hack) is generally negative. I hope the discrepancies are average.
I then matched the stories with the price of bitcoin on the day they were written and asked a simple question: if you 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 good news news, how would your investment be successful?
The bottom line: You’d spend a net $420 on bitcoin, and as a result, you’d have a crypto wallet containing about 1.1 bitcoins—worth, at today’s market value, just over $22,000.
Moving on to the specifics, I’m a little encouraged though. More than half of that gain comes from a total of just seven works written in 2013: six negative and one positive. At the end of that run, you’d spend $50 and own 0.7 bitcoins. Those articles have a huge impact on the conversion, because of how much the value of bitcoin has risen in the nine years since they were published.
Bitcoin has had two up-and-down cycles in 2013. The first, in April, took it to a high of $266. The second one, in December, was bigger – much bigger. The price of the coin jumped to $1,238 and fell to a low of $687. The flurry of articles I wrote on currency when I started at the Guardian, towards the end of 2013 and the first half of 2014, contributed 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 currency’s potential was still untapped: the idea that bitcoin or blockchain could prove revolutionary was not a corny promise, but something that could be just around the corner. In that boom, I wrote as many positive stories as negative ones.
For every article about bitcoin hitting an “all-time high” of $269, there was another about a million-pound payment processor hack. With every long column questioning whether bitcoin will change the world, the Dutch central banker has warned that the hype is “worse than tulipmania” (and he should know).
The timing of the parts didn’t quite line up though and by the end of that boom you would have turned your 0.7 bitcoins into 0.9 while cashing out as many dollars as you invested. And in that period, those bitcoins would go from $100 to more than $500.
However, from 2014 until the most recent boom, the money you invested would start to choke in the bitcoin you already own. $10 in early 2014 bought you about 0.01 bitcoin, so 10 negative pieces from me would increase your position significantly.
Three years later, it would take 30 negative pieces to acquire the same amount of bitcoins. This meant that the impact of the ICO boom – the first of the sector’s major expansion from a handful of cryptocurrencies to the entire shitcoin ecosystem – was muted compared to what had gone before, despite talk of Iceland becoming a miner’s paradise and Kodak discovered a branded cryptoman, which led to a flurry of buying and selling.
And three years after that, at the beginning of 2020, a $10 investment in cryptocurrency would only net you 0.001 BTC. That’s good news for our theoretical investor, as 2020 marked my most positive currency reporting yet. Stories such as the US government seizing bitcoins used in Silk Road were a sign of the sector’s growing professionalism and, for the first time, bitcoin was enough of a part of the tech scene that the Guardian, even in its comparative decline, was still covering it.
Until the latest boom-and-bust cycle, where – finally – the investor starts losing and I get some of my reputation back. Since its peak of $69,000 earlier this year, bitcoin has fallen by a third. I diligently followed the collapse, which was by far the most brutal the sector has faced. That means the tracker has nearly $200 worth of bitcoin invested, even though the total value of the holdings has fallen from a high of $50,000 in March to the current number.
Whon the next one?
The question that arises going forward is, of course, whether the pattern is maintained. Will you continue to make money if you buy when I’m grumpy about cryptocurrency and sell when I’m bullish? Obviously – see above – I’m not going to make any strong predictions, but I doubt we’ll ever again see such a sharp rise in price as we’ve seen in the last decade, which means I’ll never make a call that plays as poorly as those in the 2013 opening pieces.
Which doesn’t mean they can’t make other terrible calls. Remember Dejitaru Tsuko, the shitcoin that was sold with my name on it? I broke my own rules and warned readers, “I don’t think you should buy this shitcoin, or any other.” Well, if you’d bought £10 worth of Tsuka when I said that, you’d now have… £4,000.
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