Speedman: In a weird way, I had to sort of just free myself up to believe that it was okay to be stupid or dumb.
Lazarus: To be a moron.
Speedman: Yeah.
Lazarus: To be moronical.
Speedman: Exactly, to be a moron.
Lazarus: An imbecile.
Speedman: Yeah.
Lazarus: Like the dumbest dude that ever lived.
Speedman: When I was playing the character.
Lazarus: When you was the character.
Speedman: Yeah, as Jack, definitely.
Lazarus: Jack, stupid Jack. Trying to come back from that.
Speedman: In a weird way it was almost like I had to sort of fool my mind into believing that it wasn’t stupid, and by the end of the whole thing, I was like, “Wait a minute, I flushed so much out, how am I gonna jumpstart it up again?” It’s just like… Right?
Lazarus: You was farting in bathtubs and laughing your ass off. Yeah. But Simple Jack thought he was smart, or rather, didn’t think he was stupid, so you can’t afford to play stupid, being a smart actor. Playing a guy who ain’t smart but thinks he is, that’s tricky.
Speedman: Hm. Tricky.
Lazarus: It’s like working with mercury. It’s high science, man. It’s an art form.
Speedman: Yeah.
Lazarus: You an artist.
Speedman: Hm. That’s what we do, right? Yeah.
Lazarus: Hats off for going there, especially knowing how the Academy is about that stuff.
–Tropic Thunder (2008)
As I type this, I’m looking out the window of the new Aptus headquarters where the heaviest snowstorm in over a century is falling with remarkable volume. I suppose that is fair karmic payback for leaving my wife alone with the kid and dog in the arctic environs of the northeast. Still, since I’ve joined Aptus back in May, I’ve quickly come to adopt Fairhope as my home away from home. It’s a wonderful town, with even better people. When I rolled into town on Sunday, I swung into McSherry’s to catch the second half of the Eagles game where I had a great conversation with one of the locals, Bryce, who was sitting next to me. While Saquon Barkley got past his lead blockers to take his now iconic run into the endzone, Bryce asked me what I did for a living. When I told him, he immediately wanted to talk crypto.
Bryce had a very interesting view on crypto that I have to say I heartily agreed with, he flat out stated “I’m a trader, not an investor. If I was an investor, I’d just buy Apple or Coke. With crypto, I trade it. I don’t invest in it. I know I’m being a bit of a degenerate doing it but I’m always thinking about how I can get my money out the door if I need to.” Honestly, yes, that right there. Bryce has got it figured out and he also inspired this missive. A great trader always knows where their exit liquidity is. If you’re going to be in crypto, a little bit of degen behavior is fine, just don’t ever go full degen.
What is full degen? Full degen means you naively think price rocketing up is a sign of strength and that cryptocurrency is actually currency. I have zero qualms if you’re trading like Bryce, I say more power to you. It is risky sure and could accurately be called gambling, but if you are thinking through your max profit and making sure you can get your money out when you need to…that ain’t full degen. Unfortunately, the legacy financial media, what Marc Cohodes accurately describes as the Cartoon Network, reinforces the full degen mindset. In my deservedly humble opinion, that has harmed a large number of investors chasing those ever elusive returns. My little rant here is my best attempt at public service.
Let’s address the most important point up front, the monetary terms that are thrown around in relation to crypto are a red herring. Terms like memecoins, stablecoins, cryptocurrency, etc. are just misdirection. These are simply digital tokens that are traded on unregulated exchanges. That’s it. They are not money. Money is a legal framework that allows for the settlement of debt. As a US citizen, my debts are denominated in dollars. I pay my mortgage in dollars, my taxes in dollars, and my son’s school in dollars. The only reason I would get into crypto would be to hopefully pull more dollars my way. The entire crypto universe revolves around the dollar. If you’re buying into the hype that somehow any of this stuff is going to replace the dollar, you just went full degen. It is the other way around.
Now the argument is often made that crypto can be an effective tool for someone in a country that is experiencing hyperinflation and needs some way of protecting their wealth. I won’t argue that point, if I was a Turkish or Venezuelan citizen, I’d likely be desperate enough to try anything. My contention though would be that if I was in that situation, my thought process would be that crypto is an end around for me to get into the dollar system via stablecoins like Tether or USDC if I can’t access dollars in my home country to get relief. Crypto needs the dollar. The dollar does not need crypto.
