Lessons for Bulls: Even Japan’s Greatest Tech Billionaire Got Rekt by the Crypto Bubble Lessons for Bulls: Even Japan’s Greatest Tech Billionaire Got Rekt by the Crypto Bubble
04.23.2019

Masayoshi Son, the multi-billionaire founder of Japanese tech giant SoftBank, lost $130 million after making a huge personal investment in bitcoin at the worst possible time: late 2017, the peak of the crypto bubble. According to the Wall Street Journal, the investment was made at the urging of Peter Briger Jr., co-chairman of the private equity firm Fortress Investment Group.

Briger had good reason to be bullish. Fortress had been investing in bitcoin since 2013, and by late 2017 was seeing absolutely unheard-of returns on that investment. Son, unfortunately, got in late and (arguably) got out early, selling his stake in early 2018 after the bitcoin price had fallen at least some of the way back to earth.

The story is timely, since bitcoin and other digital assets have begun what could become another frenzied “bull run.” The price of bitcoin has risen about 75 percent since bottoming in late December, and 38 percent since late March. Similar moves in the summer of 2017 kicked off a cycle of breathless news coverage and mass speculation that drove bitcoin prices up roughly 762 percent in eight months.

Of course, it didn’t last, and many people who bought as the run peaked got taken to the metaphorical cleaners—people like Son. As we explored in our conversation with investment advisor Tyrone Ross, Son displayed typical “FOMO” investing behaviora sudden, big bet based (seemingly) less on a thought-out investment thesis than on the “fear of missing out” on short-term market momentum.

With adoption still lagging far behind speculation, that money is still likely to flee the instant animal spirits turn. 

That Japan’s most renowned tech entrepreneur got sucked in by the hype of the crypto market should be a sobering lesson for the rest of us mere mortals, especially as the market is potentially poised for another big run. As an extremely accessible and very liquid instrument, cryptocurrency is inherently volatile in the short run, whatever you think of its long-term prospects. That dynamic is encapsulated in survey research showing that while awareness of bitcoin is widespread, actual understanding of blockchain technology and its advantages is very scarce.

The last cryptocurrency bubble, in short, was fueled by dumb money, and the next one largely will be too. With adoption still lagging far behind speculation, that money is still likely to flee the instant animal spirits turn, whether that happens north of previous all-time highs—or well below them. That makes it extremely dangerous to try and time the market unless you’re an active, attentive day trader (and even then . . . good luck).

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So even if you believe in the fundamentals of a decentralized, un-censorable, deflationary, stateless currency, be careful. Dollar cost averaging is a good, conservative approach to increasing your holdings gradually. For crypto, the reverse may hold as well: it can make sense to sell incrementally if you believe a sharp run-up is a fragile bubble. Don’t mortgage your house. Don’t invest more than you can afford to lose. For Masayoshi Son, $130 million is pocket change. For the rest of us, the threshold is a bit lower.

Of course, there’s another lesson here, too. If, hypothetically, Son bought bitcoin at USD$13,000 or so, many true believers argue that he would still be set for big long-term gains if he hadn’t sold into a crashing markettechnical analyst Peter Brandt is calling for bitcoin to hit $50,000 by 2021, for instance. Such specific calls are often little more than prettied-up guesswork, but they reflect a much more robust underlying case for the appeal of cryptocurrency.

If you agree with that deeper argument, don’t be like Masayoshi Sonon the way up, or the way down.