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Peter Thiel’s “Crazy” Crypto Bet

Peter Thiel’s “Crazy” Crypto Bet

Chris Campbell

Posted May 17, 2024

Chris Campbell

Peter Thiel made billions with 11 words.

He opened his book Zero to One with them:

"What important truth do very few people agree with you on?"

Blam. That’s his secret as a contrarian investor.

That’s it.

As you know, contrarian investing is all about doing the opposite of “common sense.”

Instead of following the lemmings off a cliff, contrarian investors hunt for opportunities where everyone else is either losing their minds with pessimism or riding a delusional high of optimism.

By spotting undervalued assets…

Contrarians make a killing while everyone else scoffs.

Bitcoin in 2014: While everyone else was calling it a scam and a bubble, the smart contrarians bought in and laughed all the way to the bank.

Tesla in the early 2000s: When the crowd scoffed at the idea of electric cars, contrarians loaded up on Tesla stock, betting on Musk’s vision. Now, they're sitting on piles of cash.

Amazon in 1997: While traditional investors dismissed Amazon as "just an online bookstore," contrarians saw the potential. Today, Amazon runs the world.

Thiel is the ultimate contrarian investor, consistently betting big on ideas everyone else dismisses.

In 2004, he put $500,000 into Facebook when social media was a joke and MySpace ruled. That bet paid off bigly, establishing Facebook as a tech titan.

Thiel also co-founded Palantir amidst widespread skepticism about big data’s profitability and ethics; it’s now a key player in data analytics for governments and businesses.

His early investment in SpaceX was another contrarian move, backing private space travel when it seemed like a sci-fi fantasy—today, SpaceX dominates the space industry.

Thiel’s foresight was evident again in 2014 when he embraced Bitcoin while traditional finance laughed it off as speculative nonsense; Bitcoin is now a mainstream asset.

Thiel’s latest investment has raised a few eyebrows. Perhaps we should pay attention.

Betting Big on Betting Markets

In our Altucher’s Investment Network Facebook group (exclusive for ALN members), James wrote about Thiel’s investment in Polymarket, a decentralized betting platform.

He wrote:

A couple of interesting points:

A) The CFTC is trying to ban betting platforms.

B) It’s almost like a moral ban on betting in general. Even though most stock trading and particularly options trading is VERY MUCH like betting. (e.g. I’m going to bet on MSFT earnings by buying short-term options right before earnings day - that is a bet rather than an “investment”).

C) Polymarket is backed by Polygon tokens. Worth looking into that.

D) I’ve been fascinated by election betting since 2020 when I had on the PredictIt CEO and they even asked me to do a column for them.

On PredictIt some people apparently make over $100k a year even though each individual bet is limited to about $1000.

E) I admire the contrarian style of betting on something that is potentially going to be declared illegal.

It almost makes me think he does that on purpose because he analyzes 1) it’s decentralized too hard to make it illegal and 2) once it is clear it can’t be made illegal (also since it's global) the valuation will go way up.

Brass tacks…

Thiel’s Polymarket investment is another masterclass in contrarian thinking.

He’s betting on the inevitable clash between outdated regulations and unstoppable technological progress.

When the dust settles, Thiel will likely be on top, as usual.

And although you’re likely not going to be able to invest in Polymarket (anytime soon, at least)...

Let’s use a similar play as another example.

Ethereum: A Contrarian Bet?

Let’s look at what’s going on.

The general sentiment is that the SEC won't approve an Ethereum ETF this year, which has already led to negative sentiment, depressing Ethereum’s current price.

On Polymarket, we see a dismal 10% chance of an Ethereum ETF approval by the end of the month.

ETH chart

However…

There’s reason to believe the market might be undervaluing the odds. (More on Monday.)

But speculation aside:

The asymmetry comes from the fact that while the probabilities of the most favorable scenarios (ETF approval or favorable regulatory classification) is lower…

The impact on ETH’s price to the upside in those cases would be dramatic.

Conversely, the likelihood of adverse scenarios (ETF denial) is higher…

BUT:

The impact will be relatively minimal -- this is exactly what everyone expects. (Of course, Ethereum could plummet WAY down… but we’re talking probabilities here.)

Moreover, if we see any worst-case scenarios -- which pit the SEC against Ethereum holders -- I’m not counting out a Gamestop-style “SEC vs. the People” run. (Non-zero chance, however low.) 

I know I’m not saying anything groundbreaking here…

And I’m also NOT saying go bet the farm on Ethereum.

Just this:

Contrarian investors focus on these scenarios for the highest potential returns.

Again:

"What important truth do very few people agree with you on?"

More on the Ethereum ETF on Monday. (Hint: Ethereum’s here to stay.)

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