Which brings us to our next important concept that our own Brian Jacobs beautifully illustrated in a recent blog post. Namely, that crypto has not created one penny in new wealth. Hear Brian now, believe him later. Have some people gotten rich from crypto? Absolutely, but the overall wealth in the economy did not change. The amount of dollars held in the economy stayed the same, one person exchanged those dollars for crypto and the other person sold the crypto. The cash does not change. Cash is like matter, it cannot be created nor destroyed. Only God has the power to create or destroy matter and in the case of the economy, God happens to be the Fed and the US Treasury.
Money is created in the US economy via lending. The government issues bonds and those bonds pay interest which goes into the pockets of the bond holders. The interest payments reflect true money creation. Mortgages are another example of this. When you buy a home, you give your down payment, and the bank creates the rest of the money which goes to the seller. That loan is new money and is actual wealth creation for the person selling the home. That is how the system works. To the argument that nothing backs the dollar since we went off the gold standard, allow me to introduce you to SEAL Team Six. What would you rather have to back your currency? A hunk of metal or five aircraft carrier groups and the nuclear arsenal?
Why does this matter for crypto? It speaks to another aspect of the space that is often misrepresented on the Cartoon Network, namely that a rising price means that the underlying asset is getting stronger. Nope, it is in fact the other way around. The higher the price goes, the greater the price fragility of the token. Remember, as crypto values go up the amount of dollars in the system relative to crypto stay the same. Which means that it gets increasingly difficult to sustain liquidity as prices go higher. If you fail to recognize that dynamic, you’re setting yourself up for FOMO buying which never ends well.
One of the things I see all over financial social media are statements such as “If you had just bought $X of X coin on this date, you would have *insert ridiculous number here* today.” Nope, that is not even close to being right. Let’s paint the picture of the perfect scenario for you. Imagine that you had the stomach to throw your 401k at the Moo Deng coin last September, call it $250,000, and by some miracle your spouse didn’t divorce you. Today that would be worth over 583 million dollars…right? Unfortunately, that is very wrong. You couldn’t go and just dump that much Moo Deng without crashing the price. Unless you know someone that has 583 million dollars and wants to be your bid, you’re stuck. You’re going to find yourself with a Sylvester the Cat problem. Namely, stranded on an island with more canned food than you could ever eat…if only you had a can opener. Unfortunately, we see so many investors plowing into crypto in the hopes of getting inordinately rich without ever considering how they are going to get that money out.
While this piece is meant to shatter a few myths around crypto, it is not meant to state that there is no reason to invest in the category at all. If you’re like my friend Bryce and have a well thought out process and risk controls in place, far be it from me to tell anyone how to make a living. Rather, we want to arm investors with some key concepts to think about some of risks in naively trading in an unregulated market. If they’re not thinking through their position sizing or how they are planning to exit back into the dollar system, they’re going full degen. Remember, all of this is incredibly hard. It isn’t supposed to be easy. If you’re going to play a zero-sum game, always bear in mind that if you can’t spot the degen at the table, you are the degen.
Disclosures
Past performance is not indicative of future results. This material is not financial advice or an offer to sell any product. The information contained herein should not be considered a recommendation to purchase or sell any particular security. Forward looking statements cannot be guaranteed.
This commentary offers generalized research, not personalized investment advice. It is for informational purposes only and does not constitute a complete description of our investment services or performance. Nothing in this commentary should be interpreted to state or imply that past results are an indication of future investment returns. All investments involve risk and unless otherwise stated, are not guaranteed. Be sure to consult with an investment & tax professional before implementing any investment strategy. Investing involves risk. Principal loss is possible.
Advisory services are offered through Aptus Capital Advisors, LLC, a Registered Investment Adviser registered with the Securities and Exchange Commission. Registration does not imply a certain level or skill or training. More information about the advisor, its investment strategies and objectives, is included in the firm’s Form ADV Part 2, which can be obtained, at no charge, by calling (251) 517-7198. Aptus Capital Advisors, LLC is headquartered in Fairhope, Alabama. ACA-2501-42.
