Bitcoin’s Next 10 Years
Still worth 10% of your cash
I started collecting bitcoin over a decade ago, bidding in government auctions as well as buying and mining coins directly.
My long-held view is that the value of cryptocurrency could ultimately be a substantial part of the world’s monetary system. Even as a partial replacement for our global money supply, it could rise substantially. As a currency it is still far closer to its start line than its finish line. I like mining and simply buying BTC, but am a skeptic of many of the BTC-linked equities. Be careful — I still keep most of my cash in US dollars. Size any BTC position commensurate with your comfort with its extremely high volatility. Eventually, I expect we will see a much wider acceptance of digital currency, but these are still the early days of BTC and there is massive uncertainty.
Pick an allocation (10% of cash for me) and sell or spend down BTC to keep it from shooting above that percentage when it is on a tear. It is quite likely that you will have opportunities to buy it back later lower. In addition, if you are able to get borrow at a decent scale and price, there are good opportunities to hedge BTC with shorts of overvalued bitcoin-related equities. There are many worthy hedges today.
Is there a bitcoin bubble? I do not think so. In fact, I do not think of bitcoins as rising. Instead, all major government-backed fiat currencies are simultaneously plummeting compared to cryptocurrency in a trend that could continue for a long time. How much bitcoin should you own? At least some. Invert the question: What percentage of your money should be denominated in government-back fiat? Given the precarious nature of governments’ fiat currency, 100% strikes me as an extremist answer. Diversify into bitcoin in the hope and expectation that the decision could be as profitable over the next decade as it was in the last.
Personally, Bitcoin was my biggest winner over the past year and decade. Currencies have a network effect such that my biggest cryptocurrency exposure has always been in the biggest cryptocurrency. I held off disclosing this idea for many years, but my involvement was inadvertently leaked by the US Marshalls of all people when I was one of seventeen bidders on a block of the 30,000 bitcoins (worth $18 million at the time) that were confiscated from the Silk Road master wallet. I particularly like government auctions and have found several in the US, Asia, and Australia to offer good opportunities to bid on large blocks. Some fans of BTC are not fans of interacting with the government and the fact that I have to provide information (not to mention a deposit, typically several hundred thousand dollars) can dissuade some participants.
I over complicated and under sized things but advocated a consistent 10% of cash allocation throughout and on net am glad that I did. With this past week’s landslide election, we’ll get a new regulatory regime in Washington, DC. Biden’s anti-bitcoin/anti-market SEC chairman will be out.
Hyper regulation has distorted and stifled markets for the past several years, but that could change abruptly next year. This could be great for bitcoin in particular and markets generally. While I haven’t helped myself by diversifying from coin to BTC-linked equities in the past (relative to just buying a few thousand coins and then not touching them), one exception has been Core Scientific (CORZ) post-bankruptcy.
It is not my favorite industry but CORZ (along with IREN and WULF) have been leveraged ways to get indirect exposure to BTC. CORZ has been the most leveraged, but events have brought that down in a few ways. First they’ve diversified from mining into high performance computing. Secondly, my overly complex rat’s nest of securities have all been equitized, recapitalizing and simplifying the company’s balance sheet. It was a hodgepodge of converts and warrants but today is just equity. CORZ traded for under $1 a year ago and has returned 2,550% since then. Today 1% of the company is worth over $47 million, well over the company’s entire market cap at its low.
Caveat
Bitcoin can be volatile and another anti-bitcoin administration can come back in as soon as four years.
Conclusion
At some point, a 0% allocation to BTC will have more career risk for RIAs than 1–3%. I like 10% of cash in BTC. I accept many of the criticisms of skeptics but turn the question back to them of what currency is better. Demand — like demand for government-backed fiat — is market-driven. Supply is more finite than any fiat currency. My interest in bitcoin has always been the inverse of my faith in government fiscal and monetary prudence. To date, that lack of faith has yet to fail me.
TL; DR
Consider putting 10% of your cash in bitcoin as well as bitcoin-linked securities such as CORZ.
