By Francis Bayes, WCI ColumnistI wrote my column on Why I’m Still Buying Crypto in December 2021 when the price of Bitcoin was in the $40,000s. By the time my column was published in July 2022, it had dipped below $20,000. Many readers ridiculed me, and one WCI forum member (who might not have read the column) described it as a “copium.”
Now, crypto is bigger than ever. Bitcoin was above $90,000 when I wrote this in December 2024, and it surpassed $100,000 only a few days later. If you judge by the title of my columns, you would think that I am about to announce that I am quitting residency and retiring early.
But I am far from “winning the game.” My position in crypto is less than some physicians’ paychecks. In fact, cryptocurrency itself is unlikely to have a significant impact on my journey to financial independence. I can declare that I am winning with crypto because I have followed my financial plan. My 2022 column, at its core, was about doing just that. This column is also about its importance and challenges, with my personal examples of buying and selling crypto.
[AUTHOR'S NOTE: Nowadays, anything can be political. This includes crypto, as the outcome of the 2024 presidential election likely played a role in Bitcoin’s recent price momentum. But I do not mix politics and investing. You shouldn't either!]
My Investment Thesis (or Investment Policy Statement) on Crypto
My investment thesis for crypto has not changed from what I wrote in 2021: “Some smart people will figure out some useful things with crypto, and I do not want my [Fear of Missing Out] FOMO to affect other aspects of my financial plan.” Its first half has not panned out, as seemingly smart people were caught scamming others using crypto. Yet I continued to own crypto through its ups and downs because of the second half of my thesis.
If crypto went to zero, I would have been upset for a day or two (or a week or two) and then moved on because my portfolio’s annualized return has been above my goal of 5% real. Had I sold crypto, I would have been upset for the past year. Visiting The Wall Street Journal website or listening to my favorite financial podcasts would have been painful because they would remind me that everyone else who “HODL'd” crypto is getting rich.
Had I sold crypto, such negative emotions might have overwhelmed me into buying crypto again or taking more risk with individual stocks. Given the remarkable runup in 2024 (Bitcoin's price increased more than 120% for the year), I would have had a decent return if I bought crypto at any point between January and November 2024. The more likely outcome is that I would have anchored on the price at which I sold crypto and waited for a crash.
Ultimately, owning crypto has helped minimize my FOMO. Euphoria about technology stocks and crypto in 2024, just as in 2021, has been like a boiling kettle. I have kept my finger in the water, so I know how quickly the water gets hot and cold and how sensitive I am to the temperature changes. I have genuine respect for those who can tolerate rapid and dramatic changes. Inevitable are my occasional doubts about owning international and small cap value stocks, both of which have underperformed against the US large cap stocks. Yet I am content to be on cruise control with my current asset allocation because I do not want to experience the temperature rollercoaster in order to meet my investing goal.
More information here:
A Neurologist’s Road to Becoming a Bitcoin Maximalist: Why Bitcoin Is Not the Next AOL
My Crypto Allocation and Rebalancing Strategy
In 2022, when I opened a news app and saw that the price of Bitcoin dropped below $20,000, my heart sank a little. But I also remembered my plan for rebalancing. I checked my spreadsheet to see how much more crypto I would need to buy for its allocation to be 2% of my portfolio. Then, I opened my brokerage account to “buy the dip” without thinking (or asking my wife) because (1) it would not impact our cash flow and (2) my wife and I had discussed our plan for crypto during our annual financial review.
My current asset allocation is 98% stocks (all of which are in index funds) and 2% crypto. I settled on 2% because anywhere between 1%-5% seems to be the sweet spot for taking advantage of crypto’s volatility and its relatively weak correlation with stocks compared to the correlation between US and international stocks. The difference between 1% and 2% is negligible in terms of its impact on the overall portfolio, whereas going from 2% to 5% would add a significant amount of risk (and its associated emotions).
I rebalance stocks every year with new contributions to retirement accounts, but with crypto, I have been more “active.” I buy and sell crypto when the allocation reaches its lower and upper thresholds of 0.8x and 1.25x (that is, 1.6% and 2.5%), respectively. Any gains from selling are used to buy more stocks, whereas I buy crypto with cash from our checking account.
I have the rebalancing plan written down, and I also formatted my spreadsheet so that the cells turn yellow when the asset allocation exceeds the threshold. On Google Sheets and Microsoft Excel (see below), you can use the “conditional formatting” feature to make a cell change colors if the value in the cell is not between the lower and upper limits of your target allocation.
Even with such reminders, I am often reluctant to buy or sell when I own too little or too much crypto. Instead of buying a large lump-sum amount of crypto during its crash in the summer of 2022, my fear that the prices might fall even more led me to buy in only small amounts (below are my receipts). When crypto exceeded 2.5% of my portfolio in the fall of 2024, the price of $100,000 seemed imminent for Bitcoin, so my fear that I would miss out on further gains kept me from selling at $90,000, $95,000, and $98,000. I finally sold the excess crypto only because I started writing this column; I had to practice what I was preaching! Non-automatic investing is hard.
My Crypto’s Annualized Real Return
Calculating the annualized return of crypto specifically (I've previously explained why I do not calculate the returns of other asset classes) has helped me appreciate its volatility and reaffirmed my 2% allocation.
Until 2024, our annualized real return on crypto in our portfolio was negative (see chart below). Crypto lowered our portfolio’s 2022 return by 1.05%, while it improved our 2023 return by 0.88%. From 2021-2023, crypto lowered our portfolio’s overall annualized real return by 0.09%.
In 2024, our real return on crypto was 91% despite selling some Bitcoin for rebalancing (see chart below). Even though our allocation to crypto did not exceed 3% throughout the year, crypto improved our portfolio’s return by 1.29%, and our annualized real return on crypto took a dramatic swing from red to black. From 2021-2024, crypto improved our portfolio’s overall annualized real return by 0.22%.
(The inflation data for 2024 is from November 2023-November 2024.)
Based on our baseline projection of 5% real return for our portfolio, the improvement of 0.22% over a 30-year span would lead to an additional $2,800 for every $10,000. Although my crystal ball with crypto is pitch black, I would be pleasantly shocked if crypto continues to outperform at this rate as it becomes a mature asset class. It is hard to imagine that crypto would go through multiple cycles of volatility like 2022-2023 for 30 years.
However, the only thing I have been right about crypto so far is not selling at its low.
More information here:
Pros and Cons of Cryptocurrency Investing
“Never Interrupt [Compounding] Unnecessarily”
Crypto’s positive impact on my portfolio feels like a bonus because my primary reason for owning crypto is to not interrupt the power of compounding for the 98% portion of my portfolio. Quoting the late Charlie Munger on his first rule of compounding may be ironic because he also called crypto “rat poison.” Still, I hope he would have appreciated my commitment to following that guideline.
My first step in implementing his first rule of “never interrupt[ing compounding] unnecessarily” was creating a financial plan, and I deliberated on why crypto should be a part of it. I have not addressed in this column whether you should buy crypto “now” because I do not know your financial plan, knowledge of financial history, or experience with risk. I can definitively say that the price of Bitcoin should not be the reason. Otherwise, I imagine that crypto will be a rat poison and that you will break the first rule of compounding.
Have you been investing in crypto? Did you see big gains in 2024? Or are you content to watch from the sidelines?
Do you keep your crypto on an exchange or do you place it in a cold wallet? Exchanges seem risky, but cold wallets seem technically challenging. This is one of the things that I think keeps some people, including myself, who otherwise would want to from speculating a small amount in bitcoin.
I keep crypto on a well-established exchange because the ability to make automatic recurring purchases was the most important feature for me. No need to do it currently, so I may eventually transfer some of it to a wallet. But I’m not a maxi/fundamentalist enough to worry as long as my security with the brokerage account is acceptable.
Great post, thank you. In terms of rebalancing, you write:
“I rebalance stocks every year with new contributions to retirement accounts, but with crypto, I have been more “active.” I buy and sell crypto when the allocation reaches its lower and upper thresholds of 0.8x and 1.25x (that is, 1.6% and 2.5%), respectively. Any gains from selling are used to buy more stocks, whereas I buy crypto with cash from our checking account.”
