Crypto "Wins": Less About Gains, More About Discipline?
The Crypto Narrative, Re-Examined Francis Bayes' recent column, "Why I Am Winning with Crypto," arrives at an interesting inflection point. Bitcoin's surge past $90,000, then $100,000, has reignited the crypto frenzy. Bayes, writing in December 2024, reflects on a 2022 column where he advocated for buying crypto even as Bitcoin dipped below $20,000. While many might see the current prices as vindication, Bayes' argument is more nuanced: his “win” isn't about the Bitcoin price itself, but about adhering to a pre-defined financial plan. Bayes outlines his investment thesis, stating that some useful things *might* come from crypto, and he didn't want FOMO to derail his broader financial strategy. He acknowledges the scams and volatility within the crypto space. His allocation strategy is conservative: 2% of his portfolio in crypto, with rebalancing triggers at 1.6% and 2.5%. He buys crypto when it dips below the lower threshold and sells when it exceeds the upper threshold, using gains to buy more stocks. Let's break down the numbers. Bayes' real return on crypto was negative until 2024. In 2022, crypto lowered his portfolio's return by 1.05%. In 2023, it improved the return by 0.88%. However, in 2024, crypto's real return was 91%, improving the overall portfolio return by 1.29%. From 2021-2024, crypto improved his portfolio's annualized real return by a mere 0.22%. Now, here's where the narrative gets interesting. Bayes isn't celebrating massive gains; he's emphasizing the importance of sticking to a plan. He even admits to hesitating when it came time to rebalance, buying too little during the 2022 crash and selling too late in the 2024 surge. He sold the excess crypto only because he started writing the column—he had to practice what he preached!Crypto FOMO: A Hedge, Not a Hail Mary
FOMO Management: The Real Crypto Game Bayes' core argument revolves around managing Fear Of Missing Out (FOMO). He describes the euphoria around tech stocks and crypto as a "boiling kettle," and he keeps his "finger in the water" to gauge the temperature. Owning a small amount of crypto, even with its volatility, helps him avoid making rash decisions with the larger portion of his portfolio (98% in stocks). This approach contrasts sharply with the narratives often pushed by crypto proponents, who focus on potential riches and disruptive innovation. Bayes' perspective is grounded in risk management and emotional discipline. He acknowledges the potential upside of crypto but prioritizes the stability and long-term growth of his overall portfolio. I've looked at countless investment strategies, and Bayes' approach, while conservative, is remarkably pragmatic. It's not about maximizing returns from crypto; it's about minimizing the risk of emotional investing. The key isn't picking the "right" crypto, but rather defining a clear allocation strategy and sticking to it, regardless of market fluctuations. It's about dampening the emotional highs and lows, preventing them from influencing the larger, more critical investment decisions. His "conditional formatting" on spreadsheets to highlight allocation thresholds is a simple but effective tool. The "win" here isn't about timing the market or picking the next big crypto; it's about building a robust financial plan and resisting the urge to deviate from it due to short-term market hype. So, What's the Real ROI? Bayes' story isn't a crypto success story; it's a behavioral finance case study. The real return on investment isn't the 0.22% improvement in his portfolio's annualized return; it's the peace of mind that comes from knowing he's sticking to his plan, even when the market is screaming otherwise. It's about avoiding the emotional rollercoaster that can derail even the most well-thought-out investment strategy.