{"id":19,"date":"2023-09-11T12:00:00","date_gmt":"2023-09-11T12:00:00","guid":{"rendered":"https:\/\/moneywithkatie.com\/a-good-narrative-and-a-bad-investment\/"},"modified":"2025-09-03T18:54:28","modified_gmt":"2025-09-03T18:54:28","slug":"a-good-narrative-and-a-bad-investment","status":"publish","type":"essays","link":"https:\/\/moneywithkatie.com\/essays\/a-good-narrative-and-a-bad-investment\/","title":{"rendered":"A Good Narrative and A Bad (?) Investment"},"content":{"rendered":"
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In January 2021, search volume for the term \u201cshould I invest in Bitcoin\u201d hit its highest peak, and remained a popular search term through early summer. Bitcoin\u2014and cryptocurrency more generally\u2014was everywhere you looked, infiltrating even the most staid of personal finance domains online (yours truly\u2019s included, as I wrote my first and only cryptocurrency explainer<\/span><\/a> in May 2021, in cautious response to reader demand).<\/p>\n

Had you invested at any point during that mountain range-lookin\u2019 peak of search volume that spanned the first five months of the year, you would\u2019ve paid<\/span><\/a> anywhere from $32,150 to $61,284 per coin. (I\u2019m sorry, the fact that in order to discuss the value of Bitcoin one must necessarily clarify how much it costs in US dollars will never not be funny to me.)<\/p>\n<\/div>\n

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So what the hell happened to Bitcoin<\/strong>, which now hovers at less than half of its 2021 peak? The USD\u2019s most uproarious competitor seems to have been relegated to the trash heap for the time being, the laser eyes quietly removed from some<\/span><\/a> of its most popular<\/span><\/a> proponents\u2019 social media profiles online. As quickly as it took the internet (and Google search history) by storm, it mostly vanished from online conversation\u2014replaced by chatter about AI and the future of ChatGPT. It disappeared from our FinTwit lexicon suspiciously quickly.<\/p>\n

But the strength of Bitcoin\u2019s rise (and its most recent fall) was bolstered by something we shouldn\u2019t overlook in economics and financial markets: a strong narrative<\/strong>. We\u2019ll be taking a meandering walk down the multi-century timeline that culminated in Lindsay Lohan tweeting<\/span><\/a> \u201cbitcoin to the moon \u201d and unpacking why it was so powerful and so viral in this week\u2019s episode of The Money with Katie Show<\/em><\/span><\/a>. But in the meantime\u2026<\/p>\n<\/div>\n

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>
\n \u201c<\/span>The strength of Bitcoin\u2019s rise (and its most recent fall) was bolstered by something we shouldn\u2019t overlook in economics and financial markets: a strong narrative.\u201d<\/span>\n <\/p><\/blockquote>\n<\/figure>\n
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One plot arc in the grand narrative of Bitcoin\u2019s ascendancy was the idea that the central bank\u2019s role in the US economy meant that the S&P 500\u2019s growth wasn\u2019t \u201creal,\u201d and the US dollar was becoming so rapidly devalued as to eventually become totally worthless. (Of course, \u201chistory\u201d isn\u2019t over yet, and there\u2019s still a non-zero chance that could be true\u2014but so far, the prophecies of impending doom haven\u2019t come to pass.) <\/p>\n

In fact, not only have the S&P 500 and the dollar not<\/em> collapsed, but had you purchased the S&P 500<\/span><\/a> using some of your US dollars during that same five-month window in 2021 (when the index was anywhere between 3,825 and 4,204), you\u2019d be up right now anywhere between 6.9% and 17.5%, since the S&P 500 is now\u2014bewilderingly\u2014hovering right around 4,500 again, and the dollar<\/span><\/a> is roughly 13% stronger now than it was in early 2021.<\/p>\n

