I’ve recently clarified my thinking on Bitcoin and related crypto. To be transparent, I’ve followed this for years and had plenty of opportunities to buy BTC for a few hundred dollars. It’s now over $50,000 a coin. So, based on that, you may want to stop reading now. 😊
Focusing on 3+ year horizon / Investing
First, I’m not looking to become an active trader. That isn’t my game. So I’m going to look at all crypto investments with a 3+ year horizon. I have a long view that crypto is real and will be a component of corporate and personal balance sheets over the next decade. How large of an element? More than it is now!
Only $10B instruments / Limit Risk
I’m only considering crypto that has a total market cap over $10B for at least 30 days. I’m also only considering crypto I can trade on Coinbase. Setting a value threshold limits the noise and distraction. I am sure there is positive activity below $10B, but I’m choosing to ignore that for now. Based on that limit Bitcoin (BTC) at $1.1T, Ethereum (ETH) at $233B, Litecoin (LTC) at $16.2B, Chainlink (LINK) at $15B, Bitcoin Cash (BCH) at $13.8B, and Stellar Lumens (XLM) at $11.8B are the only things I’m watching. (Market caps as of Feb 20 2021 7:00 AM CT.)
Any crypto over $10B in value is worth a nominal investment and puts it on the radar to consider more broadly.
The one exception I am making to that limit is stablecoin. I don’t know what to think of stablecoin, and I am tracking USD Coin (USDC) to learn more.
Develop a Model / Diversify
Crypto are very different, with different objectives. You can treat them as a basket for broad crypto investment and a bet on decentralized financial systems. But that is where it ends. I think you should develop a model for each one and why it is applicable for investment. My current thinking is:
|BTC||Stored value. I think of it as gold.|
|ETH||A bet on a different compute model.|
|LINK||A bet on smart contracts.|
|LTC||Money in your wallet. You might buy a coffee with LTC.|
|BCH||Bitcoin version of LTC. Same thesis.|
|XLM||Financial backend and potentially an alternative to systems like SWIFT.|
|USDC||Question mark for me right now.|
Overall Allocation / Portfolio
Crypto is super volatile and risky. I like Ray Dalio’s comment.
Bitcoin looks like a long-duration option on a highly unknown future that I could put an amount of money in that I wouldn’t mind losing about 80% of.
So with that in mind, this shouldn’t be your retirement fund!
I’ve watched this for too long from the sidelines and have not participated other than some small dollars for fun. My brother-in-law Hector made a comment that resonated with me. With a handful of public companies now holding BTC on their balance sheet, others will follow suit. I’ve also had many people approach me about using BTC as a hedge on inflation.
The net of all this is that crypto has moved from experimental to maturing and I expect we will see a multi-year increase in demand.
I haven’t talked about the technology behind it all. I’m entirely confident in that component, and I use Coinbase to manage my wallet for me.