To investors,

There was an article in the Financial Times recently that discussed market cycles, sell-offs, and investor risks. My friend Josh Wolfe from Lux Capital shared it on Twitter with a fairly sober warning that most young investors haven’t experienced a market downturn. Here is the article and the tweet:

Josh Wolfe (wolfejosh.eth) @wolfejosh

BE WARNED. An entire generation (a growing % quitting jobs and day trading stocks or crypto) —🙈 has not seen a downturn📉 A graduate of college in 2009 (now aged ~35) —🤩has seen nothing but📈 ‘up markets’ EXCELLENT by @RobinWigg (ft. @choffstein @profplum99 @ArtemisVol)

November 30th 2021

161 Retweets891 Likes

This got me thinking — has the generation of 35 year olds and younger actually never experienced a market downturn?

We know that the 2009 - 2020 performance of the stock market was the single longest bull market in history. The trailing 10 year performance of the S&P 500 from today is approximately 265%. By numerous methods of evaluation, you could argue that financial assets and markets have done remarkably well over the last 12 years.

So why are we talking about this?

The more that I thought about this perspective, the more that I disagreed with it. In fact, I want to make the argument that people under the age of 35 have experienced some of the worst market downturns in history over the last 12 years. I know this is counter to the public narrative, but hear me out for a second.

First, college students who were graduating in 2009 were thrust into the Global Financial Crisis. This was the worst economic downturn since the Great Depression in the United States. While they may not have had many personal financial assets, a large percentage of them saw their parents, friends, and family get wiped out financially. The job market was excruciatingly tough and many of these young people were forced to live at home with their parents for a few years until they got their feet under them.

Although the multi-year bear market technically ended in March of 2009, there was still immense pain felt by people across the economy for a number of years. Take job growth for example - we didn’t see positive growth until March 2010 (a full year after the market downturn ended).

So these young people graduated right into one of the worst economic crisis in history. But that isn’t the only economic crisis they have endured. These same investors were in their early 30’s last year when they lived through a second economic recession. The COVID-19 public health crisis led to a swift economic downturn and tough labor market.

During March of 2020, all financial assets were falling at a blistering pace. Gold was down more than 10%, stocks were down 25-35%, and bitcoin was down more than 50% in a single day. There were multiple weeks where more than 6.5 million people filed for first time unemployment claims and the unemployment rate reached nearly 15% at one point. On top of that, business owners and leaders were faced with the single toughest business environment of the last 50 years — they were asked to continue to run their business while being locked in their homes by their government.

Now we quickly forget the economic recession of 2020 because the central bank and government stepped in with an incredible amount of monetary and fiscal stimulus, which drove asset prices upwards quickly. But that doesn’t take away from the fact that (a) investors lived through an incredibly painful drawdown in financial markets and (b) that citizens who lost their jobs or had their businesses impaired were still dealing with the effects for many months later.

Ok, so we have a demographic of investors that have lived through two of the worst financial markets in the last 50-100 years. That is the totality of the story, right? Nope.

We forget that young people have been investing in bitcoin and cryptocurrencies in a fairly significant way for a number of years. During that time, there have been three separate bear markets of at least an 80% drawdown in prices since 2011. Yes, you read that right. 80% drawdowns have happened THREE TIMES since 2011.

I’ll give the benefit of the doubt and say that most people were not invested in the market in 2011, or even pre-2017. But by 2017, numerous exchanges had tens of millions of users and there were hundreds of billions of dollars in market cap across the assets in the crypto industry.

Those investors who were participating in the 2017 crypto bull market got smacked in the face with a year long market crash in 2018 that saw bitcoin drop more than 80% and many other assets drop more than 95%. You could easily argue that the crypto market participants in 2018 experienced a market crash that is worse than any single market crash the stock market has ever seen. It may sound like hyperbole, but it is just math.

The crazy thing about that market crash in 2018? Majority of bitcoin holders never sold their assets. They simply held it.

Stanley Druckenmiller actually cited this as the reason that he decided to invest in bitcoin. He recently shared that Paul Tudor Jones called him and said “Do you know that when bitcoin went from $17,000 to $3,000 that 86% of the people that owned it at $17,000, never sold it?” Maybe the young people were on to something with their strong hands.

This brings us to 2021. Just this year, there have been six separate market downturns of over 20% in the first 11 months of the year. There was one drawdown of more than 50% as well. Even if you had never invested in bitcoin or cryptocurrencies before 2021, you likely experienced more 20% drawdowns this year than all 20% drawdowns in the stock market for the boomer generation’s total lifetime. Pretty crazy stuff.

