Investing: The Sufficiency Argument

Evaluating crypto-investment vs. traditional investment on a long timescale

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


Cryptocurrency’s richest folks are early adopters—contrarians who were correct. For over half its existence, crypto was basically only known to a specific subset of (1) nerds and (2) people who wanted to buy drugs on the dark web. Now, the second group has mostly dropped out of the broader crypto market in favor of specific currencies such as Monero, and the latter has expanded to include tons of people who would’ve otherwise focused on traditional finance (trad-fi).

I am not one of those early adopters. My group of friends discovered Ethereum when it was worth less than $10 each, so we absolutely had the opportunity to become rich from it. I know of one person in my social orbit who became very wealthy, but most of us didn’t go all-in. Why?

As I’ve mentioned before,1 I believe not investing in crypto at that time was a huge error—one of the greatest analytical errors of my life. Ethereum is such a revolutionary technology that it ought to have broken away from solely correlating with the Bitcoin price long ago (although it seems to finally be doing that lately). Had I understood it better as a technology, I would’ve been able to 10x or 100x my money as a young adult and avoid lots of strife that later came from my debt burden.

Now, four years later, my debt burden is behind me and I’m left with the choice of how to invest my surplus income. The crypto market is much stronger now: Ethereum has strong price support at around $2,000 and most still believe the upside is high—many in my professional orbit expect an ETH price of $10,000 this year. Seems like a no-brainer, right?

See, I want to believe this narrative and go all-in on ETH. But I’m not convinced it’s the best idea. Here’s why.

The sufficiency argument

Without revealing my income, suffice it to say that if I invested 40% of my take-home pay per month in the traditional stock market using various index funds or a robo-advisor, I’d be able to retire at 52 with far more wealth than necessary to ensure I could live off the interest for the rest of my life. Add to this the fact that I doubt I would want to retire at 52, and I have a good plan ahead of me.

In addition, at the same savings rate, I’d be able to buy a house in 2028 (about when I would qualify for the best mortgage rates, probably), send two kids to private school, and have enough left for my future spouse to not need to work if she doesn’t want to.2

There are plenty of caveats here: (1) I’m extremely grateful to have enough of an income to speak in these terms; (2) I don’t know if the income will last forever; (3) it’s not certain that the stock market will perform at historical expectations during this bizarre century. Still, though, I don’t think there’s a strong argument against the stock market performing sufficiently well (barring something drastic like humanity destroying itself this century), so for the purposes of this discussion my estimations assume historically average stock market growth, but also that I’ll receive no social security payout and use no particular tax-advantaged accounts. Lastly, my income going down would disrupt any investment plans in a roughly commensurate way, not just the ones I detail here, so we’ll treat that as moot also.

So, if I set up my direct deposit to take out 40% of my income for investments and forget about it, I’ll be set for life by the time I’d want to retire anyway.3 The buffer is such that, even if my savings rate declined by half in five years, I’d still be on track to retire before age 60. (The earlier years of saving indeed matter so much more than the later ones; compounding interest is humankind’s greatest invention; &c.)

This is a sufficient strategy for my own personal financial goals. By this I mean something specific: following this basic strategy would result in a situation where I can’t name anything of any importance that I wouldn’t be able to afford or do, according to my own values and priorities. As a bonus, it would also involve near-zero time commitment: the above strategy is strongly inspired by the ideas of Ramit Sethi, who has optimized for convenience: he has automated or outsourced away almost all his own personal financial upkeep, to the point where he claims to spend just an hour a month managing his money. That also seems nice.

So, what’s the alternative? Crypto. Or: putting a substantial amount of my net worth into crypto. Or: taking a high-risk, high-reward crypto position that would kick my personal risk profile up to 11.

The upside here is potentially huge. People can and do 10x their money in the crypto world all the time. If I had bought into Bitcoin on my 24th birthday and sold on my 26th, I’d have achieved an 11-fold return on my original investment with zero effort. There are also shorter-term strategies, yield farming, and ways to use certain crypto protocols (esp. Compound) as a de facto interest-bearing savings account. I know someone who made $700,000 last week from the recent DOGE craze—not that I would ever recommend that anyone buy something with no intrinsic value, but still, damn!

