Why The Pundits Are Afraid Of Bitcoin

It seems like every day another financial luminary declares the death of bitcoin…

For example, in just the past few months:

These talking heads all have one thing in common…

They’re victims of the default bias

Most people stick with what they know. They don’t conduct experiments in their life… whether it’s something small like trying a new brand of soda… or something bigger, like investing in an entirely new asset class.

Think about it… How often do you change the route you take to work? How often do you try a new dish at a restaurant? Or, when you buy the latest mobile phone, do you just accept the factory default settings and not even bother changing the ringtone?

This is default bias. Most people like to stick with what they know and shy away from making big changes or taking on new risks, even if the change would be a good one.

The default bias is the offspring of two other biases: status quo bias and loss aversion. Keeping things the same (status quo) is convenient, and the pain of losing is greater than the joy that comes from winning (loss aversion).

Put these together, and our brains often tell us it’s just easier to keep things the same and avoid any potential pain that might come from changing things.

For investors, this can stop us from making changes to our portfolio or strategy because it’s too inconvenient or it makes us feel uncomfortable. We tend to cling to the way things are, even if it’s not the best thing for us.

It happened with the Internet

In the early 1990s, the Internet was just starting to go mainstream. And many otherwise smart folks were convinced it was just a fad.