The Breakdown - Narrative Watch: Time Preference Transformation - How CT Reacted (Or Didn't) To Last Week's Price Crash

Episode Date: September 30, 2019

Last week saw a 20% drop in the price of Bitcoin - much of coming in a short, 30 minute span. What it didn't see was the usual hand wringing and frantic explanations. In fact, most of last week's conversation was about totally different topics: Libra, central bank digital currencies, troubling developments for surveillance and crypto regulation in the UK. On this Narrative Watch, I explore whether this is simply a matter of the strength of fundamentals, or whether a fundamentally different time preference has taken hold.  Watch: https://www.youtube.com/nathanielwhittemorecrypto

Welcome back to another narrative watch video from Masari. All right, guys. It is Monday, September 30th. Back as always, as every Monday with a narrative watch. So narrative watch is basically a series where I look at some emerging sentiment shift, right? Some kind of shared, shared sensibility that's on the rise. And this week we're looking at something which I think is more an observation about the, you know, change in disposition or refining in disposition of the Bitcoin community and the larger crypto community

that I think was shown off last week. And so we're going to talk about time preference a little bit. So just by way of introducing this concept of time preference, it's a tweet from just yesterday. So American Hodel says this is what low time preference looks like. Trace, he's referring to Trace Mayer, is a billionaire and he buys his shoes and the clearance bin at Payless. He's actually kind of making a joke about a photo that went up. from Trace, where he's in a photo with Pomp and Caitlin Long in Wyoming, and he has kind of just very basic black, like trainer, sneaker style shoes, right? And so Trace says, Bitcoin brutally teaches lessons on time preference and opportunity cost.

My beautiful shoes cost 100 plus. Remember the poem during the Great Depression. Use it up, wear it out, make it do or do without. And he has a whole graphic. So the idea of time preference is it has to do with, the current or future value of goods, right? Like what value you place on receiving a good now versus receiving it later? And so the idea of high time preference, it's just from the Wikipedia because it's a useful

heuristic, someone with high time preference is focused substantially on their well-being in the present and the immediate future relative to the average person, while someone with low time preference places more emphasis than average on their well-being in the further future. So this concept of time preference is not unique to crypto, right? It's a part of economics. It's particularly a part of like Austrian school economics where there's a real emphasis on low time preference, not just kind of from an individual consumption standpoint, but from a long term where the value to society standpoint is. Like in a lot of ways, the central nub of what the Austrian economic school kind of disagrees with the way that the economy has been structured is everything in the

kind of mainstream economy, according to that line of thought, is about consumption, consumption, consumption, right? Immediate consumption, immediate gratification, whereas basically delays saving investment in the future, that's kind of where they want to be not only from the standpoint of the broader economy, but also from an individual standpoint. So not really here to litigate that at all, but the interesting thing I think has to do with the way that it's played out in the context of the Bitcoin and crypto community. So, you know, books like Safegines, Bitcoin Standard, obviously spent a lot of time on this idea of time preference. And it's a big part of a particularly a lot of how Bitcoiners think about the world, trying to kind of optimize for low time preference

versus high time preference. And part of how that's manifest is obviously this, the hoddle ideology, right? Where you are not about kind of short-term trades and short-term price fluctuations. You're about those long-term development of an asset which you believe has fundamental value because it is a digital gold, because it is a counterweight to money printing, because of whatever millions of reasons there might be for being really interested in the future of an asset like Bitcoin, that's where you're focused. And so the interesting question is how much this actually is, what this fights against within the larger crypto community for from an action standpoint, right? So if someone kind of professes low time preference but then gets stressed out about short-term

price fluctuations, there's sort of a contrast, right? If someone is all about the short-term volatility and making trade, that's not really like a low-time preference type of activity that's focusing on the future. And that's not to say that there's a, it's completely incompatible to be a trader who takes advantage of short-term movement, but to generally be a person who has kind of a low time preference long-term point of view. But the point of all this is that this really shakes out and in the times that the market is not going well, right? It's really easy to be low time preference when there's a slow, gradual ascension of the asset that you're interested in. It's not hard to just keep holding because the price keeps going up. It's much harder to be

low time preference when things are going really badly, right? And so what happened last week? Well, Obviously, if you're watching this, you know you don't need me to re-explain that there was a massive downward movement in the price. On Tuesday, I think it started. It went basically down like 20%, right, from just above 10,000 to just below 8,000. It has been kind of hovering around that 8,000 range all week, basically, and all weekend. And so there were tons of assessments, obviously, about what it was about, right? So it made the independent article. And an analyst said, pessimism over the level of activity on backed sparked this most recent sell-off.