When crypto goes over your high threshold, why not just buy more stocks to rebalance? If crypto is now at 3% of portfolio instead of 2.5%…. why not just buy some index funds? Crypto transactions have very high fees on nearly all exchanges compared with no cost index funds transactions.
Thanks!
Thank you for your encouragement!
My exchange has no transaction fee, although it has a high spread (“the hidden fee”). Nonetheless, I sell crypto and buy stocks because (1) as a resident, I have better use for the cash in my checking account than buying more stocks in a taxable account* and (2) I want to take the gains before any crash so as to take advantage of the volatility. I agree that buying more index funds in taxable with “new” cash would be a better in the future–in fact, it’s a good behavioral strategy to save more when crypto is doing well!
*But I buy crypto when it’s below the threshold with “new” cash because most of my stocks are in tax-protected accounts (and I don’t want to, or can’t, own crypto in those accounts).
Well thought out article. Nice work.
I must admit, crypto always sounds so sexy. My partner just had a similar experience with Tesla stock. I’ve been reluctant.
However, it does feel like you’re going through a lot of heartache for minimal benefit. “From 2021-2024, crypto improved our portfolio’s overall annualized real return by 0.22%”. And even that 0.22% boost seems unlikely to sustain long-term.
Thank you for your encouragement!
Although I agree that 0.22% is probably not sustainable over 20-30 years, people pay a lot of money for that much “alpha”!
As a “personal finance hobbyist,” I intellectually stressed about owning it, its allocation, and how to buy more of it. But I haven’t found its volatility to be so emotionally stressful, so I wouldn’t describe it as a “heartache.” In 20 years, my wish for simplicity may be even stronger (it’s certainly stronger than it was 3 years ago), and if crypto helped me get to where I want to be, I would likely sell it all then.
Awesome article man. Nice dissection of what is emotionally going on and how you’re trying to prevent any FOMO or behavioral biases on the main part of your retirement portfolio. Excellent dude.
Always appreciate your encouragement!
I think something you should consider is how well you expect Bitcoin to perform in the next couple of decades. If you expect the S&P to return about 10% but expect Bitcoin to return 20%+, it makes sense to front load your allocation to get as much as you can sooner rather than later so compounding has more time to do the heavy lifting for you. The returns of the S&P will always be there for you, but the world will undergo monetization of Bitcoin to its eventual percentage of global “store of value” only once, and after this its returns would be expected to diminish considerably.
Another consideration is that while frequent rebalancing may reduce volatility, it greatly diminishes returns (if Bitcoin performs as expected). An alternative approach may be to invest 2% of your savings per year into bitcoin and don’t rebalance. You can run the calculations to see that without much added risk, this will enhance returns greatly if Bitcoin performs as expected.
Well, that’s the big challenge with a speculative asset isn’t it? Predicting the future is so hard. There’s not even a guarantee that Bitcoin gets where you think it’s going, much less when. You say “performs as expected.” Expected by who and why should we believe them? It feels like I’m an agnostic talking to a bunch of believers sometimes.
It’s not that hard to predict the future, really. Bitcoin is the ultimate hard asset. Hard assets go up over time compared to Fiat currency. It’s something that’s been seen in history time and time again. Saying Bitcoin is going to go up in value is no more “speculative” than saying real estate, gold, or stocks will go up in long run vs fiat.
And I’m not going off some edict written 2000 years ago to say Bitcoin is going up fast/will continue to go up fast. The free market has made it the fastest asset to reach 1 trillion, and it’s still not letting up. I’m a believer in the free market and trusting in what the price mechanism is telling us about Bitcoin. And also the fact that multiple countries are considering strategic Bitcoin reserves suggests if you think Bitcoin has any sort of future, it’s probably better to buy your bitcoin before the US government rather than after. You don’t exactly have to be Nostradamus to see that.
I agree that Bitcoin is no more speculative than gold.
I would suggest viewing crypto, precious metals, and foreign fiat currencies in a similar way… none really have any intrinsic value or real utility. Instead, their only value comes from what others are willing to pay for them at any given time.
It may be that people will pay more for a Chinese Yuan (or for gold or bitcoin) in the future than they will today… But why would they? And why wouldn’t you prefer to own something that produces something of value?
Bitcoin is fundamentally different than fiat currencies or physical stores of value. The Yuan is at the whim of the money printer similar to the dollar. Real estate is at the whim of confiscation, taxation, natural disaster, bad tenants, unfavorable legislation against landlords. Gold is hard to split/not easily divisible and very hard to easily transport in large amounts.
Bitcoin, on the other hand, is a pristine digital asset that is unconfiscatable, uncensorable, can be sent around the world at the speed of light, nearly infinitely devisible, and has an absolute fixed cap (unlike gold or real estate). It’s the world’s most liquid asset and can be bought or sold 24/7. It’s not any one of these things that make Bitcoin special, but it’s the combination of all of these features that give it value. Bitcoin doesn’t “produce value.” Its intrinsic properties are what gives it value.
Not sure it’s unconfiscatable. Less confiscatable might be a better way to describe it.
Our society and government right now treat it as a speculative investment, not an alternative, much less official, currency. That’s the main problem right now. Maybe that changes, maybe it doesn’t. Maybe a better one comes along, maybe it doesn’t. I’ve been pleased to see it improved from time to time though, which makes it more likely to somebody be a little more useful and maybe someday even be a useful currency.
It’s fairly unconfiscatable in comparison with everything else. If only you have the private keys, someone can kill you and they still won’t get your Bitcoin. But criminals/governments can kill you and take your gold or your stocks/land.
Bitcoin does not need to be a currency. It will be just want society wants/needs it to be. At its base layer, it’s built to be a secure store of value that’s decentralized and uncensorable. Once its market cap becomes large enough that it’s not so volatile, it will be very easy to scale for use as a currency either via new tech (like the lightning network) or via banks or payment apps. How quickly this plays out will depend in large part on the fiscal path our government takes over the next couple of decades, ie. how aggressively debt expands and the US dollar gets devalued.
When the alternative is jail, loss of another asset, or torture etc. it becomes confiscatable even if you’re the only one who knows the keys. I agree though, less than other stuff. A strength of crypto assets for sure. Plus a little harder to find out about which is worth something in that sort of doomsday scenario.
But in a non doosmday scenario, precious few uses cases for most of us.
Not sure that increased market cap will decrease volatility. Hasn’t happened yet.
Your optimism is inspiring but seems excessive.
This “doomsday” scenario is unfortunately playing out constantly in different parts of the world. If we look past our own privileged position in the world.
Agree with you about volatility–to an extent. Other assets with similar market caps like TSLA or NVDA have similar volatility at times. Once Bitcoin becomes seen as less of a “risky” play and instead the flight to safety that it is, things will smooth out.
Ok… so maybe a helpful way to view bitcoin like some sort of “digital gold”. If gold were digital, it would be more difficult to steal, easier to store and trade.
I still don’t see why people will want to pay more for gold (or digital gold) in the future than they do now. I mean… maybe in some serious doomsday scenario. But otherwise, I don’t get it.
In 1978 (when US went off gold standard), the price of gold was around $193 per ounce, while today, the price is approximately $2,680 per ounce. That’s a CAGR of 5.6%. Now, add to that the “inflation rate” of gold, ie. How much gold is mined per year relative to current stock (about 1.8%), and you arrive at 7.4%, which is the same rate as expansion of the money supply per year over this time! (Importantly, this is not the CPI inflation rate but rather actual rate of expansion of currency supply).
So what does this little exercise tell us? You are correct in that people will not pay more for gold in the future then they are paying for it today. They are paying the same for it, except in DEBASED dollars. But the nominal price goes up. This is why gold is referred to as a good store of value.
Now, when you factor in all the advantages Bitcoin has over gold, it’s easy to see why it should have a market cap greater (or even far greater) than gold. In the short term while it settles into this new market cap (BTC is about 2 trillion vs 18 trillion for gold), Bitcoin will produce outsized returns relative to currency debasement. In the long run, after this adjustment period, it should roughly run in tandem with money printing as gold does today. So the period of maximum return for being a Bitcoin investor is today not tomorrow.
You can say this about anything. Why do people buy art or comics or certain watches at ever increasing values? IDK but they do. Heck, you can even say that about stocks. Are you buying stocks at this historically inflated market? Do you know if it will always keep going higher? I don’t know what will happen with any of these in the future, but I sure hope they all continue to go up as they have over history.
