*Disclosure - When I refer to crypto here, I am specifically referring to Bitcoin and Ethereum. Stay away from the shitcoins. This is an opinion piece. I am not a licensed financial advisor or financial professional. This is not investing advice. I am simply sharing my research and opinion based on that research. It is very important that you do your own research and make investments based on your own personal circumstances, preferences, goals and risk tolerance.
For the purpose of this argument, I am going to be using Bitcoin as the crypto of choice. If there's further demand, I can write an argument for Ethereum as well.
"Why should I own crypto?" A question I get asked quite often. The simple answer is - why not?
That usually gets a look of bewilderment and a slew of FUD (fear, uncertainty and doubt) arguments they have read online or heard from others. The most popular talking points: Bitcoin is a ponzi scheme, it's fake internet money, criminals use it for money laundering and drugs, it's a pump and dump, the government is going to ban it, it uses too much energy, I don't understand it so it must be a scam.
That last one may or may not be my sarcasm coming out. I'm sure you can figure it out.
Now, before immediately responding, I take a deep breath and count down from 5, a little trick for controlling your emotions. Countdown with me:
5 - This person is a blathering buffoon
4 - Give me the strength not to bodyslam them (with my words of course, violence is bad)
3 - Let the hate leave your body
2 - You are cool, calm and collected
1 - Hail Satoshi. For He is the Savior that will rid the world of evil and greed; He is the chosen one. We do this for Satoshi!
Uhh, ignore that last one. Bitcoin is definitely NOT a cult, I swear. And that's definitely NOT our secret chant. It's just a community where you convince people to join and attack people on Twitter for having different beliefs. So clearly not a cult. Join us or die.
Kidding, kidding. Of course I'm joking. Sort of...
What is Bitcoin?
Anyway, now that I've counted down and I'm calm, let's discuss into what Bitcoin is. Here is a quick, high level overview.
Bitcoin was created by Satoshi Nakamoto in 2009 "with the goal of wrestling control of currency from the financial elites and putting it in the hands of the common man." Bitcoin runs on blockchain technology, where transactions are recorded on a network ledger for everyone to see. These transactions are verified by computers on the network by solving complex puzzles. The computer that solves the puzzle the fastest is rewarded with Bitcoin. This incentivizes people to run these computers and use energy to do so.
Thta's Bitcoin in a nutshell. The coins are spread out and no elites can manipulate it. That's the beauty of it.
Also, a common misconception is that you need to purchase an entire coin. But that is wrong. You can buy fractions of coins. So even though one Bitcoin is $54,000, you can buy as little as a dollar worth of Bitcoin. Yes, one dollar.
For a full in depth explanation of Bitcoin, read this previous blog that explains Bitcoin so anyone can understand. Definitely worth the read.
Why Everyone Should Own Bitcoin
Now that you know what it is, let me explain why everyone should have some sort of exposure to crypto.
Some sort of exposure - what does that mean? I'm not talking about putting your entire net worth in crypto. I'm not even talking about half your net worth. Hell, I'm not even talking about 20% of your net worth.
You just need a little bit; 1% of your net worth little bit. That's all!
Let's put 1% of your net worth into perspective.
If you have no debt, $90,000 in your investment accounts and $10,000 in your savings account, your net worth would be $100,000. You would just need $1,000 worth of crypto to have a 1% allocation.
If you lost $1,000 you might be upset, but it's not going to financially ruin you. On the other hand, if Bitcoin or Ethereum goes as high as some forecasts, that $1,000 could turn into $20,000 or more.
The risk reward alone is astronomical. Even if you don't understand it. Just buy some and don't look at it for a few years.
Bitcoin is one of best asymmetric investments in history. What does that mean? Let's take a look at projections. The one below is specifically from Fidelity, but many stock to flow charts have a similar forecast:
By 2030, this projects that one Bitcoin will be worth nearly $10 million. Sounds insane, right? But when you know the exact output of something, you can forecast the price.
There will only ever be 21 million Bitcoin in circulation. Every 4 years, the number of Bitcoin created decreases by 50% and 18.8 million have already been mined. That means supply is getting scarcer and scarcer, while adoption and demand is increasing.
I'm sure you think this chart is a joke. You probably think it's outlandish and will never happen. Fine. I will concede it sounds absurd. So let's look at some possibilities and statistical chances.
The first column uses Fidelity's S2F model of $10 million. If you give that 0% of happening, Bitcoin goes to $0 and you would have lost your investment. A 1% chance of happening means at minimum, Bitcoin price should be $100,000. At the current price, you would still double your money.
As the chance of success increases, the more upside there is. For more clarity, $5 million, $1 million and $100,000 were included in the chart as well.
So, I know I'm throwing a lot of numbers at you. Put simply, the potential for success far outweighs the downside. The risk/reward is a no brainer in my opinion.
Fear, Uncertainty and Doubt
We've covered the potential and why having some exposure makes financial sense, let's address the FUD.
Bitcoin is fake money and used for criminal activities. Newsflash - Fiat money, aka the U.S. dollar or any other form of money you can think of, is fake money. Dollars are not backed by anything. That piece of paper is simply worth what you and I say it is worth. And criminals use fiat money for illegal activities all the time. See the Pandora papers.
Bitcoin is a ponzi scheme and a pump and dump. A twelve year pump and dump is pretty impressive, in other words, that's not how a pump and dump works. As for a ponzi scheme, here is a quick definition:
High returns with little risk - everyone knows Bitcoin is risky. Kind of destroys that theory. Plus earlier investors getting paid by later investors. That's technically every investment, no? Investors aren't promised a consistent return with Bitcoin.
The government is going to ban crypto and Bitcoin. Simple answer, no they are not. Just this week, SEC chairman Gary Gensler said the U.S. will not ban crypto. Pretty straightforward.
Bitcoin uses too much energy. Bitcoin does use a lot of energy. But when compared to the existing banking system and gold, not as much as you would think.
Not to mention, 40-70% of Bitcoin's energy consumption is carbon neutral. Take your ESG talking point and scram kid.
The U.S. dollar is the global reserve currency and Bitcoin will cause the U.S. to lose its power. The U.S. printed 35% of all dollars in history. The rich got richer. Wealth inequality has grown. The legacy system is not working for the vast majority of society. Why would you want that system to continue?
There you have it. If you take anything away from this, understand that this is the best asymmetric trade in history. You should have some sort of exposure. Period.
Do you have further concerns? Comment them below and I'll do my best to give an honest response.
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I am not a licensed financial advisor or financial professional. This is not investing advice. I am simply sharing my research and opinion based on that research. It is very important that you do your own research and make investments based on your own personal circumstances, preferences, goals and risk tolerance.
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