WHY JACK MALLERS IS WRONG ABOUT BITCOIN'S VOLATILITY

Jack Mallers is wrong. Well… sort of.

I’ll take heat for this, but hear me out, because it needs to be clarified.

During his debate with Peter Schiff,

Jack stated, “risk is not the same thing as volatility.”

“Risk refers to the probability of a permanent loss of capital.”

While I agree that permanent loss of capital is a risk factor, volatility is a risk factor as well.

If you do a quick google search on the definition of risk

You’ll see answers like:

FINRA

“Risk is any uncertainty with respect to your investments that has the potential to negatively impact your financial welfare.”

Investopedia

“Risk is the chance that an investment’s actual performance will differ from an expected outcome.”

Now, bitcoiners that have made it this far practically can’t hold it in any longer

It’s been running through their mind and likely already audibly communicated to me through their screen.

“Volatility is a feature, not a bug.”

Sure, I understand that & agree within the right context.

Bitcoin’s inelastic supply and early adoption stage lend it to extreme volatility.

And that’s allowed it to be the best performing asset ever, thus far.

“See, volatility is a feature.”

Yes, but the difference between volatility being a feature of bitcoin and a risk of bitcoin is simply - time horizon.

Time horizon goes unaddressed in almost every conversation around this.

We can make a blanket statement that volatility is not risk.

But a few seconds of thought prove that’s incorrect.

To the married, father of two kids who needs to pay for their private christian school tuition in 12 months to avoid sending them to the public school system, volatility IS a risk for that money.

He probably shouldn’t buy bitcoin with that money.

The only way I’m wrong is if he has enough wealth that volatility doesn’t matter.

In that case, he could pay for the private school and not be thrown off track for his other goals, because he’s worth so much, liquidating $20,000 at a 50% loss doesn’t impact his life.

Let’s say this person doesn’t have an inconsequential level of wealth, but they are still willing to accept the possibility that they are down 50% at time of liquidation, that’s still a negative outcome that must be acknowledged as a risk.

Whether you choose to move forward despite that risk, is up to you.

This speaks to a larger problem I see among bitcoiners.

We fail to zoom out.

We see bitcoin as an end, instead of a means to an end.

We don’t connect the dots between Bitcoin and real life situations beyond “stack as much as possible and then wait to be rich”

Or “if you were in venezuela, bitcoin saved your life”

While I agree, Bitcoin has the potential to be the greatest asset ever for long term savings.

In the meantime, we can’t completely throw out sound financial planning principles.

Because financial planning is what ties our money to real life outcomes and those outcomes are what truly matters.

“So, at what time horizon does volatility flip from a risk to a feature?”

Take a look at this chart from Nik & the bitcoin layer from their latest report released last week.

It shows Bitcoin’s relative return based on various holding periods:
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​As you can see, your actual performance outcomes can vary wildly depending on your holding period.

1 yr: -80% - +9900%
2 yr: -50% - +4900%

If you notice though, at a 3.5yr holding period, all data points are above the “no change” line

Indicating that historically, any holding period 4 yrs or longer has offered a positive return.

Now, let’s take that back to real life…

Should you have a Bitcoin emergency fund?

Probably not.

Can you? Of course, but it’s still a risk.

Should you hold money for short term goals in Bitcoin?

Probably not.

Can you? Of course, but it’s still a risk.

Bitcoin is a long term asset.

Any money allocated to Bitcoin should ideally be with a 3.5yr time frame or longer with the growth potential Bitcoin has against all other assets we could own.

Am I saying this is an absolute hard rule everyone should follow?

No, but we at least need to acknowledge volatility risk in the short term.

Is there the chance that your cash is heavily devalued during your holding period?

Yes.

Is there the chance that your choice to hold bitcoin works very well?

Yes.

But again, we must acknowledge the risks and choose what's most appropriate for our financial situation.

So, is Jack Mallers wrong?

Yes and no.

Depends on the context.

But context matters when we’re discussing financial decisions that have a tangible impact on our family’s lives.

Which is why it’s critical to take a holistic perspective with each decision in your financial plan.

As we like to say at strong wealth: “hodling is not a financial plan”

To summarize

Volatility could be a feature or a risk depending on your time horizon.

Whether you choose to accept that risk or not, is up to you, but it should be acknowledged.

At Strong Wealth, we are bitcoin financial planners blending traditional wealth management strategies with deep bitcoin expertise to offer our bitcoiner clients the best of both worlds. Interested in working with us? Schedule a call.