“It’s not that hard to predict the future, really.”
You said that.
https://www.nbcnews.com/business/personal-finance/memecoins-what-are-they-why-are-they-popular-cryptocurrency-rcna184223
So, this sort of thing is a reasonable prediction for the world of crypto?
Fartcoin jumping up to a market cap of $800 million after a new president wins. You see that one coming?
What else you got?
Yes. This, too, is predictable. Since they’ve been around, various “meme coins” have been shilled by a small group of insiders who control the vast majority of the supply and can artificially pump the price and advertise the token through social media influencers. These coins become either pump and dump schemes or a vehicle to gamble.
As with most things in life, one needs to be able to look through the noise to find the signal. The noise is meme coins pumping. The signal is the US president and several sitting senators stating intentions to start a national strategic bircoin reserve which will trigger game theory and multiple nation states buying to try to front run the US. This is literally playing out before our eyes if you’re willing to look with an open mind.
Alright then.
What comes next in the world of crypto?
Tell me so I can invest in it. I’m tired of low expense ratio index funds.
Nation states buying bitcoin comes next. So you buy Bitcoin first and patiently wait. Avoid any other crypto since they’re all scams or will underperform bitcoin in the long run. That’s it.
Actually I misspoke. First you read The Bitcoin Standard by Saifedean Ammous and then Broken Money by Lyn Alden. If you still don’t “get” Bitcoin after reading these, definitely DO NOT buy Bitcoin and stick to index funds because you would sell at the first real drawdown anyway and it would be of no use to you.
They’re ALL scams? Really? Except your favorite? You know how silly that sounds?
Hold your horses, Jim. I said they’re all scams OR they will underperform bitcoin in the long run. Not that they’re all scams AND they will underperform.
The ones that aren’t scams (ie. Eth) solve problems that are maybe a couple trillion market cap max. Bitcoin solves a problem that is 20-100 trillion+ market cap. There is no comparison.
Your crystal ball is remarkably clear. You must be a trillionaire with that kind of forecasting ability, right?
Oh, believe me. In the short run, my crystal ball is just as cloudy as yours. But in the long run, one doesn’t even need a crystal ball.
Free markets beat central planning in the long run. Free market capitalism triumphs over central government planning of markets. That’s as close to a law as we can have in economics. And it’s played out many times in history. And it’s a large part of why America is the power that it is.
Bitcoin is simply the free market’s answer to centrally controlled and manipulated fiat currencies.
F.A. Hayek (Austrian Economist) in 1984: “I don’t believe we shall ever have a good money again before we take the thing out of the hands of government. That is, we can’t take it violently out of the hands of government. All we can do is by some sly roundabout way introduce something that they can’t stop.”
Gonna keep posting this link until you quit calling Bitcoin a speculative asset or you start calling every other investment speculative asset as well:
https://medium.com/@TeddyBitcoin/bitcoin-is-a-speculative-asset-9de06a6b0621
I am 2500 words into that article and he has still not explained how it is not a speculative asset
I’m not saying it is or isn’t. I dont understand and wont pretend to. But that article is unclear and all over the place.
That author didn’t even hear of Bitcoin until 2015. Where was he? Was his head buried in the sand? He missed the first six years and now we’re supposed to treat him as some sort of an expert on it?
His argument is to try to change the definition of speculative asset. If you use that term to describe something else, then we just need a new term to describe something that doesn’t produce anything and we’ll use that instead.
The argument degenerates from there, like this example:
However, I have concluded that Bitcoin is not a “Speculative Asset” because it is not an asset at all. Bitcoin is a computational ledger that acts as a currency.
Okay, whatever. “It’s so special we’re not even going to call it an asset, it’s a currency”. Except it’s not a currency you can use for anything you want a currency for. Maybe someday it’ll be a currency and I’ll use it as a currency. But today, it’s a speculative asset.
Truly sad to see WCI promoting this garbage. You might gain some new blog followers with this recent pivot to cryptocurrency, so I don’t know if you’ll even care to see us “plain” investors unsubscribe and leave.
Not sure what you mean by “recent pivot.” This is the second crypto piece we’ve run in the last 360 days. The other one was called “6 Reasons to Invest in Bitcoin (and 5 Not To).” So, uh, that last one seems pretty neutral to me. But if you’re going to unsubscribe because you don’t agree with 0.006% of the posts we publish, I wish you well.
Promote doesn’t seem like the right word for what happened in this post. Did you read it? It’s written by a resident with like $5K in Bitcoin who says he “won with it” because he didn’t let FOMO keep him from ruining a solid investment plan.
But if that’s enough to get you to unsubscribe and leave, it was probably going to happen sooner or later anyway. The likelihood that we don’t offend everyone with something published here at some point in the next 10-20 years rounds to zero. We’ll miss you and you’re welcome back any time.
Absolutely disagree with this comment. Complete 180. I don’t know how many years of newsletters WCI needs to send out where its market report shows Bitcoin outperforming every other asset’s 5yr annualized return before actually having an in depth conversation about it on the podcast. Whether you were interested or not, we all have heard WCI talk about real estate syndicates for instance but never anything significant about Bitcoin or other cryptocurrencies. I don’t think either should be more than 5% of your portfolio but I don’t think real estate syndicates are a slam dunk better than buying crypto. Let talk about it on the podcast Jim!
Surely I’ve talked about it a few times in 600 podcasts, no? The problem with the Bitcoin Faithful is that you can never talk about it enough to make them happy unless you put all your money into it, tell everyone else to do the same, and talk about nothing else.
@Francis Bayes
Did you buy your crypto on RobinHood?
What is your outlook for Bitcoin? (I know it’s a crystal ball guess, but just wondering your perspective).
Thanks!
I own my crypto on an exchange for various reasons like convenience and ability to make recurring purchases.
As I write in my column, my crystal ball is pitch black! Even if it crashes again, I can’t imagine it could ever go to zero if it didn’t go below $10K in 2022 (and the crash preceded the FTX scandal). I also suspect it will remain volatile (maybe not as much as the past decade), so I want to take advantage of its volatility with active rebalancing. But I’ve been wrong before and maybe Google’s quantum computer or something else will change things.
If I knew it wouldn’t go below $10K I would have bought some when it was $5. It’ll have value as long as people think it has value, but predicting what people will value in 1, 10, and 100 years is tough to do.
Nice article. If you sell BTC when it exceeds 2.5% of your portfolio, what you do if it continues to go up? Why not just buy and hold like your other investments?
The main issue I see with putting it in a portfolio like any other asset class is deciding whether you rebalance into it if it drops precipitously. Even a 2.5% allocation that goes to $0 can eat the entire portfolio if you rebalance.
Thanks for your encouragement.
I rebalance above (or below) the threshold because I want to take advantage of its volatility. I don’t know if Bitcoin will outperform stocks in the long-run, but even if it doesn’t, taking advantage of its volatility should, in theory, improve my portfolio’s return. And…I could never forgive myself if bitcoin went back down to $20K.
In theory, yes. Unless it goes to $0. Then rebalancing wipes out your entire portfolio eventually.
I think the most pressing question is, do you have more or less bitcoin than when you started? Trading bitcoin’s volatility is impossible over the long run. Less trading and more HODLing = winning.
Compared to when I first started (ie, held zero bitcoin)? More of course. But since I last bought bitcoin, i own more in terms of basis but less in terms of satoshis. I may DCA into crypto when its price is falling, but I certainly don’t rebalance more than 1-2/yr.
Hindsight is always 20/20, my younger brother who is much more into technology than me- encouraged me to invest in BTC when it was only $7 a coin. I did not, as I had the same arguments that are being laid out here and they are good arguments.
There is a HOWEVER.
Gold comparison gets brought up. Why is gold worth about $2700 an ounce or a diamond that costs tens of thousands of dollars. Is it the properties of material in question or because we can hold them of whatever you want to put in here. IMO, the value of each is almost entirely due to the value investors place in these materials.
In this way, BTC isn’t all that different.
The future value of BTC will largely be determined by the number of those who can grasp it and value it.
Based on history that number is growing and will be growing further going into the future.
