Title: Zero to Hero, or why you should put 5% of your cash/fiat into Bitcoin
Subtitle: Purpose for BBCD Satoshi - rationale for investing in Bitcoin
Version: 1.0
Date:1st March 2022
INTRODUCTION
As simple as it sounds the expression “Buy Bitcoin, you’ll thank yourself in the future” sums up succinctly what I’m trying to explain here to you.
With the benefit of hindsight, imagine if you’d invested and bought 100 Bitcoins in 2012. This would have cost approximately $10 USD (US Dollars) per Bitcoin or $1,000 USD total investment. Today that investment would be worth several million $USD. Or, in 2019 you’d bought 1 Bitcoin for approximately $10,000 USD that same Bitcoin would be worth 3 times that amount.
Place yourself in 2030, looking back to now, will you thank yourself you purchased Bitcoin? No one can predict the future, however using the past as an indicator there will be troubling times ahead (like there always has been). Imagine 20 years ago, who would have predicted COVID 19, 2008 Financial Crash and even the development of Bitcoin itself. So, projecting forward, there is likely to be economic, financial and political turbulence which manifests itself in the form of inflation. As a hedge against uncertainty and inflation, Bitcoin may be just the thing that you need.
TOPICS
In this article you’ll read about these following topics. The idea is this can then act as a springboard for you to continue learning and finding out more about Bitcoin.
Strategy
HODL
Where to start
Key Facts about Bitcoin
Rabbit Hole
Caution
What is money?
“Time in the market, versus timing the market”
Thesis by the Winklevoss Twins “The Case for $500K Bitcoin”
Types of buyers (and sellers)
Properties of money
Strategy and Risk Management
Log/Logarithmic View
Metrics
Trading versus Investing
Economics
Opposite, why you shouldn't invest in Bitcoin
Conclusion: “Buy Bitcoin, you’ll thank yourself in the future”
STRATEGY
“Buy Bitcoin, you’ll thank yourself in the future” is my mantra for the rationale of investing 5% of your overall cash/fiat position into Bitcoin. From there, you can then gradually reduce this 5% over 10 years by diversifying the gains back into either cash/fiat, property or other assets. This is while keeping 1% invested in Bitcoin as an insurance policy against geopolitical risks and a hedge against inflation.
This is just one strategy, depending on what your goal(s) and strategy is.
The 5% quoted may be too high or low for you which would need adjusting. Depending on your circumstances, experience and risk appetite that 5% may be adjusted lower at 2.5% or much higher at 30% or even 75%. That is up to you to decide, and only you. Ultimately, have a plan and stick to it. Keep emotions out of your decision making with Bitcoin.
This article focuses on strategic investing, rather than trading. Trading is essentially buying and selling on a short time frame (weeks, days, hours, minutes). Investing, or strategic investing is holding/buying/selling Bitcoin for a longer time period (monthly, quarterly, annually, every halving).
HODL
I want to share some of my limited knowledge/thoughts with you, so this can help you on your knowledge quest of Bitcoin and your decision to either invest or not invest in Bitcoin as the case may be.
It’s been a fairly long journey for me, however in some senses I am only just beginning. I could be called a HODLer, but I can’t be called a Bitcoin maximalist. I’m a pragmatic Bitcoin realist, think I’ve just coined a phrase there :-)
WHERE TO START?
For first steps, I recommend reading 2 x books. These books are:
‘Cryptonomicon’, by Neal Stephenson from 1999
‘Bitcoin, The Future of Money?’, by Dominic Frisby
These 2 x books will give you a very good grounding on the subject of Bitcoin, it’s history, meaning and importance. Then spending time doing research on the internet from the various links provided within the resources and links pages from this website at BBCD Satoshi.
KEY FACTS ABOUT BITCOIN
Only 21 Million (21,000,000) Bitcoin will ever be created.
This is the total supply capitalisation.
No more Bitcoins can ever be created based on the underlying protocol.
18.5 million (18,500,000) Bitcoins have been mined already.
Approximately 4 million (4,000,000) Bitcoins might be permanently lost.
Approximately every 10 minutes newly mined Bitcoins enter the total supply.