However, it was the liquidation of 600 million worth of long positions on platforms like Bitmex that caused the price to dramatically slump by over $1,000 in a 30-minute period. That's maybe true. I mean, this is a smart analyst, Simon Peters from Eitoro, but it's kind of, I think, claiming that you know exactly is maybe a, maybe not exactly the right position to take, given the, just the lack of the opacity of these markets, let's say, right? So, so anyway, so this crash happened. A huge amount of value was gone really, really quickly. And so I jokingly wrote this tweet that Twitter stages of a dump, right? And so number one was basically the holy crap news tweets. Number two was Schadenfreude from haters, right? So you've got to see those haters coming back in. Number three was the volatility memes. Number

four was the hoddle memes, right? Getting people to steal their resolve. Number five would be the TA explanations, right? The descending triangles that caused this. Number six would be the macro explanations. It's, you know, a larger fear about this thing or that thing, right? Number seven was more hoddle memes or maybe by the dip memes, right? Where people still really figure it out. And number eight was reset to new normal, right? Where, okay, I guess 8,000 is the new normal, right? That's where we hover around. And then nine, crazy rip up and 10 is repeat. So I was kind of joking. about this, you know, it was a little tongue in cheek. But then, of course, at least, you know, the first one certainly happened. Everyone was like, holy crap. The second one started to happen.

So you had Peter Schiff getting in on the game from the Schadenfreude game. Bitcoin is finally broken below the support line of the large descending triangle that has been carving out for months. Hey, look, he grabbed a little bit of that TA explanation too. This is a very bearish technical pattern and it confirms that a major top has been established. The risk for a high, the risk is high for a rapid descent down to 4,000 or lower. Noriel popped back in as well. He hasn't been around for a minute. Bitcoin and shit coins crash continues. BTC down over 20% this week. So you saw all these things, right? And then you started to see something different, which is, you know, kind of on the steal your resolves, right? Important message is we enter the next bull market. This is from POMP. BTC is very volatile. You can lose all your money. Only invest what is okay to lose. Twitter is not investment advice. Don't buy BTC with credit cards. Keep low time preference, do your own research. So this is all within like a matter of, you know,

hours, whatever, minutes or hours after this huge price action happened. And a really interesting thing happened. And now we kind of are moving into the realm of just my observation. So you might have observed something totally different. It could be my filter bubble. And I acknowledge that. However, there was a shocking, and I mean shocking lack of stress about this relatively significant price shift, right? You didn't see, you know, you would have anticipated, I think, much more frustration, nervousness, just general kind of insecurity around the lack of a clear explanation. And I just don't believe that you saw that, right? So if you actually jump over to Long Read Sunday, my, you know, every week curated session, a huge amount of it. Like, in fact,

most of it was not actually about price last week. You saw a huge amount about Libra and about just the rise of government digital currencies. I mean, even on Squawk Box when they had Pompon, he was talking about tokenizing the U.S. dollar in kind of the global battle for digital currency supremacy. You had the IMF talking about synthetic currencies. You had a ton of people talking about surveillance problems, right? So Neeraj is talking about surveillance in the context of the central bank digital currencies. But then we were also talking about speculation in the context of, we were talking about this worrisome development that it seems like the UK authorities will be able to, will be forced Facebook and WhatsApp to turn over messages. You had people who were fighting a potential ban

from the financial conduct authority in the UK. You had just all these interesting things. You had new companies launching, right? So all of these things were going on. And honestly, it wasn't even like we had multiple day cycles of headlines around the price news. It was really just that first day. It happened. It stayed right at that level. And people moved on with their lives. And I think that that's fascinating. And so the question is why. And why not why the price crashed. That's actually incidental to what I'm talking about today. But why were people just so less stressed than it seemed like. And so a couple of potential answers on that. One, it could just be the fundamentals, right? So Hans from over at Ikegaist did this great thread that which went viral, basically about

the fundamentals. So he says, apparently some people are worried about Bitcoin. I don't know if I can help, but let's look at some data. Here's a chart of the 365-day moving average of the number of transactions on the Bitcoin network. Looks like we're at an all-time high. He then goes on to minors. Okay, let's check the hash rate. Maybe the miners quit mining or something. Nope, actually, that's at an all-time high as well. Then he goes on to the inflation rate. What about the inflation rate?