When the main guy at BlackRock has the lightbulb moment, I think that is significant. By the way he recommends 2% allocation of portfolio in BTC
Invest or not in BTC, who cares – it is very much a personal decision!
“I do not want my FOMO to affect other aspects of my financial plan.”
This is probably the very best… and perhaps ONLY… good reason I have ever heard to own crypto. Let’s be clear, we all know that crypto is not an “asset” (no equity ownership exists, no interest is pain, no dividends, no physical ownership of space, etc. etc.). It is 100% pure speculation, in which you only make money by passing it on to the next poor sap and hope they end up holding the bag, and not you. It’s a zero-sum game masquerading as a non-zero-sum game. But you have made a deliberate decision to acknowledge your own intellectual/psychological limitations in dealing with FOMO, when you are assaulted with the daily finance news and the endless barrage of talking heads (and now a new “crypto-friendly presidency”, whatever the heck that means) and the other docs chatting around the water cooler talking about their BTC gains, and all the constant, never-ending background noise. Since you describe yourself as a finance enthusiast, you probably have to/want to remain “plugged in” to some extent to the finance news (since it sounds like this is a hobby), and the crypto mania isn’t going away anytime soon. I commend you for describing it in so clear a way as you have. Basically, you will deliberately allow a tiny, tiny amount to go to crypto, create a system to make it “work”, and then this will let you at least feel like you are getting “some of the gains” (even though you aren’t really, to any major degree).
This is very rational and introspective.
It does, however, seem like it has the potential to steamroll. To become a slippery slope, as it were. Maybe that 2% becomes 4 or 5% after a few really good years. Maybe… once your retirement accounts allow crypto ETFs, and it is now even MORE “legitimate”, that 2% becomes 10%, and it is no longer a “play” allocation (which it seems like it is now), and becomes something more. Who knows? Because you are basically choosing to allow yourself “some” psychological weakness, in exchange for not giving in (when the FOMO temptation is even higher?) to ALL the psychological weakness.
I dunno, it kind of makes me think about the alcoholic who only allows themself ONE drink, just enough to “scratch the itch”. We all know how that goes. Usually not well.
Not saying investing in BTC is akin to a severe mental disease like alcoholism, just saying the analogy comes to mind.
I personally like to trade options (with something like 0.1-0.2%, of my total, so, itty bitty bits), and I KNOW that I’m not making any money after fees and taxes and the efficient market kicking my butt (and no, I’m not doing short term OTM call options like those WSB dweebs), but it really DOES make me “feel good”, because intellectually it is FUN, and I get bored with Clash of Clans and Sim City, and sometimes shifts in the ER just drag on. But that’s all it is.
And, I dunno, it kinda feels like maybe that’s all this is too.
So again, thank you for owning this for what it is: a barrier you’ve set up to temper for one of our (many) behavioral faults. This is very introspective and is the only “rational” reason I can think of to buy crypto.
My friend. An asset does not have to produce cash flow or even be “physical.” Did you know most dollars are just numbers on a ledger and do not actually exist in the physical world? Same for bonds.
Definition of an asset: “property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies.”
I can use my own hardware wallet to send to another hardware wallet Bitcoin to meet my debts and commitments. Therefore Bitcoin is an asset. Simple as that. And better yet, unlike stocks and bonds, it’s a bearer asset, meaning you can have actual control over it, just like with gold. But the control is “digital” instead of physical.
“I can use my own hardware wallet to send to another hardware wallet Bitcoin to meet my debts and commitments.”
So… you’ve used your bitcoin to make purchases? Like, as a currency? Say, for a cup of coffee or an oil change? Because last I checked it wasn’t an acceptable form of currency in the US or pretty much anywhere (there was that one country in South America that was experimenting with allowing it to be legal tender earlier this year. I forget which one. But that’s about all).
So, it’s not a functional currency, it has no agreed upon store of value (that’s Buffet’s problem with it), its not a physical thing, it doesn’t generate interest or any kind of other physical thing that I can use, and its worth is solely determined by how much people think it is worth at this particular moment… tell me again how it isn’t just speculation?
There’s a lot unpack here. Just read my comments above in which I address many of your claims about why it’s not speculation. Or read my WCI post (linked in the article).
As far as bitcoin’s value: It has a 2 trillion market cap and each Bitcoin is worth about 90k. So yes, it actually has quite a lot of agreed upon value. If you don’t think it has any value, I welcome you to send me a Bitcoin for free.
And as far as spending my Bitcoin, I encourage you to educate yourself about Gresham’s law.
Refreshing to read a fellow bitcoin maximalist’s description of money and assets. Bravo. It’s frustrating that simply because of US tax laws (which could easily change this year) which disincentivize you to spend bitcoin due to cap gains tax prevent people from seeing bitcoin as money/digital capital. You can’t buy coffee with gold bars, but it’s still worth 20 trillion as an asset class. People define gold as money and an asset. Isn’t that odd? I’d also point out that bitcoin the monetary network settled trillions and trillions of dollars this past year globally. Thus, it is money that people use as a MOE. At the moment, it’s just for LARGE payments, similar to fedwire and not venmo. If Russia is paid in bitcoin for their oil, would that change anyone’s opinion about whether or not it is money? Will be fun to watch this play out over the coming decades. Extremely bullish bitcoin.
Thanks, man. Trying my best to educate.
FYI, not sure if you saw this, but Russian Finance Minister already confirmed Russia is using Bitcoin for foreign transactions!
https://www.reuters.com/markets/currencies/russia-is-using-bitcoin-foreign-trade-finance-minister-says-2024-12-25/
Nice to see some fellow bitcoiners in WCI land as well! The naysayers jaws are going to drop over the next year. The possibility of a US Strategic Bitcoin Reserve is not remotely priced in.
I hope our fellow WCI readers have some humility, and learn more, before they miss the boat. $100k bitcoin is going to look like a steal in a decade. Consistently buying as a part of your asset allocation is the way.
To anyone reading, do your homework, and just start buying regularly. Future you will thank you. Volatility is managed with position sizing, and bitcoin is generally volatile to the upside, just like the stock market, but with much better returns. A 98% cash 2% bitcoin portfolio has outperformed the SP500 over any time period (1 year, 4 years, 10 years, etc.) A small allocation can make a big impact on your portfolio with asymmetric upside, and potentially shaving years off your retirement.
Just like you can spend some valuable hours learning about personal finance, and save yourself from advisor fees, you can learn about bitcoin, and save yourself from missing out on the best money in the world.
Wrong tense.
“bitcoin HAS BEEN generally volatile to the upside, just like the stock market, but with much better returns”
“A small allocation BOUGHT IN THE PAST WOULD HAVE MADE a big impact on your portfolio with asymmetric upside”
Be careful extrapolating the recent past (like the last 16 years) into the future. If something cannot continue, it won’t. Trees don’t grow to the sky. Best case scenario for Bitcoin is that it replaces all the money in the world. That’s $80 trillion. Bitcoin is already $2 trillion. So at best, it 40Xes from here then gives you the inflation return. If you only put 2% of your money into Bitcoin and it 40Xes, that doesn’t even double your money. If you really believe in this stuff, put more than 2% into it.
you wrote “Best case scenario for Bitcoin is that it replaces all the money in the world. That’s $80 trillion.”
not really. fiat monies will almost certainly continue to increase in supply over the long term.
Also, lots of assets have a USD market price that includes a “monetary premium” because people use them as a long term store of value; they don’t want to hold fiat money that they know will lose value, but to not hold it you have to spend it on something. Real estate, equities, fine art, etc.
If more people choose to use bitcoin as an alternative store of value one could reasonably expect some of the “monetary premium” in assets to move to bitcoin
This is the answer.
Thanks for your encouragement!
Good introspection on your end too…initially projecting and then realizing you are doing the same thing 😉
I would encourage anyone with intellectual curiosity about bitcoin and/or the fiat monetary system to learn more with a few resources that are well done.
1) https://www.youtube.com/watch?v=jk_HWmmwiAs – Broken Money is a book by Lyn Alden, a very smart macro-analyst, and this is a condensed 30 min video of her excellent book. Discusses the history of money, and how the global monetary system as it currently is came to be.
