Practical Investment Commentary - No Hype

I assume some of you are growing bored with my continued commentary on the cryptocurrency world, as compared to comments on stocks, or gold, or some other asset class, but here’s the thing: crypto is fast becoming the most important asset class.

Really?

Yes.  Not the largest, of course, but it currently has a market cap of over $2 trillion (of which Bitcoin is $1 trillion), so it can no longer be considered a “fad” or something on the fringe.  It is real, and given the massive fiat currency debasement we are witnessing in every country, you have no choice but to understand it, and use it as a way to protect your wealth.

Most cryptos are fads, and won’t exist in a few years.  They will be wiped out, just like most of the companies that started during the dot com bubble, but some will survive.  Amazon still exists, right?

The two leading cryptos are Bitcoin ($1 trillion market cap) and Ethereum ($330 billion), and they both had a good week.

Last week, in The Crypto Crash, I said to “stay the course and see what happens.”  As I write this on Saturday morning, May 1, 2021, Bitcoin is up 6% in the last 24 hours, and over 17% in the last 7 days.  Ethereum was “only” up 3.8% in the last 24 hours, but is up over 30% in the last 7 days.  That is a good week.

And yes, I understand that everything could be down 30% today, or this week, or this month.  That’s very possible.  But over the last year, Bitcoin is up 577%.  How can you not have something like that in your portfolio?

If you are a highly risk-averse investor, and you think this is all a scam, fine, put a small percentage of your wealth in blue-chip cryptos, say 1% to 5%.

If you have a $10,000 portfolio, and last year you put 1% in Bitcoin and 99% in cash, your portfolio today is worth $10,577, for an annual increase of 5.77%.  That’s a portfolio 99% in cash, so essentially zero risk.

Tell me where else you can get those returns?

Had Bitcoin crashed to zero, your portfolio would be down 1% on the year.  That is a very good asymmetric bet.

To be clear, I don’t expect Bitcoin to go up 577% per year.  But over the last decade, it has more than doubled each year, so 100% per year gains are very possible.  Do you want to be on the sidelines when that level of growth is possible?

No, you don’t.

This is not financial advice.  Do your own thinking.  I’m just some dude writing a blog.  But I would suggest you do two things:

First, do your research.  Investigate it.  Learn about it.  Watch some YouTube videos.  (Most of them are crap, but I’d start with Benjamin Cowen and the always entertaining Tyler S). Then do more research.  Then pick a crypto exchange (I like Kraken), get a hardware wallet (I like Ledger) and invest a very small amount of money to see how it works.

Second, if you don’t want the hassle of trading on an exchange and storing your own coins, buy a fund.

There are two closed-end funds started in 2020 by 3iQ:

• The Bitcoin Fund, denominated in Canadian dollars as QBTC, or in US dollars trading under the symbol QBTC.U.
• The Ether Fund, in both USD and CAD, traded as QETH.U and QETH

The world’s first Bitcoin ETF started trading in February, the Purpose Bitcoin ETF, trading as BTCC.B.TO in Canadian dollars, or BTCC.U.TO trading in USD.

The second Bitcoin ETF also started trading in February, the Evolve Bitcoin ETF, trading as EBIT.TO in Canadian dollars, or EBIT-U.TO in USD.

All of these closed-end funds and ETFs have management fees, so you are paying a fee for the convenience of not holding your own coins, but for RRSP and TFSA investments they are a good option.

You can trade if you want, but I suspect that holding through this market cycle will be the easiest and best option.

Govern yourself accordingly.  I think we are in for a wild but profitable ride.

Good luck, happy month of May, see you next week.