A common pitfall for investors is a descent into a sunk cost trap. The sunk cost trap is a logical fallacy that keeps people emotionally invested in things that don’t warrant continued future investment. Investopedia succinctly defines it as “a tendency for people to irrationally follow through on an activity that is not meeting their expectations.”
The bitcoin and cryptocurrency ecosystem has fallen into a deep sunk cost trap. BTC investors appear to be analyzing their investment strategy in a backward-looking manner rather than unemotionally appraising their present options or projecting into the future. In a recent episode of BitCastSV, Daniel Krawisz describes this phenomenon in BTC as “past oriented thinking”.
“What people in BTC are doing is, they’re not really thinking about it. They’re just drunk on their recent success...they’re past oriented thinkers. They will do what has worked in the past, regardless of whether it makes sense. So we [BSV investors] can sit here and say ‘your network doesn’t work and nobody who’s really thinking about it would ever want to use it’ and they don’t care because they were rewarded by the price in the past. And they’re past oriented so that means that they are being trained by the price.”
Because of the past high water mark of BTC’s speculative value, BTC investors imagine it must be the best current investment as well. This conclusion defies quantitative technical metrics and legal analysis which strongly suggests that BSV is a much more pragmatic investment for the future. Consider the following:
BSV’s theoretical transaction throughput ceiling currently being over 2000 times higher than BTC’s measly 7 transactions per second.
BSV’s transaction fees which are steady and routinely thousands of times smaller than BTC’s highly volatile fees.
The functionality of a turing complete scripting language available in BSV which has been intentionally removed from BTC.
The regulatory guidance from organizations like the US Department of Treasury, FATF, and the EU which suggest that many of BTC’s pillar companies and services are currently non-compliant with international KYC/AML standards.
BSV is protected by the world’s largest blockchain patent portfolio owned by nChain which plans to license its use for free exclusively to entrepreneurs building on BSV.
Add to BTC’s past oriented outlook the sunk cost of time, reputation, and identity. BTC maximalists often wear certain pieces of clothing, go to certain gatherings, and have certain opinions and shared beliefs. This identity was largely created as the result of pavlovian reward for these behaviors in the past. The identity recommends that BTC investors don’t criticize their network or look for superior alternatives but instead simply HODL their bitcoin and never sell.
Unfortunately for BTC investors, we are not in the past. We are in the present and rapidly moving toward the future. Krawisz continues,
“So they (BTC investors) were psychically rewarded with the price increase of BTC in the past, so they’ve been trained to do the same thing that they were doing when the price went up. But the market is always learning. Because the market is made up of people who are all trying to win this game (investment and future prediction)...trying to do better at it...and so they’re constantly developing better strategies. That means what worked in the past doesn’t necessarily work in the future. So if you’re a future oriented thinker, you have to be imagining conditions that may not exist now. And you have to be thinking about scenarios that may never have arisen yet. Just because something hasn’t happened in the past, doesn’t mean it's not important.”
Unbounded Capital has identified several of these important events that are coming in the future which have not yet happened in the past.
We think these events are an essential part of the landscape analysis of any intelligent investor. For investors who hold BTC and are emotionally hesitant to rethink and possibly reallocate their investment, we advise some deep introspection into the possibility that they are victims of a sunk cost trap.
Regardless of your current portfolio allocation, if you were given $10,000 today and had to pick between buying 1.15 BTC or 32.67 BSV (at time of writing on 1/22/2020) given the aforementioned technical metrics, legal analysis, and near future event roadmap, which would you buy? Regardless of the past, which investment is best equipped to navigate the future?