2) https://vijayboyapati.medium.com/the-bullish-case-for-bitcoin-6ecc8bdecc1 – The Bullish Case for Bitcoin is a 2018 article that also analyzes bitcoin’s rise as an asset in the context of monetary history. Very well done, and holds up extremely well despite being written over 6 years ago.
3) https://youtu.be/YtFOxNbmD38?si=JGhYtbWtQU8jXBU3 – What’s the Problem? A recent video/presentation that touches on how the fiat monetary system by design creates many of the problems that seem to plague our world today, and how bitcoin is the best money ever created.
Bitcoin’s path to becoming the world reserve currency is following the trajectory laid out by many brilliant bitcoiners when bitcoin was valueless, not even worth the electricity used to mine it. Today it is a multi-trillion dollar asset, with a very real chance of becoming a strategic reserve asset for the USA. Gradually, then suddenly, as they say.
It’s the only true free market, traded 24/7/365 around the world. It’s adoption rate is faster than the internet or cell phones. Remember before the internet, before cell phones? Gradually you heard about them, saw some early adopters, and then suddenly, the world is unimaginable without them.
Bitcoin is better money for a better world. It’s an incredibly fascinating rabbit hole to delve into. It’s the best performing asset of all time. And it’s just getting started.
The issue is that Bitcoin fans have been telling us Bitcoin is awesome is about to be incredibly adopted and we’re all going to be using it very soon for over a decade now. After a while, the boy who cried wolf phenomenon kicks in. Having lived through 4 or 5 crypto Winters, everyone wants to talk about it for a year while it goes up, then it gets really quiet for a couple of years while everyone waits to see if it comes back or goes to zero. Well, it only takes one of those times not coming back to tank the whole project.
Even if one thinks Bitcoin is cool and will eventually be the only money any of us ever use, that STILL doesn’t mean one need own any of it RIGHT NOW. If that future scenario occurs, obviously buying it now before it goes up even more is likely to generate a profit, but there are potential future scenarios where that profit doesn’t occur. These include an alternate crypto currency or nobody using cryptocurrency or Bitcoin levels out where it’s at or whatever.
Bitcoin has been having growing adoption since it’s inception. It takes time to gain network effects. It’s gone from literally being worth nothing to having a market cap greater than the vast majority of nations and companies in the world.
Rome wasn’t built in a day. The internet as we know it took time to develop, from being a niche research and military communications protocol, to dial up, to now 4k streaming on your supercomputer in your pocket.
What would it look like for bitcoin to go from being worthless to becoming the world reserve currency? It would probably look a lot like exactly what’s been happening over the past 16 years. The people crying wolf are the ones who have declared bitcoin dead and a bubble.
At what price/market cap do you admit you were wrong about bitcoin? When it dethrones gold as the most valuable single asset in the world? How much more does it have to prove? It’s had the best returns of pretty much any asset over any reasonable timeframe since it was created, without significantly slowing down. CAGR of 50 to over 100% over almost any time frame over the past year to decade.
No one is saying that every white coat investor HAS to buy bitcoin, just like no one has to buy real estate, or any particular investment. But to dismiss it outright as not worth of being part of an asset allocation, or a scam, or a bubble, or tulip mania, is financial malpractice. I’m not accusing you Jim of saying that, but just in general to the naysayers. There are risks in life and in investing. Holding USD is guaranteed to lose your purchasing power over time. As a non-correlated asset with incredible past returns, and legitimate reasons to believe it will continue to increase in adoption and therefore value over time, I think it is worthy of consideration for most investors.
The path from $0 to $100k was hard, the path from $100k to $1M will be far easier. Buying it at $100k you’ve got the discount of INCREDIBLE derisking. The risk of it going to zero is in my mind near zero. Larry Fink of Blackrock is now a bitcoiner; Blackrock is recommending a small allocation to all of their institutional investors!
It’s perfect digital scarcity, and has cemented itself as a class of it’s own. It’s total adressable market is all the money in world. It is solving the problem of storing wealth and capital over time. No loss from inflation, no loss from natural disasters, no loss from property tax, with the ability to trade in one of the most liquid markets in the world anytime, anywhere, and send it to anyone, anywhere, without waiting for anyone’s permission.
I would encourage you to watch some of Michael Saylor’s talks on bitcoin, for example: https://www.youtube.com/watch?v=4LqpGrWGNqE. He is an excellent speaker, is the founder/chairman of the best performing stock of the past several years, and will likely become one of the wealthiest people in the world if bitcoin does what he and I think it will.
Jim, you clearly don’t need bitcoin, but there are many who do, and would benefit greatly from learning more about it. I’d encourage you to spend your continuing financial education hours on learning more about bitcoin. If you did, you would realize why some of the questions you ask, like what about a new better crypto, demonstrate a lack of understanding what makes bitcoin valuable, and why it isn’t going anywhere.
Well said!
Jim: I wouldn’t wait until I’m ready to retire to convert my dollars into stocks because stocks appreciate against the dollar during my working years, and I’d get less stocks to have to spend in retirement. Same for Bitcoin! You DCA now, and then you have more to spend when it’s more widely used as money.
As R excellently put it, Rome wasn’t built in a day! We’ve already gone from $0 to a $2,000,000,000,000 market cap, small countries buying it and mining it, ETFs in the US, and now talk of the US getting a strategic Bitcoin reserve. All in only 16 years! And that’s without a CEO or a marketing department. Just free market incentives.
I mean, how fast can someone reasonably expect this to go? Do you really expect that all the bankers, central bankers, governments, and everyone with a stake to make money in the current system will just roll over as soon as Bitcoin is introduced? No, this process takes time.
Typical Bitcoin Fanatic response. About as many words as a blog post and an encouragement to watch more Bitcoin videos or read more Bitcoin books. It’s like the response is “if you just spent all day learning about it for a couple of years you’d love it as much as I do, put a whole bunch of money into it, tell all your followers to buy it, be happy, and I’d feel justified in my decision.” Yet not realizing that I’ve been reading about Bitcoin already for twice as long as the fanatic has and still don’t think it has a place in my portfolio. All these things you tell me about Bitcoin have been told to me dozens of times before in similar comments on this blog, our forum etc.
Maybe the Bitcoin fans need to step back for a second and ask themselves why someone who knows what it is and HAS read a whole bunch about it still doesn’t believe that it for sure will only increase in value at a rapid rate. It would almost be easier to buy a few million dollars worth of Bitcoin just to not have to listen to it all any more. Then I could just say, “I bought it already, shut up.”
For those reading along at home, no, gold does not have the highest market cap of anything in the world. The US stock market capitalization alone is $55 trillion. US treasury securities are $27 trillion. The world gold market capitalization is $18 trillion. Bitcoin is just under $2 trillion. Not that any of that really matters as far as a decision to speculate in it goes, but it does demonstrate how the Bitcoin preachers throw things out there and the Bitcoin fanatics pick up on them and repeat them whether they’re true or not.
Look, I’ll say what I’ve been telling people for at least 14 years about Bitcoin. If you want it, go buy it. Have fun. Put enough into it that it will make a meaningful difference to you if it does what its fanatics hope it will, but not so much that it will kill a reasonable financial plan if it doesn’t do that or heaven forbid goes to zero. That’s probably something like 5%. And if everyone else starts to buy gas and groceries with it preferentially, or is using it to flee a new Nazi-like regime in the US, you probably ought to do the same. But enough of the preaching.
“Why don’t you write more about Bitcoin or talk about it more on the podcast?”
“Because every time I do this website and its forum are flooded with comments like these from the fanatics for weeks afterward.”
“Because every time I do this website and its forum are flooded with comments like these from the fanatics for weeks afterward.”
Sounds good for business, Jim.
Not sure you understand how this business works, but we don’t get paid by the comment. In fact, commenters are probably less likely than most readers to generate revenue for the business. Especially when it’s the same 5 or 10 commenters leaving long comments saying the same thing over and over again.
Doesn’t your advertisers’ rate rely on website traffic? Which people “flooding” the blog to post/read comments increase?
No. They rely on people clicking on ads and buying services from them. That’s not even close to the same thing as “traffic” much less comments.
Regular readers don’t buy much from us. For example, from which of our advertisers have you bought services in the last year? What have you bought directly from us in the last year? If you’re like most regular commenters, the answers are none of them and nothing. It’s nice to give people a sense of community, but that’s about it. Lots of financially successful blogs don’t allow comments at all and we talk about just turning them off every year. Arguing with Bitcoiners probably isn’t the best use of my time financially speaking. It would be more fun if it wasn’t the same discussion every time.
