Josh Brown goes down the bitcoin rabbit hole—commentary

Danny Moses is in the house. You might remember his character from The Big Short. He’s larger than life in person, just like in the movie. Fidelity had a pair of representatives there too. The massive investment firm has been at the forefront of experimenting with this technology – Fidelity CEO Abby Johnson has a mining rig running right in her office and the firm was the first online broker to allow clients to pull their crypto holdings directly from Coinbase into their portfolio holdings page.

During dinner I was regaled with amazing tales from my new friend Nolan Bauerle from Coindesk. If you’re not familiar, Coindesk is aiming to be a cross between the Bloomberg and the Business Insider of this asset class. I’m appearing at their first investment conference late next month in New York City. Nolan, a banking expert who was the first to bring the technology before the Canadian Senate, was sitting at the table when the idea for Ethereum began to take shape. He’s probably the most knowledgable and entertaining person I’ve ever spoken with on this topic.

I also bumped into my old buddy Leigh Drogen, the founder of Estimize. Leigh, like me, has begun to accumulate some digital assets and is fascinated by the emergence of the whole thing. Leigh has been “living 15 minutes in the future” for a long time and I trust his instincts a great deal. He and I see eye to eye on a lot of this stuff. We’re both reasonably skeptical and confused and bullish at the same time right now. Anyone who doesn’t admit to being at least two of those three things at this stage in the game is lying to themselves.

Just an FYI, I got into BTC around $2300 this July and have been alternately skeptical and bullish pretty much every day since. I plan to stay that way. Read about my first purchase here.

Disclaimer: If you take anything I say here as investment advice, you’re insane. Do not place any trades based on my remarks here, I don’t know anything about this “asset class” and probably no one else really does either.

Okay, so below just some random things I wanted to share from my visit to Wonderland. I’ll quote the person directly if I remember who said it. If not, I’ll just drop the quote or paraphrase. I think this is all good food for thought.

What’s the play?

One of my big takeaways is that the smart money (I know, LOL, but bear with me) want to be making predominantly beta bets at this stage in the game. They want to be long the coins more than they want to be betting on companies themselves.

There’s a concept called Fat Protocols, which goes something like this: Tim Berners Lee, who effectively invented the World Wide Web in 1989, didn’t really reap much of the financial benefit for his creation. All the monetary rewards went to the companies who built things on top of the HTTP protocol or the FTP protocol etc. Yahoo, Google, AOL, Facebook – those were the winners. The protocols that actually run the web didn’t retain any value in and of themselves. The Fat Protocols theory says that in crypto currencies it will be the other way around – most of the value will accrue to the network itself (in the form of the coins’ values) and there will be a very thin layer of value on top for companies that create things. I don’t know if that will be true, I’m just passing it along.

Which coin?

So which coins or tokens are worthy of investing in? The consensus still seems to be that Bitcoin is the one. The original Bitcoin people look down their noses at the Ethereum people. “What’s your problem, why do you need to do this?” they sneer, referring to ETH people as “Eth-heads” in message boards, from what I’m told. Ethereum’s fatal flaw as a bet on upside is that the amount of ETH will not be capped. Bitcoin will only ever have 21 million outstanding units, hence the scarcity bet being made now. With Ethereum, there isn’t going to be scarcity. Which is why some people are saying its current price “makes no sense.”

From what was explained to me, the only reason for the run up in ether is that you need it to participate in ICOs (Initial Coin Offerings – an alternative to a traditional IPO where a company raises money via Ethereum). Bitcoin is “dumb” in that it can only be used for exchange or storing value. Ethereum is said to be “smart” because it can be used to codify one party’s responsibility to another, like a contract. So all the hedge funds and traders flipping ICOs need to first buy ETH coins. Bitcoin doesn’t get used for ICOs. Yet.

I won’t spend a lot of time on Bitcoin Cash, which was created from the fork this summer, other than to relay to you that everyone says it’s sh–. The way I heard it, the fork came about because a US ex-pat living in Japan whom everyone refers to as “Bitcoin Jesus” wanted it that way. Bitcoin Jesus (real name Roger Ver) went around funding a lot of the development for crypto and blockchain in the beginning of this decade as it was taking off. He’s hugely influential in the community. Read about this here.