“Why won’t you die?”
That’s what Josh Brown, money manager and CEO of Ritholtz Wealth Management, kept asking himself as he watched the price of bitcoin rise and rise.
After years of skepticism toward cryptocurrency, Brown finally relented, buying bitcoin for the first time in July. And yet, at the very moment prices were soaring, news about the number one cryptocurrency by market capitalization turned negative.
“People were saying [about the scaling debate], ‘This is going to be the thing that really kills bitcoin.’ But the price action was saying the opposite,” Brown recalls.
And as he watched the cryptocurrency not only recover from, but rally after its scaling debate came to a head, he turned from bear to bull.
A frequent commentator on CNBC and mandatory reading for anyone who follows “Finance Twitter,” Brown said that kind of scenario isn’t just a one-off.
He told CoinDesk:
“One of the things I’ve learned in the investing world is that very often the thing that’s supposed to break an asset class is the thing that truly strengthens it.”
Household parallels
According to Brown, there’s a clear parallel in the European stock markets: while Brexit was ballyhooed as the death of the European Union, it’s actually forced the bloc to become more tightly knit.
Overall, he refers to these seemingly pessimistic instances often, and it’s what he uses as an investment thesis of sorts. When an asset seems like it should die, but for years on end it finds a market – even if you’re not part of its core demographic – it’s often time to give it a closer look, he said.
“I felt that way about Facebook. I wanted it to die. I thought ‘Enough! This is so stupid.’ I just wanted it to die… And now? I’m on Facebook all day,” he said.
Brown had the same aversion to Netflix as well, seeing it as an unnecessary application. But what he found was that sometimes it depends not on what people need, but what they want, and users wanted Netflix.
One of the primary criticisms Brown said he hears from investors who are bearish on the crypto asset market is that cryptocurrency is a “solution in search of a problem.” And while Brown believes they could be right for now, in the very near future, crypto, like Facebook and Netflix, could find a problem to solve.
He offers another example in cloud computing, which started out as a solution in search of a problem.
In the early days of cloud computing, the technology was fraught with privacy and availability concerns – and the dominant paradigm at the time was that it was crazy to allow your mission critical business data be hosted off-site.
And now? Brown answers rhetorically: “Who has a mainframe in a server room in their office?”
Winner and losers
That doesn’t mean every cool, bleeding-edge technology will pan out, though, said Brown.
The important takeaway from his analysis is that many technologies seem like toys – or are just totally useless – until an important use case is found and broadly applied.
And one area where Brown sees a great deal of promise for cryptocurrency is in the securities industry, which he already knows quite well.
If you buy stock today, it takes three days for the trade to settle – meaning it takes three days to process the payment and for the broker to take custody of the security.
“That makes absolutely no sense in the context of the things we’re able to do instantaneously,” he contended.
Brown said he doesn’t have a crystal ball to determine exactly what the solution will be – whether it will be cryptocurrency, blockchain or a solution influenced by those technologies – but the idea the technology could have an impact is beginning to make the brokerage business collectively rethink its old paradigms.
In this way, Brown acknowledges his own past skepticism.
“I ignored it. I didn’t take it seriously. I ridiculed it at times,” he said.
In a sense, Brown’s evolution on crypto echoes a line attributed to Mahatma Ghandi that cryptocurrency enthusiasts have been fond of for years:
“First they ignore you, then they laugh at you, then they fight you, then you win.”
Lingering doubt
All that said, Brown is still not a wild-eyed optimist.
Putting most of his skepticism into initial coin offerings (ICOs), or cryptocurrency-based fundraising, Brown thinks it’s going to “blow up in everyone’s face.”
He can’t imagine why legitimate companies would fund themselves by offering access to investors via an ICO – unless they had something to hide, or the companies were simply of such poor quality that an initial public offering or a venture round wasn’t an option. Although, to be fair, the venture capital space can be a tough nut to crack.
But Brown still thinks he’s right to a certain extent, reiterating that many of his initial criticisms about cryptocurrency turned out to be correct.
He said:
“A lot of the stuff I felt about it [that] it’s going to be a Wild West, and it’s unregulated and there are hacks and it’s dangerous – all of that was right. I was completely right about it. But what I didn’t see happening was that it wasn’t going to die.”
So now Brown tells his money management clients who ask his thoughts to go read, research and form their own opinion about the space.
“It’s so easy to look at something that you’re not a part of and you don’t understand, and just point at it and say, ‘BUBBLE!!!'” Brown said.
But what he’s not doing anymore is dismissing it out of hand.
Image courtesy of Josh Brown
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Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.
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