What are your thoughts on cryptoassets for long-term investments? I've been avoiding them as they're non-productive but an ecosystem is being developed around them and institutional investors have invested in Bitcoin over the past year. I'm starting to come around and am considering one specifically for buy and hodl.
Cryptoasset as Long-Term Investments?
- Thread starter AD04
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My gut feeling is that cryptos are in a bubble by all reasonable measures so I tend to avoid it and haven't purchased any, but on the other hand if I had invested in it years ago I would have been FIREd by now lol.
Maybe keep a small portion of your portfolio? I have about 6% crypto by accident (casual mining a decade prior), but maybe 2-3% is a more reasonable crypto allocation.
Maybe keep a small portion of your portfolio? I have about 6% crypto by accident (casual mining a decade prior), but maybe 2-3% is a more reasonable crypto allocation.
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I wouldn't' be surprised if it hits at least 100k in the next 6 mo before it corrects 50-70% only to hit 250-300k in the 2025 cycle. Everyone has their own risk tolerance but I think since banks scoffed at the idea warning customers not to own it only to recently want it themselves says it all. It could be life/career changing for some but i am too risk averse to ever touch anything that is not an index fund.
bitcoinmagazine.com
FDIC Chairman: US Regulators Exploring How Banks Could Hold Bitcoin
Banks' BTC holdings could be used for client trading, as collateral for loans, or held as assets in their balance sheets.
bitcoinmagazine.com
I think you're likely right. There is still another halving cycle in 2024 for bitcoin which will very likely propel the price. Your projection is similar to this author's:
With that being said, I'm mostly in index funds like you but would like to put in a small percentage into crypto as hedge against fiat.
You don't seem to be the adventurous type so I'm actually surprised by this. Which did you mine and how did you get into that?
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Whatever you decide you should act quick as this is the last dip before maybe a new ATH in the next 7-10 days. Even then if your going to hold until the next cycle you are very likely to come up in good shape. Good luck.
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$SHIB / $DOGE / million dollar NFTs , stocks … all you’re hearing is the the sound of unprecedented liquidity sloshing around. Highest margin debt ever / so many people trading full time due to “easy money” / extreme risk taking, all sounds like euphoria to me. But Crypto isn’t going anywhere. 10% of my net worth is in mostly $ETH / $BTC / $ADA. But once the interest rates and tapering starts in 2022, things will go back down to earth. I def think crypto isn’t going anywhere and one should have some exposure to it. Best way to play crypto IMO is Coinbase stock.
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Haha you're absolutely right. I got into dogecoin when it was first released in 2013 because of the meme and mined about $20 worth of it over the course of four months on an ancient laptop. I figured I wasn't breaking even on electricity so I stopped.
Cue 8 years later when I suddenly had $30k worth of doge! (now down to about 13k due to me holding bags, but eh I'm not at any loss)
Raising interest rates and tapering QE are easier said than done because if that happens, lots of savings will be wiped out. Think about all the people who are mortgaged to the hilt buying property after the appreciation of 25% over the past year. Increased rates will put them underwater.
Why not hold the underlying cryptoassets instead of buying Coinbase stock? The cryptocurrency themselves are not subject to monetary policies and government regulations and are transnational.
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Bank of Canada just ended QE. The US fed will eventually follow. You can't QE into infinity and buy > $100B in government backed bonds each month (I mean I guess they could). But when tapering happens and rates rise ... and I assure you it will, liquidity gets sucked out of the system. During that time, investors naturally will pull money out of the most risky / speculative investments and crypto is without question a speculative investment.
Just look at 2018 when fed announced a series of rate spikes, SPY / Nasdaq / BTC all corrected heavily. Savings certainly will be wiped and 401Ks will be drained, but it's necessary.
Eventually Crypto will disconnect from the stock market, but I don't see it in the next 12-24 months. Coinbase makes money with every transaction on its platform. Crypto goes up or down, they make money. They're launching an NFT marketplace. Have multiple investments via Coinbase Ventures and not trading at sky high valuation given their fundamentals. They're the best in breed crypto platform / founder led / profitable. Good luck to all!
I wouldn't compare the US to Canada. USD is the currency standard of the world. CAD not so much.
Isn't MMT (magic money theory) the new thing now? I hope you're right because I'm in the accumulation phase and want to buy things cheaply. But I really doubt it. The interest rate hike in 2018 was quickly reversed as it was just too painful. If there is tapering and interest rate rises, it won't last. I was hoping the bear market in 2020 would last longer but it was over in like 1 - 2 months.