Every 4 years, the Bitcoin supply that enters the overall supply (by being created/mined) is halved.
The first 4 years, 50 coins entered the overall supply every 10 mins.
Then 25 coins.
Then 12.5 coins.
Then 6.25 coins.
The next having event due to take place in May 2024 reduces the supply to 3.125
1 Bitcoin is made up of 100,000,000 units called Satoshi’s (also known as Sats)
That means 0.00000001 Bitcoin = 1 Sat
0.25 Bitcoin = 0.25000000 Sats
Bitcoins are created, minted or mined by participants in the Bitcoin network called Miners.
A Bitcoin address is created using a public and private key.
Never, ever give your private key to someone.
Only give your public key.
Satoshi Nakamoto is credited with programming and creating Bitcoin and publishing ‘The Bitcoin Whitepaper’.
Satoshi Nakamoto’s identity has not been revealed and is not known.
There is speculation Satoshi Nakamoto could be one person or even a group.
RABBIT HOLE
When you start finding out more and learning about Bitcoin, there is a steep learning curve. After a bit of learning you realise you don’t know much, then after a year you think you are an expert, then after 5 years you realise you still don’t know much and need to continue learning. Some people call this going down the ‘rabbit hole’. This is where you want to keep learning and discovering answers. In essence, time is needed to absorb aspects of Bitcoin which includes subjects such as cryptography, encryption, economics and digital cash. These subjects are fascinating by themselves and were crucial to humankind/civilisation development centuries before Bitcoin was invented.
This graphic sums up quite nicely the knowledge about Bitcoin. The Dunning-Kruger Effect (overestimating one's own competence related to others):
(Source: https://twitter.com/jchervinsky/status/1467918749911166979)
CAUTION
A few things to note. Firstly, Bitcoin has a ticker code which can either be BTC or XBT. Be aware that if you buy Bitcoin without these ticker codes, it is likely you are not buying the original Bitcoin. That is because, anyone can technically create a fork (a different version) of Bitcoin as it is Open-source software.
Bitcoin BSV and Bitcoin Cash are not Bitcoin. Bitcoin Cash has a ticker which is BCH and Bitcoin Satoshi Vision is BSV. They are not the Bitcoin we are discussing in this article. We are only discussing BTC and or XBT.
Secondly, do bear in mind that nothing here should be taken as actual investment advice. Do your own homework before deciding to buy or invest. There is only one person that is responsible for your actions either positive or negative and that is you. Buyer beware, Caveat Emptor.
WHAT IS MONEY?
One question I asked myself for many years was “What is Money”? I used to ask myself this regularly, however I didn’t have the answer. I just thought “it is what it is. Oh, it’s money, it's backed by gold”. Was I right or wrong?
What is Money? It’s a deceptively simple question, which can yield either a simple answer or a long complicated answer depending on who you ask and where you find the information. In some senses, the question is the reason why I am genuinely interested in Bitcoin.
Ask yourself now, ‘What is money’?
Can you explain the concept of money to yourself?
How does your explanation of money change when you explain it to a 5 year old, 10 year old, 18 year old, your parents or your Grandparents?
When you learn more about Bitcoin you’ll gain a better understanding of what money is (or isn’t!).
When I first heard about Bitcoin I dismissed the idea of Bitcoin, because I had no idea about the key aspects and facts of Bitcoin. After I learned a few facts, I became more and more interested, to the point that I would read around the subject and go off in tangents, but always within the umbrella of the concept of money. The resources listed in the resources section are these tangents.
Bitcoin has the characteristics of money, which are divisibility, durability, fungibility, portability, recognisability and scarcity. Bitcoin is based on the properties of mathematics rather than relying on physical properties such as gold or trust in central authorities that issue government-backed currencies called fiat currencies. Essentially, Bitcoin is backed by mathematics. With the attributes listed, all that is required for a form of money to hold value are simply trust and adoption.
Before jumping in, I highly recommend you do your own due diligence, research and homework. To do this, make your way through the resources such as videos, podcasts and books.