It\u2019s obvious now in hindsight (at least, as of September 2023) that the narrative<\/em> that pumped Bitcoin to $60,000 was its strongest fundamental. While the patron saints of personal finance (like JL Collins) mostly discouraged<\/span><\/a> investors from getting distracted from the gospel of the index fund, the siren song of returns that would take you \u201cto the moon\u201d were strong, leading many wayward sailors directly onto the craggy shores of Sam Bankman-Fried\u2019s private island.<\/p>\n

But even if you ignore the crypto-adjacent legal fallout from fraud and corruption, it\u2019s hard to ignore that Bitcoin just hasn\u2019t been that great an investment (nor inflation hedge) for anyone who bought into the narrative in mid-2021 or later<\/em> (though it has experienced a bit of a pop from its low in December 2022; again, behaving in a way that\u2019s eerily similar to the very asset class it\u2019s supposedly divorced from, though some pundits claim that correlation is disappearing<\/span><\/a>).  <\/p>\n

What Bitcoin lacked in cash flow<\/span><\/a>, future earnings, and even the necessary components of a stable currency or store of value, it compensated for with a compelling tale, in spades<\/em>: a story that had been brewing beneath the surface of US monetary policy since the mid-1900s, but that had only really<\/em> picked up speed following the global financial crisis of 2008 when institutional trust was at an all-time low<\/span><\/a>.<\/p>\n<\/div>\n

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\n \u201c<\/span>It\u2019s hard to ignore that Bitcoin just hasn\u2019t been that great an investment (nor inflation hedge) for anyone who bought into the narrative in mid-2021 or later.\u201d<\/span>\n <\/p><\/blockquote>\n<\/figure>\n
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I\u2019m sure there are plenty of people who invest in Bitcoin who earnestly believe in its potential, and it\u2019s important for an impassioned minority to be on the frontier of new technology, whether that be cryptocurrency, artificial intelligence, or otherwise. After all, people originally mocked and attacked<\/span><\/a> the index fund when it was invented, too. <\/p>\n

But I won\u2019t miss the taunts to \u201chave fun staying poor,\u201d and I certainly won\u2019t lose sleep over the shitcoin pump \u2019n dump scams<\/span><\/a> that enriched a very select few by rug-pulling the masses. <\/p>\n

As my friend Jack Raines of Young Money<\/em> wrote in 2021<\/span><\/a>, \u201cEarly investors have made millions on Bitcoin, but thanks to low trading volume it\u2019s near impossible to unload a large position in the cryptocurrency without dumping the price. How do you keep the price elevated? You have to bring new money in. How do you do that? Convince naive retail investors that if they buy Bitcoin, they\u2019ll get rich too. Tell them that the US Dollar is destined to fail, and Bitcoin is the only way to preserve their savings. Never let reality get in the way of a good story.\u201d<\/p>\n

If Bitcoin is destined to make a comeback anytime soon, I have a feeling the leading indicator will be an event or catastrophe that revives this same narrative: that institutions like the Fed can\u2019t be trusted, the stock market is a shell game, and \u201chard money\u201d is the solution. <\/p>\n

When one sits back and considers the history of money (as we will in the podcast this week), I\u2019m not convinced that\u2019s the future we\u2019re heading for\u2014but regardless, I\u2019m going to keep trading my US dollars for shares of giant US companies with billions of dollars in revenue and hope for something like historical returns. That might make me na\u00efve in the eyes of crypto evangelists, but if there\u2019s one thing I know to be true, it\u2019s that America\u2019s love of capitalism and growth is about as hellbent on \u201cgoing to the moon\u201d as one can get.<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

In January 2021, search volume for the term \u201cshould I invest in Bitcoin\u201d hit its highest peak, and remained a popular search term through early summer. Bitcoin\u2014and cryptocurrency more generally\u2014was everywhere you looked, infiltrating even the most staid of personal finance domains online (yours truly\u2019s included, as I wrote my first and only cryptocurrency explainer […]<\/p>\n","protected":false},"featured_media":2502,"template":"","meta":[],"categories":[12],"tags":[],"class_list":["post-19","essays","type-essays","status-publish","has-post-thumbnail","hentry","category-economy"],"yoast_head":"\nA Good Narrative and A Bad (?) 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