Crypto & Chicken Little: Three Lessons and the Reality of Investing

Chicken Little has closed all crypto positions. This post looks back at the last 12 months, identifying three lessons, summarizes the messy reality of investing, and looks forward to a return to crypto. (All positions and changes were made public in real time.) 

Lesson #1: It is easy to get fooled by past returns.

On July 1, 2020, Chicken Little had 0.06% of the portfolio in Crypto. (See post from July 7th, 2020.)

Looking back, 0.06% seems like nothing, a risk-less foray into crypto. However, at the time, I was very nervous. Afraid of being caught in a stupid bubble like Isaac Newton, Irving Fisher, and countless others.

Newton got swept up in South Sea Bubble

On June 29, 2021 - almost exactly one year later, I invested 0.94% of the portfolio in crypto without any fear or analysis. See post from June 29, 2021.

The June 2021 purchase was 15 times as large as the original purchase. However, after a year of gains, the bigger purchase felt safe. Obviously, buying at $35,000 is less safe than buying at $9,000, but the brain is not logical.

Lesson #2: It is easy to lose discipline.

Buying dips is not part of Chicken Little's approach (see short version of CL investing rules). I have written extensively about the risks of buying dips - it is great until the one time if doesn't work and then you are broke (see "don't buy the dip" post). Chicken Little investing is scale up buying - buy more at higher prices.

My investing discipline is to not buy dips, and yet I bought the dip twice in crypto. See posts (1. buy the dip at bitcoin $48,000 and 2. buy the dip at Bitcoin $33,000).

Lesson #3: Investing is messy

Looking back at the last year of my crypto investing, there was a lot of emotion. For example, I sold too early by cutting the position in half on Feb 18. (see post - Bitcoin moves). In addition, I panicked out of Crypto (see Chicken Hands post) and then repurchased.

Far beyond the actual buys and sells, Crypto dominated my thoughts, interrupted my sleep, and overall made me tired and irritable.

Investing is - even at its best - hard, unpleasant and filled with mistakes. You are not going to make money without paying a price

Looking forward - The Fed is still likely to destroy the US dollar.

The US government deficit is going to be $3 Trillion this year. This historic figure comes with three powerful forces pushing *down* the deficit. (see 2019 post predicting $3+ Trillion deficit.)

1) Interest costs are very low for US debt.
2) We are not in a recession.
3) Defense spending as % of GDP is very low.

When one of more of these budget tailwinds turns, the deficit will soar. The Federal Reserve cannot stop the coming depression. The Fed can, however, choose the form of the depression. A) Print a lot, and have an inflationary depression. B) Print less, and have a deflationary depression.

I still believe a deflationary depression is more likely. In the event of an inflationary depression, however, crypto is likely to be a store of value. I will look to re-enter crypto if appropriate.

Bitcoin price     $30,715

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