Not within the past year, but I have personally used your recommendation for contract review and life insurance.
Regardless, Bitcoiners have to keep making the same arguments FOR Bitcoin because you keep making the same ones AGAINST bitcoin each time, with minimal acknowledgement of the points we make.
If you don’t want the back and forth, just stop replying in the comments with the same tired arguments against Bitcoin each time.
Got tired of deleting email notifications about new comments, so I’m finally unsubscribing for this post. I think these comments are WAY off topic from what my column was about. If this were a WCI forum, the mods would’ve shut it down by now
You started it, Francis!!!
I still don’t blame anyone for bailing out of these!
you wrote: “Maybe the Bitcoin fans need to step back for a second and ask themselves why someone who knows what it is and HAS read a whole bunch about it still doesn’t believe that it for sure will only increase in value at a rapid rate.”
lots of qualifications there, “for sure” and “only” and “rapid”
anyway, a few reasons I can think of as to why its still a blind spot for you
1. you’re filthy rich already. No one needs bitcoin, especially filthy rich people
2. tunnel vision. “but muh gas and groceries” over and over again while its done over 100x since you started writing about it over a decade ago on your investing website
3. would require you to admit you were wrong
1. I generally don’t take financial advice from people who use the phrase “filthy rich” as I recognize that very few people become wealthy for “filthy” reasons. They generally become wealthy from providing useful services and products to other people and managing their money well. I don’t see either of those as “filthy” activities. Affluent households continue to lead in charitable giving, with 85% of them giving to charity compared to 42% of all households. They also give more, averaging $35,000 compared to $2,000 a year. Frankly, I would be embarrassed if I only gave away $35,000 a year. It’s been many, many years since we gave less than that in a year. Using the phrase “filthy rich” says more about the person using it than the person it is used to describe. If I had bought Bitcoin in 2011 when I first heard about it, I would have given much of it away to charity since given how much it has appreciated.
2. Your argument is to buy it because it went up in price. That might be the worst argument ever to buy an investment. That strategy works great until it doesn’t.
3. What do you mean wrong? What am I wrong about? Everything I’ve ever said about Bitcoin is true as near as I can tell. I never said it wouldn’t go up in value, which appears to be what most people mean when they say I was wrong about it. It’s entirely possible that it goes to a million dollars a Bitcoin or even four million dollars a Bitcoin. 10 million dollars a Bitcoin in today’s dollars seems highly unlikely to me, but if it gets adopted as the world’s sole currency somehow, four million in today’s dollars seems reasonable. How much of your life savings are you willing to bet on that occurring? I’m not willing to bet any of mine. But if we all start using Yen or Euros or Bitcoin or gold to function, then I’ll use it too. But until then, I’m not going to speculate on the future price of Yen or Euros or Bitcoin or gold. It neither seems intelligent to do so, nor do I need that to occur to reach my financial goals.
I’m filthy rich too, didn’t mean it as a pejorative. Anyway
point 1 – you’re rich, I’m rich, we don’t need bitcoin to achieve our goals
point 2 – because it went up isn’t my argument, point is you keep repeating an argument about gas and groceries while the thing keeps going up long term. This is an investing website. Perhaps taking a different perspective is in order? Or not because back to point 1. But its a weak argument if youre going to run posts about the thing on an investing website
point 3 – myriad examples of your generally negative – not neutral – slant are easy to find. Here’s one: https://www.whitecoatinvestor.com/cryptocurrencies-like-bitcoin-are-not-investments/ – where under the heading “Multiple Warnings Against Investing in Bitcoin” you run through a list of your “I told you so’s” and here’s another: https://www.whitecoatinvestor.com/what-is-the-best-cryptocurrency/ where you say “But what is incredibly obvious to me is that the winner will not be Bitcoin” and “Bitcoin is the AOL of the cryptocurrency market.”
In fairness to Jim, he did publish my arictle “Why Bitcoin is NOT the Next AOL” on the site. Although he didn’t take any of it to heart and uses it as a chance to troll Bitcoiners with each subsequent Bitcoin post (will hyperlink it under the heading of “Bitcoin Fanatics” and the like) lol
there are few financial-minded people who have had bitcoin on their radar as long as Jim and have kept defending that hill they chose. Peter Schiff obviously. Paul Krugman, Nouriel Roubini maybe. Select company really
Maybe you weren’t paying much attention to Bitcoin in 2011 and 2012, but it’s proponents back then were telling us that in a year we’d all be buying gas and groceries with it. That didn’t turn out to be the case. In fact, 14 years later it’s still not a useful currency in the US, at least not for anyone doing anything legal. The only reason we’re even still talking about it is because the price went up. It gets real quiet on that subject during “crypto Winters.”
not at all on my radar until about 2017 and I didn’t start buying then
bitcoin potential as daily transactional currency died in 2017 with the blocksize war – there’s a book written about it if you’re interested
there will always be the hyperbolic USD is dying bitcoin is the future people out there same as the tulip bulb beanie babies no use case no intrinsic value people, it’s all noise
bitcoin talk never gets quiet, maybe that applies to your email inbox, bitcoin threads are the most active on the forum, I’ve been there through a lot of volatility with the same message – bitcoin is unique, provenance matters, look at it for what it is and what it isn’t and if you’re going to buy it, take the same boglehead approach as you do with equities etc.
It strikes me as odd that otherwise financially savvy people continually fail to do so. That’s not to say that everyone needs to own it, to the contrary I’m not the guy telling everyone you have to buy bitcoin or have fun staying poor. Not on your IPS, fine. But if someone is just going to say tulip bubble and its netscape or AOL or there’s no use case bc my local coffee shop doesn’t accept it I’m going to disagree
Right. My point is that the arguments FOR Bitcoin have changed over time and are much less expansive than they were back then.
Like precious metals and empty land, Bitcoin produces nothing. I buy stocks for the earnings, bonds for the interest, real estate for the rents. The only reason to buy Bitcoin is # 1 to use it (which I have precious little use for at present) and # 2 because you think it will go up in value (and I have no idea what it’s value will be in a year or ten years.)
Is there some other reason to buy Bitcoin that I’m not aware of?
No there’s no significant reason for rich Americans like us to buy it other than number go up. And of course we don’t need to do so because we’re otherwise reasonably smart with our money and have reasonably good and stable income, we can reasonably expect to die even richer, without bitcoin.
So then you get to the question of why consider bitcoin. It produces nothing like you said. But at least if you get to that question you should approach it for what it really is today, which is not a daily transactional currency or a thing only used by criminals or people fleeing their country, or tulip bulbs or beanie babies.
Every “investment” you buy, you purchase with the expectation that you will be able to sell or trade it for something more valuable in the future. The purpose of money is to be the most salable good, that you are able to trade your time and energy for, with the purpose that you will be able to exchange it in the future for needs and wants. It is your time and energy transmuted into a monetary good.
Bitcoin is pure digital scarcity, the perfect money. It can’t be debased, it is widely accepted (can sell it 24/7/365 anywhere in the world with ease, easier and more accessibly than the USD), it can be transmitted at the speed of light, it can be stored for negligible cost with perfect fidelity/durability, it is infinitely divisible, and it is fungible. It satisfies every property of money better than any other asset or monetary good on the planet.
When bitcoin reaches maximum adoption, it will still be a good money and savings vehicle, but you will just at that point miss the returns of owning it on the way to global saturation. It’s value will increase with global productivity as the immutable denominator of value.
The younger generations are much more ready to accept bitcoin. As trillions of boomer wealth is passed on to younger generations, that will accrue to bitcoin.
Preserving capital and monetary energy is worth hundreds of trillions of dollars. How much of a monetary premium is given to the stock market, bond market, real estate market, etc over their actual non-monetary value. What would housing prices be if people saw it purely as a consumption item, rather than an investment? What would the P/E ratio of most companies be if investing in the stock market wasn’t the default way of saving to try to stay afloat due to monetary debasement?
Real estate has depreciation, property taxes, insurance, fees, etc. Companies have operations risk, regulation, taxes, etc. Bitcoin is pristine capital, preserving your time and energy over time and space perfectly.
