Maxi-Anything

Vol # 41 - June 4th, 2021

This weekend in Miami, everybody who loves Bitcoin is getting together to talk about it.

It's an incredible concentration of enthusiasts discussing every facet of the network from security to payments to programmability. 

One of the rules of the conference is that the only crypto asset to be discussed is Bitcoin. That's not just because there's already so much to cover just on that topic, but also to establish ground rules so debates don't fall into an "us vs. them" battle of protocols.

Investing in crypto has a certain element that you don't often see in the traditional finance world. While there are Telsa bulls or badge wearing meme-stonkers, there is rarely an absolutism or "maximalism" as it exists amongst the supporters of crypto-currencies.

If you're a Bitcoin-maxi, you believe that Bitcoin ultimately should and will be the predominant crypto-currency and that everything else is just a distraction. Maxis talk about the importance of achieving network effects and the distractions that other coins present in a fight for broader adoption. Maximalism is about a deep conviction and certainty.  

It's important to remember that these protocols are still in the infancy of their growth. The famous whitepaper by Satoshi Nakamoto was only published 12 short years ago. The inklings of broader adoption have only surfaced in the last five years. 

To bring a disruptive and revolutionary idea into fruition requires incredible willpower and mental stamina. Doubters will find every weakness. Entrenched interests will use any technique to squash your novelty - particularly FUD.

This naturally breeds a degree of certainty and self-confidence. Having conviction in something is incredibly important for builders and investors alike. It's how we have the confidence to allocate capital and try new things.

Morgan Housel was recently on The Investors Podcast where he described the process of investing as a collection of "strong beliefs, weakly held". Strong beliefs are necessary in order to put capital in play, because you must have a certain degree of conviction about the return profile matching your risk tolerance and objectives.

But this conviction should be weakly held. That doesn't necessarily undermine the belief itself, but recognizes that new facts may come to light. The world changes. The pace at which the world changes, changes. 

Separating the signal from the noise is the hard part. Price action will inevitably misbehave and distract you. News and updated viewpoints may challenge your position, and must be evaluated with the most objectivity possible.

This is where a process becomes so important for establishing and maintaining (or not) these strong beliefs. Checking the market infrequently helps, and it's important to continually assess whether your allocations match your objectives. 

Weakly held beliefs seem to be the opposite of maximalism. John Kerry was lampooned as a political candidate for "flip flopping" his position on the Iraq War. It's viewed as a sign of weakness to abandon a position.

One of Colin Powell's rules of leadership is that one should "avoid having your ego so close to your position that when your position falls, your ego goes with it". As an investor, if you can't afford to change your position, “have fun staying poor”.

Weakly held beliefs are what allows our ego to get over the inevitable change that will happen. It allows for maximization of all possible outcomes, rather than any specific one.

There is general consensus in the asset management industry today that one of the best ways for long term investors to allocate their capital is with broadly diversified, low fee, passive equity investments. Part of this strong conviction in indices comes because they have a system of weakly held beliefs about their composition. The biggest and most profitable companies will rise to the top, and yesterday's Xerox will be today's Apple.

There is an increasing belief that crypto-currencies should be part of that portfolio. The asymmetric risk profile is generating significant interest from professional allocators, who are adjusting their belief system.

Much credit is due to the monstrous efforts of the Bitcoin community who have weathered cynicism and scorn, and fought the battles for capital and minds. But just like the keen investors who are adjusting their priors to realign their portfolios and invest in digital assets, maximalists must transition the energy of creative conviction in ever evolving ways. 

Maximalism should be directed towards objectives, rather than specific tools. Those tools are always changing, and maximizing the chances of achieving your goals requires the right blend of conviction and skepticism.