An Update on the Sufficiency Argument

The first instance of public response to reader feedback!

This is not financial advice. I am not a financial advisor. Do your own research. I may hold some of the assets mentioned.

Last week at this time, I wrote about how I could invest 40% of my income into the traditional stock market and otherwise forget about investment for thirty years (crypto or otherwise). This prompted some of you to send me detailed replies (via email—just reply to my emails and I’ll receive and read it) urging me not to use this strategy. Readers sent me a variety of arguments against, but the most prominent were:

  • The traditional stock market is overvalued right now and is not necessarily safer than crypto investments on the short term. Therefore, I should wait for a stock market crash before investing a lump sum.

  • Crypto investments are clearly undervalued right now. Therefore, it would be silly of me to ignore investment opportunities, especially given my preexisting knowledge in, and enthusiasm about, the space.

  • A hands-off approach is beneficial in crypto investment as well. In traditional retail investment, the highest-performing accounts are often those owned by people who forgot they invested in the first place. By this logic, why don’t I set up a regular dollar-cost averaging deposit into my desired portfolio allocation?

My thoughts are as follows: I’m convinced by the first two points, and over the last four days I bought and sold Ethereum for a healthy 16% return (although lower after the realized capital gain). My current liquid exposure to Ethereum is zero at time of writing (although I do have some staked ETH right now).

Why the change of attitude? Well, the first bullet point did the most work here: the first email I received was from someone who basically shouted this argument at me in various ways with various sources. The most nuanced of these was this Forbes article that explains there is no strong historical parallel to the current market, and there’s good reason to believe the market may be overvalued. The article goes on to mitigate its own argument—I’ll leave out the details to avoid biasing you if you choose to read it—but this in tandem with the increasingly top-heavy S&P 500 gives me some pause.

The second point is also instructive. Right now I’m pretty confident there will be a significant crash in the crypto market before all that long—signs change constantly, but, to quote a friend:

I have a strong prior on 'crypto price has nothing to do with reality'.

I think this is less true every day, but still broadly true due to the relatively huge amount of speculative investment and leveraging versus value investment going on in crypto today. With that much retail trader activity, a crash could happen at any time and without much warning.

My conclusion was to buy ETH when it spiked to around $3,000 and sell when it reached $3,500 shortly thereafter. I’m satisfied with this short-term gain and am now holding cash while I wait for either the stock market or crypto market to crash to some extent. My modest amount of staked ETH satisfies my desire to not miss the proverbial rocket-ship-to-the-moon if there is one, but it mostly seems prudent to wait until some meaningful downward price-action to acquire a large position in either stocks or crypto-assets.

Investing as self-expression

I know what you’re thinking: wow, what a dumb sentiment to put in a heading. Right? Hold on and I’ll try to convince you.

Holding a contrary opinion on matters of finance is difficult to maintain. If you offer any strategy other than “put it all in index funds!” then most personal finance nerds online will call you an idiot, except for a small subset of crypto investors either (a) interested in speculating for short-term gains or (b) convinced that decentralization will be the future.

Investment markets are prediction markets. To put your money somewhere general means you expect society in general to generate a certain return (typically 7-10% annually in the case of traditional stock market investments). If you think the US will do better than most other countries—a historically safe bet—you’ll invest in US index funds. Likewise for any other given part of the world. In practice, most investment advice suggests you diversify across many index funds, mutual funds, and sometimes bonds. Entire securities like target-date funds are designed to automate this for you, and there are also managed products like Wealthfront that do this.

But what if you have a different prediction for how the next one, or ten, or twenty years will go? This is the space many crypto investors occupy. They’re convinced that crypto offers value that most people aren’t paying attention to yet. Of course, there are also lots of other beliefs that would cause you not to follow the traditional advice:

  • The belief that a crash is imminent enough that waiting to invest is preferable, the response being not to invest;

  • The belief that a specific business, sector or country will outperform relative to broad expectations, the response being to invest in a targeted manner;

  • Strong political beliefs for or against certain types of investment, such as strong “vote-with-your-feet” environmentalism yielding targeted socially responsible investment, libertarianism yielding decentralized crypto investment, etc.