I buy it as part of a diversified asset allocation. I buy it because it continues to perform as I have expected it to over time, which is to appreciate greatly as people increasingly discover the true value of bitcoin. I buy it because I think it has the best risk adjusted returns of anything I can purchase. I buy it because it can’t be debased. I buy it because the full faith and credit of governments around the world have proven time and time again they can’t be trusted.
I hope you and your readers buy it too. My bitcoin will likely continue to appreciate with or without the WCI community. But the WCI community would be better off with some bitcoin in their portfolios.
Better money for a better world – bitcoin.
not quite
It’s not at all widely accepted. It’s highly liquid, but that’s different than widely accepted. Highly liquid however is good enough because bitcoin doesn’t need to solve payments, unless you think USD is going away in the near term, which is not going to happen
it’s also not perfect money. utxos aren’t perfectly fungible – my utxos have a different history than your utxos. Some would even consider some utxos tainted. So there’s that
its not infinitely divisible. Its divisible enough though.
its also fairly complex. Bitcoin UX is generally not great. Self custody is intimidating and of course there is risk of loss with no recourse if you screw something up.
Fair enough, highly liquid, not widely accepted…yet. Agree that USD isn’t going anywhere soon, it’s the prettiest horse in the glue factory of fiat currency. Central bankers have become quite adept at global taxation/theft through debasement.
At the protocol layer, UTXOs are fungible, while they may have different histories, it doesn’t matter to the protocol where they’ve gone or what transactions they’ve been a part of. You can send UTXOs to any address on the network. There are privacy preserving techniques such as coinjoins, using lightning, etc. that can improve fungibility if UTXO histories become a concern.
It’s very divisible currently, and if necessary the divisibility could be changed to be whatever is necessary. Additional layers on top of the base chain could also increase divisibility, so it’s functionally infinitely divisible.
Bitcoin UX is better than banking UX. Better UX than SWIFT, fedwire, ACH, etc. It is improving over time, and some wallet software has become quite user friendly, able to abstract away much of the complexity. The UX of sending bitcoin across the globe is orders of magnitude better UX than trying to send an international wire transfer. Self custody is intimidating because it moves responsibility to the owner, but it’s not difficult to do. There are an increasing number of very easy solutions, like Bitkey which makes multisig idiot proof.
Having been involved with bitcoin, including building a GPU mining rig since it was under $200, I doubt you’ve been reading about bitcoin longer than I have. (Borrowed a small amount of money from my parents to mine bitcoin as a broke medical student). I too “read” about bitcoin prior to owning any, when it was a lot cheaper, but didn’t act on it until later.
I didn’t say that gold has the highest market cap of anything, I said it is the single most valuable asset in the world, in reference to individual commodities or equities. Obviously stock markets and bond markets and sovereign debt levels are more valuable than gold, however if you look at market cap rankings for INDIVIDUAL assets: https://companiesmarketcap.com/assets-by-market-cap/, you will see that gold is on top at 18 trillion, then Apple at 3.6 trillion, etc. with bitcoin at 7th place at 2 trillion, above Saudi Aramco, silver, and Meta.
I would hope you would give one of your long time readers the benefit of the doubt with something like that.
I also didn’t tell anyone to go ALL IN on bitcoin. I agree with you that a reasonable amount for most people is probably 5% to start. When I introduce people to bitcoin in real life, I tell them to start somewhere in the 2-10% range depending on their age, and how willing they are to learn more about it. I think investing more than that without developing the conviction to not sell during bouts of extreme volatility both up and down, can lead to disaster. Investors need to learn their risk tolerance with bitcoin, just like with the stock market.
Your fixation with not being able to buy groceries with bitcoin is fascinating. First of all, you can, whether it’s buying grocery gift cards with bitcoin lightning instantly for less transaction fees and faster final settlement than credit cards, or directly if some smaller mom and pop places do. I’ve bought drinks from bars internationally using bitcoin lightning, which was as easy as scanning a QR code with my phone, just as frictionless as Apple Pay. In El Salvador, admittedly a small country, bitcoin is legal tender, and every business in the country accepts bitcoin as payment, including McDonalds!
The main hindrence to spending bitcoin is the taxation, which triggers capital gains, which is entirely a political/government treatment issue. If a de-minimis exemption for smaller amounts or capital gains taxes are eliminated, spending with bitcoin would make sense.
If you knew about Gresham’s law, you would understand that most bitcoiners would rather spend their rapidly depreciating fiat currency, and hold on to their rapidly appreciating bitcoin, not the other way around.
Bitcoin is not the AOL of cryptocurrency. It is the TCP/IP of the internet, the bedrock foundation layer of the future financial system. Bitcoin as a global settlement network already settles more volume (NOT value) than fedwire, which is the largest base money transfer network in the world, and the true comparison to the bitcoin network base layer, not credit card payment processors which are multiple layers above the stack of base money. While bitcoin network value settlement is still WELL below fedwire, that delta is rapidly decreasing over time. I wouldn’t be surprised if within our lifetimes, that delta is gone or reversed.
Regarding us bitcoin fans as you put it, have you considered that our passion derives from something real and meaningful? That as likely relatively intelligent and well educated physicians and other high income professionals, who have chosen to spend our free time learning more about finances thanks in large part to your blog/site/podcast/books, and have also dedicated significant time learning about bitcoin, that we may have learned something that you haven’t been able to grasp?
I repeat, at what price will you admit you’ve been wrong previously? Wrong that bitcoin will be usurped by a newer crypto? Wrong that those of us who’ve chosen to invest in bitcoin have simply gotten “lucky”, rather than made an educated investment based on information asymmetry, which still abounds, based on this forum, and countless others.
You missed the run from $0 to $100k. I hope that your other readers don’t miss the run from $100k to $10M over the next few decades. And with the incoming administration’s positive stance towards bitcoin, the new bitcoin/crypto voting block which has become one of the largest PACS in our country, and the inevitable debasement of the dollar due to our governments inability to balance budgets, that run may be more quickly than I’m planning for.
Humbly,
R
P.S. Happy 16th birthday bitcoin, and thank you Satoshi. “The Times 03/Jan/2009 Chancellor on brink of second bailout for banks” Bitcoin genesis block.
Maybe. I think $200 was 2013. I definitely knew about it before then. I recall writing about it in 2011.
Please explain what you mean by “admit I was wrong.” What did I say that you think a certain price of Bitcoin would make me wrong? As near as I can tell, I’m not “wrong” at $10K, $100K, $1 million, or $10 million.
Maybe you’re referring to the title of that article about it being the AOL of crypto. That I could be wrong on. If Bitcoin becomes useful money in the long run and no other cryptoasset becomes more useful, that would turn out to be wrong. But there is no price that changes that. I’m not sure there is enough time left in my life to prove that anyway.
I knew about bitcoin long before 2013, however, I didn’t purchase/mine any until then (wish I had earlier!). Hearing and reading about something is much different than taking the time to actually delve into it and explore it. It’s hard to say you “understand” bitcoin, if you’ve never actually purchased any, taken it into self custody, and sent a transaction to someone or even back to yourself.
The sense I’ve gotten over the years of reading your posts, email newsletters, and comments is that your stance was initially quite negative regarding bitcoin, comparing it to tulip bubbles, pure speculation, extremely risky, etc. Over time, it seems your stance has softened somewhat, and you seem to now acknowledge it as a speculative investment similar to precious metals, that can be a part of someone’s asset allocation in small amounts, though you want nothing to do with it and don’t recommend it to others.
I’m glad that your opinion has shifted from very negative to mildly negative. But your opinion is very highly regarded by the WCI community which likely is in the tens or hundreds of thousands? And I believe that your negativity has likely negatively impacted the portfolios of many of your community members by causing them to have a negative bias toward bitcoin, which has been the best performing asset most years since it’s existence. I believe that if you actually took the time to read any of the articles or watch any of the videos I’ve posted over the years, you would have gained a more neutral to positive stance on bitcoin sooner, and at least some percentage of your community would have bought bitcoin at a much lower price than now.
If bitcoin goes to $1M sometime in the next decade, which would likely coincide with much greater adoption, both at the institutional and nation state level, you still wouldn’t feel that you were wrong about bitcoin?