Did we suddenly increase the supply? Hmm, right on schedule and falling in log scale over time as expected. And then he goes on, and he goes on, he talks about the larger macro economy. He talks about the poll request, you know, and sort of the idea of developer activity. So he says, I don't know what to tell you guys. From a fundamental perspective, Bitcoin looks great. I guess it's back to Hoddle. right so okay so one possibility for why people weren't stressed out is that this is all familiar to people

and that this movement simply didn't feel you know particularly particularly you know causal or reflective of larger forces right it just was a price shift and maybe it was backed maybe it was something else but it didn't fundamentally undermine any of these these core attributes of the thing that they believed in right so That might have been part of it. Suu, I think, actually had a really interesting point here. He says, have thus far refrained from joining the last time club on crypto Twitter since we broke 10K.

But this dip feels to me like the fuel we need to flush out over leverage longs, punish the shit coins, and target much higher levels from here. So basically, he's saying that this is actually an important correction, that it's a healthy market movement because it kind of is going to get some amount of that high time preference activity out of the market. That's a different way to kind of put it, right? And really focus on those folks who are in it for the long term. And there was a little bit of this type of chatter that I thought reflected that as well. So you had Ben DeFrancisco over here saying, I don't own very much crypto, much less than you'd guess based on my enthusiasm. I actually only invest what I can

afford to lose. This isn't a good bet. This isn't good advice just because you avoid risk of ruin. It also gives you strong hands. Market is tanking. Who cares? I can hoddle in peace. And that, I think, I saw a lot of people who are saying similar things. Dutus from the block said something similar, right? Bitcoin is sincerely the only significant investment I've ever made that I've never doubted. I watch the price gyrette up and down, inevitably bottoming ever higher. And I smile with the satisfaction of knowing I'll be even happier in five years, 10 years when I retire. So the point here is just that, you know, it's one small, you know, or relatively significant, but overall in the scale of things, small price movement. It is still, you know, it's a correction down

from, you know, the 2.75x, the yearly lows that we were, you know, when it was around 10K to just 2x. We're up 2x on the year from, you know, 4K type of bottoms. So maybe it's just simply that people are still feeling relatively good about how 2019. has gone for Bitcoin in general. But it does feel to me like it may be actually something more, which is that over the course of the last year's bare market, that obviously flushed a huge amount of folks out of the industry, right? We've seen that.

We've seen lots of people who have left who have gone on to different spaces, gone on to whatever. This year, when we went, we had that price rip up, you know, from 3.5, 4,000, all the way up to almost 14, down to 10 where it held for a while, it feels like that didn't necessarily reflect a huge amount of new people coming into the market who were going to be shook the first time things went down. You know, it's been, I feel like, more substantive. And the people who have come into the market have come in, I think by and large, for more ideological reasons. Like we saw Daily DirtNap come

into the market a few weeks ago, Jared Dillon, who basically said that, you know, radical political shifts were driving him to Bitcoin. He wasn't a Bitcoiner before. Now he is. We've seen people like Raul Paul and Dan Tapiero come into the market because they think it's a generational hedge effectively. And he, Dan even was back tweeting about the reason to hoddle Bitcoin yesterday. So the point of all of this is to say that to me it feels like there's been some amount of time preference transformation. And maybe it's not a time preference transformation among individual market participants, but maybe it's just that the market participants who are involved right now, who are kind of the loudest, the most vocal, who set some amount of the sentiment and tone in the Bitcoin and larger crypto space,

simply aren't phased by this type of short-term price action. I think if that's the case, it's a really, really positive thing for the industry. and that's, I guess, the point that I want to leave on. You know, last week, the most interesting thing to happen wasn't the price movement. It was, in fact, things like the SEC testifying before Congress about Libra and about cryptocurrencies. It was things like the European Central Bank saying that Libra was a starting gun. It was these questions around privacy and surveillance as it relates to what's app and Facebook Messenger, right? It was these fundamental things about the shifting structure of society and the role of Bitcoin and cryptocurrency,

to address problems that are either with us or are coming fast. So I am all for this time preference transformation. I love seeing this shift away from kind of wild, you know, volatility reflected on crypto Twitter and on Bitcoin Twitter. I just think it's a really positive thing. So I wanted to observe it on Narrative Watch. And yeah, that's going to be that for today. Three at three back as usual tomorrow.

It looks pretty clear that we might be talking about the crypto ratings consortium or whatever it is from Coinbase and all these other exchanges who are giving a one to five score on decentralization but for now guys appreciate you watching appreciate you listening thanks to Masari for hosting this and for distributing it and I will see you tomorrow peace all