Is there an overlap between Crypto and Cannabis investors, are they bubble chasers?
A few media publications have recently made a connection between crypto and cannabis investors. Saying that they are essentially both bubble markets that draw in a certain gambler type of investor.
On cryptocurrency, John Olvier famously said: ‘You’re not investing, you’re gambling‘ and many others have also taken that stance. Is there truth to this? Are we all are bubble chasing gamblers?
I think I am on the fence on this one. I happen to invest in both, so maybe there is something to the theory. But I am not totally convinced that it is just wild gambler type investors who are interested in these crypto and cannabis markets.
So Joe Weisenthal from Bloomberg business week ran this headline a few weeks ago: Crypto and Cannabis Are the Perfect Post-Crisis Bubbles which is a great piece and I enjoyed reading it. Here is a brief portion that gives you the gist of the article.
Ever since the crisis, the message to investors has been to embrace the “intolerably boring” style: Index. Rebalance. Diversify. Rebalance again. Reduce your fees. And don’t be so foolish as to think that you, sitting at home, could ever hope to win by picking individual stocks. Investors who have internalized this message have done phenomenally well in the post-crisis years, amid a long and steady—even dull—bull market.
But the gambling instinct can be repressed for only so long. And lately we’ve seen the emergence of strange new bubbles. And, yes, I’m talking about crypto and cannabis. The wild trading in shares of Canadian marijuana company Tilray Inc. in September—in which its market value briefly exceeded that of American Airlines Group Inc.—felt a lot like last year’s Bitcoin frenzy. Despite their different paths, the crypto and cannabis bubbles are unmistakable siblings. Spend a few minutes on Reddit pages devoted to Bitcoin, cannabis, or trading, and you can see the overlap and similarities of the communities. According to TD Ameritrade Inc., trading in pot stocks is overwhelmingly done by millennial-aged males. The stats for crypto look the same.
He makes some good points in that short excerpt. We should take emotion out of investing and many of us don’t. Men in their 20’s and 30’s (even millennial men) like risk. Which has always been the case with a large population of men. Which is why men often seek out extreme sports, thrills, and end up in more car wrecks. The adrenaline pump and chemical release in the brain is a driving force. So the gambling and risk taking profile is in line with more risky investments.
Also people chase bubbles, I don’t think just men are in that category. We see something going up and people making money and we want a piece of that pie. Even though 90% of the pie is already gone and not much is left. We are hoping to get whatever crumbs we can and also make some of that money.
Weisenthal goes on to talk about bubbles, and the famous dot-com bubble that has been compared to the crypto bubble: “To understand these bubbles, it helps to compare and contrast them to what we saw in the late 1990s. People call it the dot-com bubble, but it was so much more than that. It was really an optimism bubble. Everything seemed to be going right in those days.” This last statement stands out to me “eveything seemed to be going right” which as a side note I wonder about the overall market that continues to hit new highs. It keeps climbing despite some warning signs from other economies and geo-political rumblings. Everything just seems right in the stock market and economy here. Are we all missing the flashing warning sign of history? Are we on the brink of something bad, or is that just pessimism?
Anyway, back to the bubbles, dot-com, crypto, and now marijuana. Later the Bloomberg article goes on to say: ” Peter Atwater, president of Financial Insyghts, which looks at markets through the lens of bigger societal trends, wrote in an email that both crypto and cannabis contain simultaneous elements of “fear and greed” and they’re both inherently anti-Establishment.” There are also some bubble rules says Weisenthal: “You need a fantastic story, which both crypto and cannabis have. One’s disrupting finance and big tech; the other’s a gigantic new market rapidly becoming legal around the world. You also need the supply of investable assets to be small, so there’s a huge mismatch between the great story and what investors can actually buy.” This makes sense and we see it with Crypto and Cannabis. Cannabis is just getting legalized in Canada and state by state here in the USA. There are still very few companies that you can invest in and many of the US ones are living in some grey zone at the moment.
Crypto in early 2017 had Bitcoin and Ethereum but once those started to rise people searched out lower priced alternatives that could provide the next 1000% return. While many popped, there were few that were not total scams to choose from. Although, during the frenzy, even the scams went crazy. People just bought anything at that point, because hey, you couldn’t lose! But eventually in early 2018 that all came to an end. Weisenthal makes the case that it could have been because there were too many coins by that point and product outweighed demand. That could be, but I feel it was just one part of what caused the price crash.
I encourage you to read the full article and draw your own conclusions about the bubbles and where things stand. But I want to get back to the point that many are making, that Crypto and Cannabis investors are the same people. Who are mostly the gambling and risk taking types. I think there is some validity to that, I invest in both. Once in awhile I enjoy a trip to a casino, have jumped out of planes, and swam with sharks. I am not an extreme thrill seeker though. I don’t do these things often, or chase the thrill just for a chemical pump. l look at them as life experiences. To me it is living and getting out of my comfort zone and enjoying life.
When I first considered both Crypto and Cannabis I was looking at them as having a huge future potential on everything. I got into both before either had a bubble. So what does that say about me? Not sure, but I think I would say that yes I partially meet some of the risk taking personality type described above but that it did not drive my overall decision. For example, I have many boring investments that I don’t even look at very often in the traditional market. Is that the balance? Perhaps I might have just had the foresight and/or intelligence to realize the potential market for crypto and cannabis and make an educated decision. Maybe I got lucky, but I think looking at the macro and identifying what is coming next can be a skill. It has nothing to do with only chasing highs and jumping on bubble trains.
I suppose in the end I think we have a mix of people and perhaps a mix of personalities investing in both the crypto and cannabis sectors. There are the extreme thrill seekers, the bubble chasers, the early adopters, the futurists, and the average joe, who maybe got lucky, or just maybe had some vision…
Also published on Medium.