TIME IN THE MARKET
I would say that Bitcoin has made me a more patient person. This is because it enables a longer view of time to occur. This rationale is about investing and this ties in nicely with an expression I heard which is “Time in the market, versus timing the market”. This expression can sum up investing for the long term in Bitcoin, with a longer time horizon say 5 to 10 years, rather than trading Bitcoin where you sell every day, hour or minute. Always zoom out, when looking at Bitcoin charts look at the monthly time frame.
THE CASE FOR $500K BITCOIN
You may know the Winklevoss twins from the film “The Social Network” based on Facebook’s creation and legal dispute with Mark Zuckerburg. Or, maybe you saw them row in the Olympics.
Cameron and Tyler Winklevoss wrote a thesis on “The Case for $500K Bitcoin”. I highly recommend you read the thesis as it discusses in depth reasoning for investing in Bitcoin. They also have a Bitcoin exchange called Gemini which has good functionality, UX and security. https://winklevosscapital.com/the-case-for-500k-Bitcoin/
TYPES OF INVESTORS
There is a full range of buyers of Bitcoin. These range from retail investors, through to businesses and corporations, to Institutions and potentially Governments.
The question will be, when/if a Central Bank buys and holds Bitcoin. As a thought experiment, if the US Federal Reserve (FED) can print US Dollars, why wouldn't they very slowly (so not to increase the price too quickly and inform the market) start to buy Bitcoins with the money that they can print for essentially free/no cost?
Examples of these include:
Retail (Everyday people)
Businesses (Microstrategy, TESLA)
Institutions (Fidelity)
Governments (potentially El Salvador)
Corporations and institutions are now actively participating in the Bitcoin ecosystem throughout the world. Two companies TESLA and Microstrategy have publicly stated they have purchased Bitcoins and hold them on their companies balance sheets. These purchases at the time were in the Billions of USD value. It will be interesting to see in 5 years what their initial holdings will be worth in USD dollars.
Will TESLA and Microstrategy extract a percentage of Bitcoin into USD and provide this as a dividend to shareholders? It’s unclear, but they are either going to be trail blazers setting a trend that others will follow, or history will not look fondly upon them with their folly into Bitcoin. Time will tell.
There are some other institutions that will be worth watching to see what they do. They may well be a barometer for future actions of corporations and institutions. These are Fidelity and Blackrock. A couple of businesses that operate specifically for institutions are Anchorage and Fireblocks which are interesting to learn about.
STRATEGY & RISK MANAGEMENT
You’ll need to work out what your goals and objectives are for investing in Bitcoin. When this is done you can then devise a strategy for yourself. This will depend on many factors, but ultimately only you can devise the strategy. As an example of strategy, I will put some ideas below and also outline how risk management can interlock with the strategy.
Risk management, means making sure you don’t have all your eggs in one basket. In terms of risk management this can be aiming as a sweet spot to keep a percentage in either Bitcoin or other assets that you hold. Here are some risk management examples:
Aim to put 5% of your wealth in Bitcoin with a ceiling of 20%. This means you initially invest 5% of your wealth, however over time this grows to be a total of 20% of your wealth, so you decide to rebalance back to 5%. This would mean selling 15% of your Bitcoin into another asset for example USD or GBP. This 15% amount can then be kept as fiat currency in savings or dry powder to purchase more Bitcoin if the price goes below a certain threshold or purchasing other assets such as stock, shares or property.
To keep things simple, let's just focus on Bitcoin and fiat money such as USD or GBP. In this scenario you decide to start with 5% of your wealth in Bitcoin and the remaining 95% in other assets. However over time the 5% creeps up to 10%, so again to manage your exposure you sell half your Bitcoin to bring the overall percentage back down to 5%, with your fiat currency now rebalanced.
Someone who is far more able to accept risk may start with 50% allocated to Bitcoin and 50% allocated to fiat currency. When Bitcoin reaches 80% this is the time to sell 30% of Bitcoin into Fiat Currency to rebalance to 50% and 50%. Likewise the rebalance could occur the other way if Bitcoin tumbles and you want to rebalance fiat into Bitcoin, which would then mean you increase your Bitcoin holdings.
Alternatively you start with 25% and when Bitcoin swings to 75% of your allocation, you then sell the 50% back to Fiat and then have your portfolio balanced again.
