Isn’t it a little bit self-contradictory, to propose that smart people have beaten the market by investing in Bitcoin, and at the same time, that smart people invest in index funds rather than trying to beat the market? Or in other words, are those who got rich off Bitcoin really different from those who picked some lucky stocks in 1997 and cashed out in time?
That’s a good point but I’m going to argue against it anyway.
Unlike a lucky stock, Bitcoin wasn’t accounted for by mainstream markets at the time. An index fund amortizes the chances of lucky success and catastrophic failure across all the stocks into a single number, giving roughly the same expected value but with much lower variance. Bitcoin wasn’t something that could be indexed at that point, so there was no way you could have hedged your bet in the same way that an index fund would let you hedge.
Isn’t it a little bit self-contradictory, to propose that smart people have beaten the market by investing in Bitcoin, and at the same time, that smart people invest in index funds rather than trying to beat the market? Or in other words, are those who got rich off Bitcoin really different from those who picked some lucky stocks in 1997 and cashed out in time?
That’s a good point but I’m going to argue against it anyway.
Unlike a lucky stock, Bitcoin wasn’t accounted for by mainstream markets at the time. An index fund amortizes the chances of lucky success and catastrophic failure across all the stocks into a single number, giving roughly the same expected value but with much lower variance. Bitcoin wasn’t something that could be indexed at that point, so there was no way you could have hedged your bet in the same way that an index fund would let you hedge.