The Intellectual Incoherence of Cryptoassets: Schon's High-ground vs. Swamp

The Intellectual Incoherence of Cryptoassets: Schon's High-ground vs. Swamp

Introduction:
In the world of investing, there are various assets that individuals can choose from to grow their wealth. However, there is a new type of asset that has emerged in recent years, known as cryptoassets. These assets, represented by cryptocurrencies and tokens, have gained significant attention and have been the subject of much debate. In this article, we will explore the intellectual incoherence of cryptoassets and discuss the concept of Schon's High-ground versus Swamp.

The Concept of Schon's High-ground:
In a video on a hired thought course, the concept of Schon's High-ground was introduced. It refers to a situation where individuals invest in assets or financial products that they do not fully understand. This lack of understanding can lead to irrational decisions, which can have detrimental consequences for investors. The advice given in the video was simple, yet profound: never buy financial products you don't understand.

Cryptoassets as a Pseudo-Asset Class:
Cryptoassets, such as cryptocurrencies and tokens, have been hailed as the future of finance and investment. However, upon closer examination, it becomes clear that they lack the fundamental qualities of traditional assets, such as stocks. Unlike stocks, which represent ownership in a company with a business and revenue stream, cryptoassets have no underlying business. This makes them strictly inferior to assets like stocks, which provide dividends, buybacks, or introduce new cash through mergers and acquisitions to reward investors.

The Infinite Chain of Greater Fools:
To consider cryptoassets as a store of value, one must assume an infinite chain of greater fools who will continue buying these assets at any irrational price, indefinitely. This assumption is necessary because the value of cryptoassets relies solely on the willingness of future investors to buy them at higher prices. This speculative nature of cryptoassets raises concerns about their long-term sustainability and viability as legitimate investments.

The Intellectual Incoherence:
The intellectual incoherence of cryptoassets lies in their lack of a clear definition and understanding. They do not fit neatly into existing asset categories, and their underlying mechanisms and value propositions remain elusive to many. This lack of understanding poses significant risks for investors who may be driven by hype and speculation rather than sound financial principles.

The German Compound Word: Schneeballsystem:
In attempting to describe the nature of cryptoassets, some have suggested adopting the German compound word "schneeballsystem" or snowball scheme. This term captures the essence of these assets, which rely on a growing pool of greater fools to sustain their value. The use of this term emphasizes the inherent speculative nature of cryptoassets and serves as a warning to potential investors.

Actionable Advice:

1. Educate Yourself: Before investing in any asset, especially cryptoassets, take the time to educate yourself about the underlying technology, market dynamics, and potential risks. Understanding what you are investing in is crucial to making informed decisions.

2. Diversify Your Portfolio: Instead of putting all your eggs in one basket, diversify your investments across different asset classes. By spreading your risk, you can mitigate the potential losses associated with volatile assets like cryptoassets.

3. Seek Professional Guidance: Consider consulting with a financial advisor or investment professional who specializes in cryptoassets. Their expertise can help you navigate the complexities of this emerging asset class and make more informed investment decisions.

Conclusion:
Cryptoassets may be a fascinating and innovative concept, but they also present significant challenges and risks. The intellectual incoherence surrounding these assets highlights the need for caution and understanding. By educating ourselves, diversifying our portfolios, and seeking professional guidance, we can navigate the world of cryptoassets more effectively and protect our investments in the long run. Remember, the key to successful investing lies in knowledge, research, and a thorough understanding of the assets we choose to invest in.