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Peter Thiel dumped crypto fortune before the crash, a lesson for everybody

on Jan 19, 2023
  • Peter Thiel's venture capital firm reportedly dumped all its crypto holdings two months before LUNA crash
  • They currently have no significant exposure to crypto, with the sale closing an 8-yar-long position
  • $1.8 billion was returned from the crypto bet, with a lesson for crypto investors packaged with it

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“Diamond hands” was the mantra preached by crypto investors during the pandemic boom, which saw Bitcoin rocket north of $68,000 and appear as if it would never come down.

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It seems obvious now, but what is it that they say about hindsight bias? Cartoon monkeys were trading for $400,000+, billionaires were tweeting about doggy tokens and the most powerful emotion known to humankind, FOMO, was raging long and hard into the night.

Market melts down in 2022

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And then it all came crashing down. A stablecoin that proved to be anything but stable nuked the market in May, triggering a contagion crisis of epic proportions. Down came the dominoes, and down came the prices.

But Peter Thiel, one of the most high-profile Bitcoin backers, apparently escaped intact. Founder Fund, the venture capital firm he co-founded, closed out almost its entire crypto position following an 8-year-long investment. According to reports, the Founders Fund currently has no significant exposure to crypto.

The bet returned $1.8 billion, having first invested in 2014. About two-thirds of its overall investment was piled into Bitcoin, which opened 2014 at around $750 and closed the year above $300.

That’s pretty reading – I have marked in black on the below chart where Thiel reportedly got out. It was two months before LUNA death spiralled, sending the crypto market plunging.

There is a lesson here for crypto investors

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Thiel attended Bitcoin Miami, the conference in April 2022 which took place shortly after the enormous sale occurred. He spoke highly of Bitcoin, saying that the “end of the fiat money regime” was nigh and that Bitcoin could trade at close to $4.5 million per coin.

His actions said otherwise, and his bank balance will be thankful as a result. It’s a story which happens too seldomly in crypto, with a culture built up during the bull run around “diamond hands”, and a necessity to go all in.

I’m a Bitcoin believer, but that doesn’t mean I don’t think it is lunacy to go all-in on this asset. That holds true at the bottom of the bear market or the top of the bull run. Bitcoin is an incredibly volatile asset and a failure to diversify appropriately will end in financial ruin.

There is a way to invest responsibly and still place into conviction a belief that Bitcoin – or any other asset in the world, for that matter – will excel. What is not wise is to follow the advice of Michael Saylor, who said the below when Bitcoin was trading at $56,000.

Take all your money and buy Bitcoin. Then take all your time to figure out how to borrow more money to buy more Bitcoin. Then take all your time to figure out what you can sell to buy Bitcoin

Michael Saylor

Be more like Thiel than Saylor.

Founders Fund’s crypto sales were one close to ten large moves the venture fund made between 2020 and the end of last year that returned over $13 billion to investors. It’s clear that this was part of a wider strategy.

While nobody can time the market and hindsight bias is making this look like a genius move, there is a lesson here. It is very likely that Thiel still personally believes in Bitcoin and holds a chunk of his own. Who knows? But that doesn’t mean he wanted to bet the future of his firm on it. I wonder if Michael Saylor and the MicroStrategy executives have seen this news.

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