To believe these things more than the traditional stock market does is probably a recipe for failure, relative to that market, but there are a few things to keep in mind.

First, the market has made severe, coordinated mistakes in the past (such as a failure to understand that the default risk of CDOs was broadly correlated across the economy—the failure that led to the Great Recession).

Second, if you are comparing yourself to a market of retail speculators, it’s totally reasonable to believe you have better knowledge than average. Crypto enthusiasts always joke about how much “dumb money” there is in the market—the sort of people who buy high out of enthusiasm and sell low out of fear it’ll go lower, without understanding the value proposition of the assets they play with. I think this mindset is more applicable than average to the traditional stock market right now because of the unprecedented nature of this time in history and culture: the aftermath of COVID (nobody knows how much people will really travel in the next few years), the medium-term results of Trump and Biden’s economic stimulus plans, etc.

So I’m using my judgment and hoping to outperform the market. In this way I’m participating in a certain prediction market: on the long term, to compete in such a market with financial professionals would be a fool’s errand, but on the short term, we’ll see just how much control institutional wealth has over the crypto market (spoilers: still not much!)—I’m still not picking retail stocks, and I’m not about to make an argument that you should buy DOGEcoin or something. I’m just declining to reenter the market in the short-term.

People are quick to say that you’re doing something wrong if you follow your own judgment over prevailing advice in matters of personal finance. The trouble is that prevailing advice is kind of wrong now: DeFi (decentralized finance) such as the Compound Protocol’s lending market offers structurally higher interest rates on lending than most individuals have access to ordinarily. It also enables you to issue yourself a loan with no intermediary, handle your own payment terms, and rudimentarily leverage yourself1 if you want.

There are parts of modern banking that will be obsoleted by DeFi. In the eyes of some people this has already happened. Frankly, if I had a debit card that I could use to spend my USDC balance and I was paid in crypto as well, I’d seriously question the need for me to have an ordinary bank account.2

I don’t think any pundit quite knows what DeFi will be, or how large it’ll be after the next big crypto market crash (if there is one), but the idea has massive staying power and I fully expect the world’s banking systems to be disrupted by its constituent ideas over time.

What about the 40% savings rate?

According to Wealthfront’s estimator in my account, historical averages suggest I could reduce my savings rate to ~16% and be okay with a modest, ordinary retirement timeline. What I plan to do for the time being is put this proportion of income into cash savings on a monthly basis, and keep that cash available to enter a market with a lump sum in the event of a market dip or crash.

I think, in hindsight, my sufficiency argument was too focused on the mental health benefit of not thinking about finances as much. The trouble is that I work in the crypto space and I’m surrounded by analysts at work. I’ll think about markets one way or the other, and if I’m not paying attention to my own investments, I’ll just be thinking about how much I could benefit if I did.

And so I pay attention. I don’t necessarily encourage others to pay attention if they don’t want to. With this post on the books, I’ve acknowledged an area where my opinion is not solidifed—I’m not sure where I’ll land on this. but I appreciate your interest in this topic after my first post on it, and I’m eager to record further thinking on this and discuss it.

As a reminder, if you don’t want to publicly comment, I encourage you to reply directly to this email in your inbox. I’ll see those replies!


In Compound, for example, you could deposit $10k in ETH, use that as collateral to issue yourself a $5k USDC loan, then use that to buy more ETH. You can do this recursively. Increasingly high price increases on ETH are necessary to make this worthwhile, but it is possible.


In reality, there are inevitable factors that make it necessary to have a bank account, chiefly autopays you have to use a bank account for. Also things like access to the traditional stock market and some types of identity verification and financial interactions with governments like tax payments and returns. These obstacles may not exist forever.