So what is my point in explaining all this?

The public narrative is that young people have never experienced a market downturn. The older generations, the cynics, and the persistent bears like to propel a narrative that asset prices are being pushed up by young, naive investors who have never seen a bear market. That simply isn’t true though.

The generation of investors who are under the age of 35 have actually lived through worse financial markets than any other generation of financial investors. How many of them can claim to have lived through at least five market downturns in 12 years? Additionally, how many folks in the older generations can say they lived through an 80-95% market downturn and didn’t sell their assets, but instead bought more?

Young investors are the most resilient investors in history. They truly have diamond hands. The incumbents don’t have the stomach for this type of volatility. You could actually argue, digital natives are just built different. They store majority of their wealth in assets that have 80 vol and fluctuate 5-10% a day.

This is what happens when we live in a world with undisciplined monetary and fiscal policy. The young people refuse to play the game based on old rules. They understand that bear markets in the stock market have been outlawed and market corrections are banned. The central bank and politicians have to step in every time and prop up asset prices. And alternative assets, like bitcoin and cryptocurrencies, are the only honest market left.

Keep this in mind as you continue to watch the insanity in the legacy market. Hope you all have a great start to your day. Talk to you tomorrow.

-Pomp

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THE RUNDOWN:

Fed Chairman Jerome Powell Retires the Word 'Transitory' in Describing Inflation: The nation’s economic steward said it will back off of using the word “transitory” to describe the fast pace of price increases, as Federal Reserve policymakers acknowledge the increasing risk of more persistent inflation. “We tend to use [the word transitory] to mean that it won’t leave a permanent mark in the form of higher inflation,” Fed Chairman Jerome Powell told Congress on Tuesday. “I think it’s probably a good time to retire that word and try to explain more clearly what we mean.” Read more.

Libra Creator David Marcus Says He’s Leaving Facebook at Year’s End: David Marcus is leaving Facebook (now Meta) with the company’s libra (now diem) stablecoin yet to be fully launched. He said Tuesday on Twitter he was stepping down as Meta’s crypto lead and leaving the company, suggesting he’d return to his “entrepreneurial” roots. Marcus leaves the Diem project, first announced in June 2019, as it continues to face stiff regulatory headwinds. Read more.

A16z Leads $28M Round for Privacy Coin Iron Fish: Iron Fish, a decentralized blockchain network that aims to create a cryptocurrency as private as cash, has raised $27.7 million in a Series A round led by Andreessen Horowitz (a16z) ahead of the network’s Dec. 1 testnet launch. “While a number of Web 3 teams are now building developer-oriented privacy tools for blockchains, there’s also a need for mainstream privacy solutions that are accessible for everyday users,” wrote a16z general partner Ali Yahya, deal analyst Elena Burger and crypto partner Guy Wuollet in a blog post. Read more.

Five Things to Know About Twitter’s New CEO Parag Agrawal: Twitter’s co-founder and long-serving CEO, Jack Dorsey, handed the reins to former Chief Technology Officer Parag Agrawal on Monday. Here are five things to know about the new leader of one of the world’s biggest tech companies. Read more.

Borderless Capital Launches $500M Algorand-Focused Fund: Borderless Capital is launching a $500 million ALGO Fund II to help develop projects built on the Algorand blockchain. The company announced on Tuesday the fund will invest in “digital assets powering the next generation of decentralized applications on top of the Algorand blockchain network,” including projects “to disrupt the creators economy with [non-fungible tokens] and initiatives that can increase capital in the ALGO [decentralized finance] ecosystem through liquidity mining, lending, borrowing and yield farming,” the company said in the press release. Read more.

LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE

Steven Nelkovski is the CEO and Patrick O'Sullivan is the Chief Bitcoin Officer of the Perth Heat, an Australian Baseball Team. They have fully converted their entire organization to a Bitcoin Standard by holding Bitcoin on their balance sheet. They will be paying players in Bitcoin, accepting payments in Bitcoin at their stadium, and placing Bitcoin logos on the team merchandise.

In this conversation, we discuss pitching the idea to the organization, creating a Chief Bitcoin Officer role, paying players in Bitcoin, and the future of their team on the Bitcoin Standard.

LISTEN TO THIS EPISODE OF THE POMP PODCAST HERE

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