The Talmud offers investment lessons that have stood the test of time, but where could bitcoin fit into one of its most iconic lessons?
This is an opinion piece by Konstantin Rabin, a writer specializing in finance and technology.
As a huge proponent of all things crypto, and Bitcoin in particular, my thoughts often drift to a time before this revolutionary technology first appeared, and I’m in awe of what it’s set to accomplish. I wonder: How would our ancestors have viewed it, and how can we use their teachings, applying the thinking of old thinkers to our modern existence?
While money management strategies that can be found in books from thousands of years ago may seem crude or irrelevant to us today, I have always tried to look beyond words on the page and in the meaning behind them to understand what lessons they might learn from them. teach us today. One day, while chatting with a friend about this, we thought about why Bitcoin might even be backed by Talmudic teachings.
The start of an idea
I’m not a religious person by nature, but it’s hard to avoid straying conversations in this area when you’re sitting with some of your Jewish friends who are passionately studying the Talmud and all things Judaism. So one evening, while I was sitting with one of my friends, he brought up the Gemaraa component of the Talmud that includes investment advice and is often praised for its simplicity and efficiency. The 63 books of the Gemara serve as a commentary on the Mishnah, which in turn serves as major early writings of Jewish oral traditions, spanning hundreds of years. The section my friend was referring to, however, was a reading that goes like this:
“R. Isaac also said: One should always divide one’s wealth into three parts: (invest) one-third in land, one-third in goods, and (keep) one-third on hand.
The idea is that in order to invest your money appropriately, you need to divide your assets into three equal parts divided equally between land, cash and risk assets.
So here’s what the traditional Jewish diversified portfolio would look like:
A third in the ground
Land – or if we generalize, real estate – is one of the most stable investments there is. Buying and keeping land or any other type of residential or commercial real estate has been a practice for thousands of years and is just as valid today, with real estate market expectations grows at a compound annual growth rate of 10.7% from 2022 to 2031. Therefore, keeping some of your funds in real estate seems to be great for preserving wealth and fighting inflation.
A third ready to use
We have all heard the expression “cash is king”, and that is also what the Gemara teaches us. Keeping a significant portion of your wealth in cash is very useful for several reasons. First, the importance of staying liquid cannot be underestimated – borrowing money costs money, and having the ability to settle any kind of unforeseen debt and remain solvent should not be compromised. Also, markets always move in cycles and when liquidity is low and demand for cash is high, the value of other assets tends to fall. Therefore, having a substantial portion of cash on hand allows you to grab various assets when they are undervalued.
A third in the goods
While the title might be a little misleading, I understand “commodity” to refer to all sorts of risky assets and ventures – my own business, stocks, commodities, pretty much those things in which you invest money in the hope that in the future they might yield a significant return.
These assets generally do well when the market is up, they increase in value and can be sold for a substantial profit.
What does bitcoin belong to?
While the reasoning behind the allocations outlined in the Gemara makes sense to me, I wondered how this might translate to the modern world and where bitcoin might fit into the grand scheme of things. So the first thing my friend and I did as our conversation progressed was to frame this idea of investing in a more modern way, so we could better understand it in relation to the world we live in now. .
Does Bitcoin fall into the category of “risky assets”?
During our discussion, we came to the conclusion that bitcoin could fit into the commodity category quite easily, as it can be considered a risky asset due to its volatility, but an asset nonetheless. Looking at crypto stock and investment comparisons it is obvious that both types of assets carry risks and that one or the other could fall under the category of “commodities”.
Does Bitcoin fall into the “Cash” category?
Another place bitcoin could fit in is in the “ready to go” column. Due to how easy it has become in recent years to move your money from fiat to bitcoin and back, it has reached a point where the adoption of bitcoin and the liquidity it provides has made it similar to cash, but possibly with higher currency risk. This is especially true as BTC trades freely against other major currencies like USD and EUR. Additionally, BTC is often a kind of “universal currency” for purchasing various other crypto assets and a growing list of goods and services.
Does Bitcoin fall into the “Real Estate” category?
Although there are countries like the United Arab Emirates where The Dubai Land Department has adopted blockchain technology for the first time in 2017 to manage its real estate market, I would not say that bitcoin can be considered real estate in the Talmudic sense.
However, one could definitely argue that BTC is the most stable cryptocurrency and could refer to BTC as “the real estate of crypto”.
Bitcoin is still a risky asset
While it’s clear that bitcoin has characteristics that make it similar to cash and real estate, we’ve come to the conclusion that it currently belongs in the “risky asset” category more than anything else. thing. However, it may be less risky than other assets that should be kept in this category. Let’s compare bitcoin to a few other “risky” assets below:
As shown in the table above, calculation of the five-year return on investment (ROI) of these “risky” assets based on their closing prices on February 6, 2018 compared to their closing prices on February 6, 2023; their maximum possible levy on the basis of their lowest prices during the same period; and their maximum possible return on investment based on their highest closing prices over the same period, bitcoin offers relatively high returns as well as relatively high risk.
Buying bitcoins five years ago (in February 2018) and selling them in February 2023 would have provided the highest return among listed assets. If one were lucky enough to sell at the highest price ever, then bitcoin would return over 500%. Obviously, high returns inherently come with increased risk, and bitcoin is also showing the highest possible drawdown listed above.
Is Bitcoin Investing Religiously Ethical?
“Any tool can be used for better or for worse. It is really the ethics of the artist who uses it.
Contemplating the question of ethics has driven many smart men crazy, but as we sat there thinking about the role Bitcoin is about to play in the world, I thought of the above saying from the caption John Knoll visual effects. While we could come up with many ethical ideas around Bitcoin, in the end my friend and I decided to focus on the more obvious problems that are being solved by it to see if these would benefit the good guys or the bad guys. actors.
Decentralization: This is often touted by Bitcoin enthusiasts as the whole goal of blockchain technology, and it certainly has its merits. Operating without a central authority aligns well with Jewish principles of autonomy and freedom.
Transparency: As the The Bitcoin network is open source and transparent, it helps promote accountability and honesty in those who use it, both of which are ethically sound and align well with those truths that are dear to all humanity.
Usage: In its dark days (on the web), Bitcoin was often used for illegitimate or illegal transactions: buying fake IDs, drugs, guns, etc. This would certainly make Bitcoin unethical for many. Yet today, cryptocurrencies like Monero and USDT are often used to transact legally and may have inherited most of Bitcoin’s unethical implications.
A lesson that has stood the test of time
The importance of diversification cannot be overemphasized, and above I shared a simple model that has stood the test of time. Obviously, the investment teachings of Judaism date back thousands of years and do not specifically consider bitcoin, but, in any case, they provide us with an interesting thought experiment today.
This is a guest post by Konstantin Rabin. The opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.