Religion is on the rise. Not in the traditional sense, but in the modern sense. Bitcoin is a religion, so is WallStreetBets. Tesla lovers form a religion, but so do Tesla shorts. Wokeness is a religion, and so is Trumpism. We’re surrounded by religions, or at least the early formations of them.
A religion doesn’t mean something is true or false, nor does it mean something is good or bad. To me, a religion represents a higher cause that a group of people organize around to make a reality and defend its ideals. All religions seem to form and grow in a similar pattern:
1. Every religion begins with an extreme idea that coalesces into an ideology about a higher cause. In other words, all religions start with a non-consensus idea. Modest or consensus ideas never evolve into religions they require no aspiration to attain, nor defense from detractors. Only ideas that require sacrifice from believers can turn into religions. Early believers in a religion must always be zealots who are uncompromising in their support of the idea.
2. Adherents to the extreme ideas broadcast those ideas to others. Broadcasting extreme ideas serves two purposes. First, it establishes one’s commitment to the religious ideology as part of their identity. Second, it distributes the idea to the broader population. Extreme ideas often garner attention because of their novelty, particularly in the age of social media. The attention paid by others to extreme ideas solidifies the commitment of those who espouse them.
3. People who share ideological identities form tribes to defend the extreme idea from non-believers. Strength is always greater in numbers, and tribalism is a natural survival mechanism for all people, especially those who believe in things seen as extreme by others. To believe in an extreme idea requires some level of disdain for those who don’t. By only associating with fellow members of the tribe, the group prevents dissenting points of view from consideration, reinforcing the tribe’s faith in the ideology. Believers who question their faith are banished from the tribe. Apostates are often treated more harshly than those who never believed in the first place.
4. As broadcasting gains more attention from outsiders, the cycle repeats, and the religion grows. Without critical mass, the group is merely a cult. With critical mass, the group is a religion.
This view of religion may seem cynical or negative, but it’s not meant to be. Extreme ideas are non-consensus, and only non-consensus ideas yield extraordinary results. Getting a mass of people to believe in some common cause is an extraordinary achievement. Of course, any extraordinary result can be extraordinarily good or extraordinarily bad. Religions are not exempt from this reality.
While my view of religion formed as I considered modern movements, I think it’s a practical assessment that extends to traditional religion as well. To restate the most important argument above: Every religion requires belief in some extreme idea or ideas. The Immaculate Conception. The parting of the Red Sea. Seventy-two virgins in heaven. Heaven itself is sort of an extreme idea, as is God.
Once a believer accepts the ideology of the religion, they broadcast their belief by getting baptized and going to church. Maybe they wear a cross, or a yarmulke, or a burqa. This creates commitment that indoctrinates them into the tribe. Faith allows them to defend the extreme idea in the face of any challenge to the religion.
I believe that religions die when the extreme ideas they are founded on are no longer in need of defense. This can happen in three ways
1. The extreme idea becomes consensus and non-believers stop resisting. In this case, the religion has “won,” and the prize is inevitable decay. This seems to represent the victory of progressivism.
2. The extreme idea turns out to be verifiably false, and believers are left with the shame of being non-consensus wrong. This seems to represent the victory of conservatism.
3. A hybrid version of one and two can happen where a counter religion becomes consensus with the resulting necessity that the other religion be seen as false by most. This is religious war and arguably where we stand in politics today. Religious war may have always been the reality of politics throughout history, we just feel it more acutely as we live in the moment.
Perhaps one central reason that traditional religion has lost influence, at least in America, is because it became too common. Believing in God from a Christian point of view was essentially consensus through most of the 1900s. There was little meaningful resistance to the ideas of the Church, and it’s hard to feel disdain for people who are apathetic about your supposedly extreme idea. Any idea that suffers no opposition probably isn’t extreme enough to warrant tribal formation around it. Religions, perhaps like nations, need conflict to stay vibrant. For better or worse, war has always served as the greatest uniter of a group. Existential threat is the quickest way to make people take up arms and forget minor differences.
It’s no coincidence that modern religions around finance and politics have emerged in the US during the decline of traditional religion. When old religions die and no longer serve the purposes of establishing identity or forming tribes of common interest, new religions emerge to fulfill those human desire. As we are now surrounded by these new and emerging religions, I think it’s worth building some intuition about them from a financial perspective to determine how to take advantage of them as investors.
Religions in Finance
As we’ve seen with Bitcoin, GameStop, and Tesla, religions in finance can create dynamic upside in the assets that serve as the basis for religion. While religions need to start with some extreme belief tied to a higher cause, financial religions ultimately gain followers because of the returns they generate. This creates a virtuous cycle where the performance of the religious asset has a direct correlation to external interest in the religion. As new adherents to the religion come into the asset, the asset rises in price given that greater demand, and those rising prices attract more interest. Even for investors who are looking for returns instead of religion, ownership of the asset sparks a commitment to the religion. The owner is incentivized to want the asset to appreciate, so he broadcasts it to the world, and the religion can become part of his identity.
The cycle of growth in financial religions tells us two things. First, assets that serve as the token of commitment to a financial religion are never valued, can never be valued, on intrinsic qualities. Ownership of the asset is a requirement of being part of the tribe. Just as followers of Christianity don’t examine the intrinsic value of a cross, followers of financial religions don’t examine the intrinsic value of the asset that represents the religion. Stories will justify the value of religious assets, but they will never yield a definable intrinsic value calculation. Therefore, any entry into a financial religion for the purposes of profit must be done as a speculation rather than an investment. You are hoping you can sell the asset for more than you buy it for, not because the intrinsic value is attractive. Using a framework to value a collectible will be more useful than trying to determine intrinsic value.
The second thing the financial religion growth cycle tells us is that they can cause bubble-like outcomes. Rapid increases in demand for a religious asset makes the flywheel spin faster, attracting more speculators. Speculators can just as quickly leave the asset as they enter, creating the potential for a drop in asset price that can frighten new believers in the religion and a spiral down in price.
To me, the best way to try to play financial religions is to get in early. Financial religions are kind of like multi-level marketing programs in that the earliest adherents gain the most financial value. The returns of people who traded Bitcoin after it was a religion compared to those who invested in it early are incomparable.
The best way to try to get into religions early is identify early financial cults. Bitcoin and GameStop both has cults that supported them long before they became religions. Investing in cults as such may not be that dissimilar to investing in venture-stage companies. You may be best off investing in a basket of potential cults, and if one hits, it generates all of your returns (not investment advice). The other way to play financial religions is to bet on the collapse of the religion, but shorting a financial religion is always dangerous, see GameStop, Tesla. It seems likely the religion around both may fade eventually, but the challenge is to predict when.
The sustainability of a financial religion may be the number of believers relative to speculators. Believers in both Bitcoin and GameStop encourage holding forever through religious terms: hodl or diamond hands. Even religious symbols like 🚀 or 💎🙌. The degree to which believers actually hodl will likely determine the sustainability of the religion, at least in the near to medium term.
Long term, Bitcoin is by far the most unique of the financial religions. There’s a chance it replaces fiat currency worldwide. In that case, the returns along the way are likely to be extraordinary, but if Bitcoin does become a true global currency, it would be consensus and no longer need believers to defend it.