If that happens, did all us bitcoin fans just get lucky? Or did we invest in something we understood better than you? Maybe my probability that bitcoin succeeds is too high, but I would guess that your probability is much lower than reality, particularly at this moment in time, $100k later.
Would still encourage you to watch that recent Michael Saylor video I linked previously. You’ve likely never heard him speak, and he’s an incredibly smart, well spoken, highly accomplished CEO and founder of a publicly traded company, who initially called bitcoin a scam, then learned about it, and is now one of the biggest bitcoin bulls in the world. He did the work, and is reaping the rewards with the best performing stock in the world since adopting a bitcoin standard. He understands at a foundational level why that was and will continue to be the best path forward for his company and shareholders.
Read some of the annual investment letters by Ross Stevens of Stone Ridge. A friend of Saylor who is also incredibly smart, a brilliant writer, and now bitcoin bull. Ray Dalio, Larry Fink, Bill Miller, Stanley Druckenmiller, and many other legendary investors have all espoused the merits of bitcoin. Are they all fools, or are they smart people who did the work, gained understanding, and are reaping the rewards.
Wow. You all want some milk for those wings because it’s spicy in here. Ha. Entertaining debate. I have no clue what bitcoin will do in the future, but I see the chances of it going to zero are pretty darn small. Could it happen, sure. But I don’t see it any more likely than a Japan type recession to the US stock market. And I can tell you that if that happened to the stock market all of us would be in much more trouble. That being said, I keep my allocation of BTC small at a little under 3% although I do want to get that up a little more.
I am curious what it would take for Jim to become a believer in it. BTC becoming a widely accepted form of payment with relative price stability? I do think the biggest issue with its full acceptance are two fold, stability and higher risk of loss from theft/losing passwords or storage device/etc.
Either way, the one thing I do know is that there are a lot of hardcore believers that are a little too hardcore about it, and there are people who are extremely anti-BTC who are too much so that direction too. I believe in having multiple investment streams like Peter Kim says. I say why excluded BTC with a small portion of your investment money when its general trend is up.
I’m not sure what you mean by “believer”. I certainly believe Bitcoin exists and has a use or two. I do not believe that it meets my criteria to be included in my investment portfolio as another asset class. Some of those criteria include:
1) Produces something like earnings, interest, or rents
2) Has a solid track record of at least hundreds of years
3) Doesn’t have a rabidly religious following that includes a large portion of people who are obviously gambling
I also don’t know why, given your views, that you don’t put more of your money into it. If you truly believe it is very unlikely to go to zero and pretty darn likely to go to $4 million, then put real money into it. Maybe don’t rebalance if it drops 90%, but put some real money into it.
I also disagree that a “general upward trend” in its price is a good reason to buy something. If it is a good thing to own, I’d much rather pay less for it. If it isn’t a good to own, paying a higher price for it doesn’t change that.
With believer I just meant that you would actually buy BTC. Believe in its value to make use of or transfer USD to BTC.
1. I get that from a personal investing standpoint. Although isn’t the point of investing that it increases your net worth over time? Obviously, you must think the chances it goes to zero is much higher than what people that do put money into BTC believe. That would then make sense why you don’t want to get involved.
2. So I take it you don’t use USD then since it’s current form has only really been used since we got off the gold standard. Why aren’t you only using gold then? It has thousands of years of use. This seems like a pretty unreasonable standard. I get BTC isn’t there yet on many factors (and may never get there), but I think this argument is just silly. I don’t know if this will happen but if it does become THE global currency it’ll look really strange when some company or country your visiting is looking for payment with BTC and you tell them “I’ll pay you in 200 years when I finally believe it’ll survive. Do you take a post humorous IOU?”
3. Gambling is a game that you are far more likely to lose than win. If you buy and hold your BTC over the years you will have a lot more now than you did 16,10,5, 2, 1 years ago. That isn’t called gambling, it’s called investing. But yes, there is a crazy religious following and, frankly, I don’t care if you or others buy it. Nor do I go around convincing anyone I see about it. I only asked because I wanted to know if there was something that could happen with BTC that would make you get involved but your “rabidly religious” anti-BTC views really kick in.
This statement of “I also don’t know why, given your views, that you don’t put more of your money into it. If you truly believe it is very unlikely to go to zero and pretty darn likely to go to $4 million, then put real money into it” is a little ridiculous. If you believe so much in stocks and companies earnings, why are in investing in bonds where returns are lower or real estate where risk is higher. I do feel good about what BTC will do hence the reason I put money in it. But also I believe investing in stocks, bonds and real estate are also great ways to invest that I really believe in too. And yeah, if it goes to $4 mil then awesome, I just made $3.94 mil. But just like your crystal ball, mine is foggy. I don’t know it it will go that high or how long it will take. I want to retire early in 7 years and many of the so-called believers think it’s take 2 decades to get there. So why would I throw a majority of money in something that may take 20 years to get to where I hope it’ll go when I have a shorter time horizon? I make a good living that I can reach my goals on traditional investments and use extra money for that dream amount of money.
WRT “general upward trend,” so you don’t buy stocks at this higher current market price every paycheck? You only buy when it’s lower. Of course you’d rather pay less for something, but if you feel good about something you are investing in will continue to go up in value over time then yeah, I follow my plan and invest when it’s cheaper and when it’s more expensive like both stocks and BTC now.
It’s these statements that put you in on the opposite end of the BTC hardliners and makes you an anti-BTC hardliner to me. That being said, I do appreciate what you do here. I am a believer that you should be having articles like this where there is a (hopefully) healthy debate with all things investing. As you say, there are many roads to Dublin. You don’t believe in BTC, I do with a small percentage of my portfolio. Cheers to you to getting many others on one of those roads.
I’d buy it if I had a use case for it other than using it to get rich due to it going up in value. I don’t need to flee the country. I don’t need to send money overseas without some government getting wind of it. There is no use case FOR ME other than buy and hope it goes up in price.
1. I have no idea what Bitcoin will be worth in a year, ten years, or 30 years. I think $4 million is about as high as it could go, but zero also wouldn’t surprise me. I don’t think the returns it has seen in the past are still possible going forward. In 2011, a Bitcoin was 30 cents. The return from 2011 to the first of 2025 when it was $94,420 annualizes to 147% per year. At 147% per yeqr, it’ll hit $4 million in just 4 more years. Heck, at 147% per year the value of Bitcoin ($2 trillion) will equal the net worth of the world ($454 trillion) in just 6 more years. Trees don’t grow to the sky. It’s reasonable to expect future stock or bond or real estate returns to look like past stock or bond or real estate returns. It is not reasonable to expect future Bitcoin returns to look like past ones. People are interested in it because of those past returns. But those past returns are impossible going forward. Keep this in mind as you speculate on its future value.
2. I use dollars, unlike gold and Bitcoin, because the people I want to buy stuff with accept it as a functional currency. If you believe that Bitcoin is a functional currency that can be used to pay my employees, pay rent or a mortgage, buy groceries or gas or airfare etc, I’m not sure this is worth discussing further. Despite promises I’ve been hearing for years, it still is not a functional currency at this time. When people take Bitcoin in exchange for goods and services I want and don’t take whatever else I was using, I’ll use it as a currency. I don’t think that’ll happen any time soon. But if it does I’ll use it just like everyone else and will exchange my labor or stocks or bonds or real estate for it.
3. You’re using the wrong tense. Yes, if I had a time machine and could go back to 2011 and buy up the world’s supply of Bitcoin, I would do so. Who wouldn’t? But I don’t have a time machine and I have no idea what future returns will look like. Just like I didn’t in 2011.
More 3. I generally suggest 5% for believers. I ran into a believer this week who has 20% in it. Believer really is the right word isn’t it? It almost feels religious talking to people about it. “I just believe it will go up in value.” Well, I guess in that respect I’m agnostic.
So now I’m an “anti-BTC hardliner” now because I don’t own any. Reminds me of Anakin Skywalker of Star Wars fame.
https://www.youtube.com/watch?v=o9rVi-TGUkQ
Maybe you’re an anti-BTC hardliner because you only have 3% in it. Where is your faith? 🙂
Great perspective on sticking to a financial plan despite market volatility! Crypto’s ups and downs can be wild, but your approach to managing FOMO is inspiring.