I’ve been pounding the table on bitcoin for a while…
And some of you might be tired of me talking about it. I understand that.
But I keep pounding the table because I truly believe everyone should have at least a little exposure to this asset class.
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You see, cryptocurrencies like bitcoin, and the blockchain – the technology behind bitcoin – are about to change the world.
Yet a lot of people still don’t understand how they work… which means they’re missing out on the ability to profit.
Many people don’t get bitcoin
Even though bitcoin is becoming more mainstream, I still see countless articles claiming that bitcoin isn’t real, that it will “close” or that it’s used primarily by criminals.
As we’ve written before, bitcoin is just a cryptographically secure medium of exchanging value. It’s not “fraud” or a “vehicle for criminals”.
At the core of bitcoin technology is a kind of super distributed ledger called the “blockchain.” The blockchain is public and accessible to anyone, just like the internet.
Bitcoin can be moved around, used to buy goods and services and it has scarcity. Only 21 million bitcoin will ever be mined. And over 16 million have already been mined.
As an asset class, I would categorise bitcoin as similar to U.S. dollars, sterling, yen or any other currency. It is a form of currency. And as such, it should be looked at as something between say, dollars and gold.
Bitcoin also can’t be “closed”. It’s not an overleveraged credit derivative fund. It’s a highly secure distributed blockchain running on a global network of computers.
The other important thing to remember about bitcoin is that it’s not actually controlled by any central organization – the Federal Reserve, the Treasury, the Bank of England or the European Central Bank.
There’s no company, there is no CEO, there is no chief financial officer.
I think there’s every reason to believe that the importance of cryptocurrencies will grow over time simply because it is something that is not controlled by governments.
Bitcoin is becoming more mainstream… but there’s still upside
While bitcoin may still be misunderstood by most, it’s quickly becoming a topic in regular day-to-day conversations.
The favourite topics of dinner party conversations in Hong Kong and around the world have always been about property prices and airline travel. But I now see bitcoin and cryptocurrencies becoming part of the dinner party conversation.
But still, even people who are very financially literate, who have been in investment for many years, who are very up to speed with that’s going on in the world, have very little information or understanding of what these cryptocurrencies are. So although bitcoin is increasingly cropping up in conversation, very few of these people own any bitcoin.
That’s likely because buying bitcoin is still relatively cumbersome. Exchanges need to do know-your-customer (KYC) checks. Depending on where you live, funding a bitcoin account can require a trip to the bank and an expensive bank transfer. And you still need to familiarise yourself with a new asset class, which takes some effort.
But all that means is the opportunity is still there.
Now, I’m not saying bitcoin won’t be volatile. Like any asset, cryptocurrencies will continue to experience rallies and corrections. Don’t fall into the trap of thinking “this time is different” and that bitcoin will go up forever. The cryptocurrency could absolutely be in for a short-term price bubble. But over the long term, the upside is far from over.
If you haven’t already, buy bitcoin today
In short, I believe everyone should get some cryptocurrencies in their portfolio.
The most appropriate course of action for the majority of investors is simply to buy a little bitcoin – and forget about it. Don’t overreach and buy more than you can afford to lose, and certainly don’t borrow to buy bitcoin. Just buy, hold and ignore the volatility.
Participate financially, not emotionally. It’s not a one-way ride, and it’s a bumpy one. Be prepared to stomach big declines and sit tight. And “invest” no more than you can absolutely afford to lose… as much as you’d perhaps invest in a single speculative small-cap stock in your equity portfolio.
Bitcoin is an asymmetric bet… if it falls or even goes to zero, your loss is small (assuming you’ve put in only what you can afford to lose). But if over the next few years it continues go up, then gains of 10 to 20 times are entirely possible… and even bigger gains lie outside of bitcoin in the cryptocurrency space. There is no other asset class on earth that offers this kind of return profile.
So everyone needs to familiarise themselves with the process of buying, trading and storing cryptocurrencies. They’re here to stay. And being on the outside (and not understanding them) will limit your ability to profit from them.