Finding Bitcoin’s place in the Talmud’s investment teachings

The Talmud offers investment teachings that have stood the test of time, but where might Bitcoin fit into one of his most iconic teachings?

This is an opinion editorial by Konstantin Rabin, a finance and technology writer.

As a huge proponent of all things crypto and Bitcoin in particular, my mind often wanders to a time before this revolutionary technology came into existence and I am in awe of what it will accomplish. I wonder: how would our ancestors have looked at it, and how can we take their teachings and apply the thoughts of ancient thinkers to our modern existence?

While the money management strategies found in books from thousands of years ago may seem crude or irrelevant to us today, I’ve always tried to look beyond the words on the page and into the meaning behind them to discover what lessons they taught could teach us today. One day, while chatting with a friend about this, we wondered why Bitcoin might even be backed by Talmudic teachings.

The beginning of an idea

I’m not a religious person by nature, but it’s hard to avoid conversations that veer into this area when you’re sitting with some of your Jewish friends who are avid students of the Talmud and all things Judaism . While I was sitting with one of these friends one evening, he brought up the Gemara, a part of the Talmud that contains investment advice and is often praised for its simplicity and effectiveness. The 63 books of the Gemara serve as a commentary on the Mishnah, which in turn serves as the first major writings of the Jewish oral traditions, spanning hundreds of years. However, the section my friend was referring to was reading which reads as follows:

“R Isaac also said: One should always divide one’s wealth into three parts: one-third in land (invest), one-third in goods, and one-third (keep) at hand.”

–The Gemara, Tractate Baba Mezi’a 42a

To invest your money properly, you should divide your wealth into three equal parts, divided equally between real estate, cash on hand, and risky investments.

Therefore, the traditional Jewish would diversified portfolio look like this:

A third in the country

Land – or if we generalize, real estate – is one of the most stable investments there is. Buying and holding land or other types of residential or commercial real estate has been common practice for thousands of years and is still true today as the real estate market is set to grow at a compound annual growth rate of 10.7% from 2022 to 2031. Hence seems it’s great to keep some of your money in real estate to preserve wealth and the inflation to fight.

A third handy

We’ve all heard the phrase “cash is king,” and the Gemara teaches us that, too. Keeping a significant portion of your wealth in cash is very useful for a number of reasons. First, the importance of liquidity cannot be underestimated – borrowing money costs money and the ability to pay off unexpected debts and remain solvent should not be undermined. That being said, markets always move in cycles, and during times when liquidity is low and demand for cash is high, other assets tend to lose value. So if you have a significant chunk of cash on hand, you can grab various assets when they are undervalued.

A third in the goods

While the title may be a bit misleading, I understand that “commodity” refers to any type of risky asset and venture – my own business, stocks, commodities, pretty much the stuff you put some money into, in the Hope that in the future you could make a significant return.

Such assets usually do well when the market is up, they appreciate in value and can be sold for a sizeable profit.

Where does Bitcoin belong?

While the reasoning behind the attributions outlined in the Gemara makes perfect sense to me, I have wondered how this translates to the modern world and where Bitcoin might fit into the grand scheme of things. So the first thing my friend and I did during our conversation was to redefine this investment idea in order to better understand it in relation to the world we currently live in.

Does Bitcoin fall into the “risky assets” category?

During our discussion, we came to the conclusion that bitcoin could fit into the commodities category fairly easily, as its volatility allows it to be considered a risky asset but an asset nonetheless. When looking at comparisons of stocks and crypto investments, it is evident that both types of assets carry risks and that both could fall under the commodities heading.

Does Bitcoin fall into the “cash” category?

Another place Bitcoin could fit is in the “at hand” column. Due to how easy it has become in recent years to move your money from fiat to bitcoin and back again, it has reached a point where the introduction of bitcoin and the liquidity it provided has made it similar to cash, but maybe with higher foreign currencies. exchange rate risk. This is especially true as BTC is freely traded against other major currencies such as USD and EUR. Additionally, BTC is often a form of “universal cash” for purchasing various other crypto assets and a growing list of goods and services.

Does Bitcoin fall into the real estate category?

Even if there are countries like the United Arab Emirates, where the Dubai Land Department for the first time in 2017 Blockchaintechnology to manage its real estate market, I would not say that bitcoin can be considered real estate in the Talmudic sense.

However, one could certainly argue that BTC is the most stable of all cryptocurrencies is and could call BTC a “crypto property.”

Bitcoin is still a risky asset

While it is clear that Bitcoin has characteristics that make it similar to cash and real estate, we have concluded that it currently falls into the “risky asset” category more than anything else. However, it may be less risky than other assets that should be held in this category. Let’s compare Bitcoin to a few other “risky” assets below:

As shown in the table above, calculating the five-year return (ROI) for these “risky” assets based on their closing prices on February 6, 2018 compared to their closing prices on February 6, 2023; their maximum drawdown based on their lowest prices within the same period; and their maximum possible ROI based on their highest closing prices within the same period, Bitcoin offers both relatively high returns and relatively high risk.

Buying bitcoin five years ago (in February 2018) and selling it in February 2023 would have yielded the highest return among the assets listed. If you were lucky enough to all-time high Selling would bring Bitcoin a return of over 500%. Obviously, high returns inherently come with increased risk, and Bitcoin also features the highest possible drawdown listed above.

Is Bitcoin Investing Religiously Ethical?

“Every tool can be used for good or for bad. It really is the ethics of the artist using it.”

-John Knoll

Thinking about the issue of ethics has driven many bright minds insane, but as we sat and pondered the role Bitcoin will play in the world, I thought of the above quip by visual effects legend John Knoll. While we were able to come up with many ethical ideas surrounding Bitcoin, in the end my friend and I decided to focus on the most obvious problems it solves to see if those would benefit good or bad actors.

Decentralization: This is often touted by Bitcoin enthusiasts as the whole purpose of blockchain technology, and it certainly has its merits. Operating without a central authority fits well with Jewish principles of autonomy and freedom.

Transparency: Because the Bitcoin network is open source and transparent, it helps promote accountability and honesty among users, both of whom are ethical and aligned well with truths held dear by all humankind.

Uses: In its dark (web) days, Bitcoin was often used for illegitimate or illegal transactions — buying fake IDs, drugs, firearms, and so on. This would certainly make Bitcoin unethical for many. In this day and age, cryptocurrencies are becoming like Monero and USDT however, commonly used to conduct legal transactions 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 overstated and above I have presented a simple model that has stood the test of time. Obviously, the investment teachings of Judaism are thousands of years old and don’t specifically consider bitcoin, but they certainly offer us an interesting thought experiment today.

This is a guest post by Konstantin Rabin. The opinions expressed are solely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.