No matter how you look at it, though, these opportunities are riskier than the equivalent traditional stock market opportunities. There are a variety of reasons for this: regulatory risk, smart contract risk,4 fraud risk, and simply the risk that any given project will fail or lose all its value.

So, it’s a much higher risk for a potentially much higher reward. It’s a simple trade-off. The sufficiency argument is the contention that a traditional investment strategy is low-stress, low-effort, and sufficient for all my goals, so I should pull all my money out of crypto and put it in the traditional stock market.

Dissecting the sufficiency argument

I use a slightly modified version of arbtt on my desktop computer, which is currently my only computer, so looking at this data I have a really good idea of how I spend my time. This past month I’ve spent at least 20 hours actively managing my crypto investments. For my trouble, this month I took a modest, three-figure capital gain and have a bit more ETH than I started with in nominal terms (but see below), so it’s probably a pretty good hourly wage depending on how the lending markets do in the next few weeks.

Adopting the sufficiency argument in a Ramit-esque fashion could reduce my time commitment by 95%. My potential upside would also likely decrease, of course, but would also be more predictable.

Crypto downside risk is much more severe than stock market risk, and the impact of this would be compounded for me personally because I am just starting to build an investment portfolio in general. This is because of literal compounding: if I happen to irreversibly lose $10k this year from a crypto market downturn or smart contract exploit,5 that’s $10k that could’ve compounded in the stock market for nearly three decades and is therefore worth an estimated ~$61k at retirement (assuming 7% growth net of inflation).

This is why present-value calculations are so important. Of course, the opposite is also true: doubling my money this year from good crypto investments could yield a six-fold ROI by retirement as well. The problem is that a crypto market crash in the next several months would totally crush my spirits and the alternative is sufficient for me.

We can therefore reduce the problem to the following terms: stock market investment is sufficient with lower risk, lower reward, and a lower time commitment. I estimate all these factors to be at least an order of magnitude lower than the crypto market.

I, like anyone else, want my personal wealth to grow as quickly as possible, and I personally work in crypto, and I’m passionate about crypto. The question I’ve begun to ask myself is whether the time I spend on it is worth it compared to simpler strategies. There are a lot of wrinkles here: clearly, I’m describing these strategies in binary terms, but it’s also possible to split one’s investment allocations between crypto and the stock market;6 crypto investments will soon be accessible from the stock market and might be indexed or used in funds I buy in the future; companies sometimes have crypto on their balance sheets now, thereby correlating their stock prices with it to some extent; &c.

I’m not sure where I land on this yet. My position hasn’t solidified. But I think I’m being swayed toward the sufficiency argument more than against it. I’m tired of thinking about my personal finances all the time and could use a break, so—at least for the near future—I’m cashed out of the crypto markets. I cashed out at a good time relative to the ETH price I entered at, but it does seem like I’ll miss some upside. This is a worthwhile trade-off for me: for the month of May, I’ll aim to think about my personal finances as little as possible and see how it goes. I look forward to writing on this matter again.

1

See the “Hindsight bias as a scapegoat” section.

2

I don’t touch on this again in this piece, but consider that this means any wealth accumulated by my partner would be in excess of what is already sufficient!

3

With apologies to the FIRE community, which was my gateway into becoming a personal finance nerd—I love you all, but I’m not interested in retiring early myself. If I did, I’d doubtless get excited about something and come out of retirement within six months!

4

Smart contract risk is the risk that there is an exploit in a given smart contract that allows someone to extract money from it in an unintended manner. Such events occur with reasonable (but not excessive) frequency these days—their frequency is likely underestimated. There are even protocols that implement insurance coverage to account for this risk.

5

Ibid.

6

However, I think any crypto strategy more complicated than “buy tokens X and Y automatically using dollar-cost averaging” would increase the time commitment beyond Ramit-esque terms.