LOG/LOGARITHMIC VIEW & METRICS
When looking at pricing charts for the long term, zoom right out. Don’t use the normal view. Instead, use the log view. Log view clearly shows over time the growth of Bitcoin. Interestingly, it’s good to use this view too when looking at technology stocks such as Amazon, Apple, Microsoft and TESLA.
Normal View:
Log/Logarithmic View:
With traditional investing there are various measures and metrics that are used. These tools can also be used with investing for Bitcoin. These include:
- MACD
- RSI
- Fibonacci Levels
There is a cottage industry that has built up for providing new statistics and charts for looking at in granular detail, valuing and predicting prices and changes with Bitcoin. These include:
200 Week Moving Average Heatmap
The Puell Multiple
Stock-to-Flow Model
Bitcoin Logarithmic Growth Curves
Please see the article here: https://bbcdsatoshi.blogspot.com/2022/02/bitcoin-specific-metrics-for-investing.html
MACRO ECONOMICS
Bitcoin is a near perfect example of the law of supply and demand. In my opinion, the only way this can be disrupted is by financial chicanery, in the guise of derivatives and other exotic instruments which could impact the fixed cap of Bitcoins.
The macroeconomic conditions and political climate has created a near perfect storm for inflation/hyperinflation which could be nature's way of balancing the financial system by creating Bitcoin. Bitcoin is the valve in the pressure cooking, or filling the vacuum void created by reckless monetary policy. In essence, Bitcoin is a hedge against inflation and in itself could be a natural law that is required to rebalance the financial and monetary system in a digital world.
Often, the exact opposite happens that people are expecting with Bitcoin. Buy the news, sell the rumour.
OPPOSITE OPINION, WHY YOU SHOULDN'T INVEST IN BITCOIN
Not everything is rosey with Bitcoin. Let’s imagine that there is a Black Swan event and Bitcoin disappears one day, goes to zero, has a sustained 51% attack, bug in code or other unknown unknown.
How would you handle that event?
Would you be ok or would this be disastrous for you?
Think about it, because no one can know the future and doesn’t know what is coming.
I think there is a 50/50 chance that Bitcoin will be a success over the next 10 years and equally fail for some reason. However, I feel that this is such an opportunity that in the next few years the positives outweigh the negatives and I’m willing to take the risk onboard.
CONCLUSION
In summary, as simple as it sounds the expression “Buy Bitcoin, you’ll thank yourself in the future” sums up exactly what I’ve been trying to convey and explain here.
As a simple starting strategy, investing 5% of your overall wealth into Bitcoin and then gradually reducing this 5% over 10 years while keeping 1% always invested in Bitcoin as an insurance policy and hedge against inflation could (and I stress could) be a good way to build your wealth and invest in Bitcoin. This is just one strategy, depending on what your goals and strategy is.
Always remember, with Bitcoin only invest what you are truly willing to lose. Who knows, one day we could wake up and Bitcoin doesn’t exist anymore or Bitcoin is worth zero. However, this scenario is unlikely yet it is possible.
We’ve looked at various key facts and these are what makes Bitcoin attractive as an investment,
hedge against inflation and a way to protect your own wealth in turbulent times. We’ve covered Strategy, being a HODLer, thought about the question of money, risk management, log/logarithmic view on charts, metrics, economics and importantly the opposite, why you shouldn't invest in Bitcoin.
Imagine 20 years ago, who would have predicted COVID 19 and even the development of Bitcoin. So projecting forward, there is likely to be economic, financial and political turbulence which manifests itself in the form of inflation. As a hedge against uncertainty and inflation, Bitcoin may be just the thing that is needed.
There is a rationale for investing 5% of your overall cash/fiat position into Bitcoin when looking through the lens of geopolitical, economic and financial uncertainty. This may be one of the only ways of preserving and growing your wealth. You can then gradually reduce this 5% over 10 years by diversifying the gains back into either cash/fiat, property or other assets. This is while always keeping 1% invested in Bitcoin as an insurance policy against geopolitical risks and a hedge against inflation.
So, be bold, go forward and come to your own conclusions. Thank you for reading this article. Will you look back in the future, be glad and say “I bought Bitcoin, I thank myself I did”.
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