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I think I am biding my time. Cryptocurrency is too volatile, too reactionary to the overall market. I think if/when we enter a correction/recession/bear market, people will poop their pants, and the price will fall dramatically. If I'm wrong, oh well, I missed it and will enter a little later which should not matter as I am told repeatedly it has a very bright future. Long term, it may behave in its own way, but I have not seen that yet.
Considering the extremely low interest rates people were starting at (or refinancing into), as well as much tighter lending standards than in the 2006/7 range, there are likely very few people "mortgaged to the hilt".
The appraised value of your house only matters if you are going to sell it. As long as the monthly payment is affordable to you, wild swings in the market value don't really affect your bank account.
You can see for yourself how the debt-to-income ratio for the median household went up in the past 20 years:
The Fed - Map: State-Level Debt-to-Income Ratio, 1999 - 2023
The Federal Reserve Board of Governors in Washington DC.
www.federalreserve.gov
You'll be surprised at people's mortgage in relationship to their net worth. For most people in the middle class, their house is their primary investment vehicle. They are definitely taking out a loan to get a house. The average person in the US is loaded with debt, as encouraged by the monetary and fiscal policy. So they get houses and cars and iphones that they cannot afford. Let's say you're one of the lucky 2er% and you're a tech bro making $300,000 / year. Sure you're rich compared to the median national income but you're competing for houses with other tech bros and will take out a huge loan to acquire a house that cost over $1 million to live in or near Silicon Valley. How is the average person making median salary (think government worker) able to compete for housing in Silicon Valley?
If interest rates go up, if mortgage rates are not locked, there will be defaults -- lots of defaults. And during rising interest rates regimes, liquidity dries up. When people feel poorer, they spend less and that results in job losses (if they even have jobs). Banks are less hesitant to loan or will loan at higher interest rates during this time if they want to tap into whatever housing equity they have. Of course, housing equity will decrease as houses are worth less with higher interest rates. This is a recipe for foreclose and deflationary pressures which will spiral into it's own feedback loop and if unchecked will get out of control. Think GFC of 2008. The government will be forced to lower interest rates and inject money into the economy.
Interest rates cannot go up for the long-term. Interest rates will remain low which makes bonds unattractive relative to inflation. This drives up prices for equity and real estate and cryptoassets and other scarce assets.
Overall, the current structure of the economy is broken and unsustainable. I do wonder if cryptoassets will outperform equity over the next 10 years.
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The most relevant part of debt as a consumer is the monthly payments it creates. Thanks to super low interest rates, the public is paying a lower percentage of their disposable income towards debt than they have in over 40 years.
Also see this link to see how both consumer and mortgage debt have tracked as a percentage of disposable income over time.
There are all sorts of descriptive vivid narratives about the dangers of mortgages and property value bubbles and what not, but US mortgage holders are about as safe as they have been in any of our lifetimes in terms of being able to likely pay off that debt going forward. And that doesn't even factor in the possibility that interest rates could go even lower allowing people to refinance into even lower mortgage rates than their already low rate.
As for long term performance of crypto assets, nobody knows anything. Even if we assume that crypto will dominate worldwide finance over the next 10-20 years, it does not mean anything in particular for a given coin in terms of future valuation. If you held a gun to my head, I think Ethereum has the most likely odds of success given it's use as a platform for everything else useful to be built on top of.
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Why would anyone buying a home NOT get a locked mortgage rate? That just seems to be throwing yourself at the mercy of whatever markets or interest rates are in the next three decades. I didn't even know you could get a variable rate mortgage...
ARMs (adjustable rate mortgages) are a thing. They tend to give significantly lower interest rates up front for 5 or 7 years, but then you agree to them adjusting it up as needed beyond that. But with fixed rates already so low, there is less and less benefit up front to an ARM. For the last decade, though, most people that took out an ARM could probably refinance into a fixed rate mortgage at a low rate during that initial 5 or 7 years so they made out well.
I think we're talking about the same thing. I agree with this which is why I view interest rate increases as something that is very unlikely to happen. People can keep on paying their debt assuming interest rates don't increase.
No one knows the future with certainty but people can certainly assign probabilities based on available data. Because there is still a lot of uncertainty in this space, this is what gives it potential for a lot of appreciation as smart people with money such as yourself won't commit money to it until later in the adoption cycle.
I do not recall mentioning what I may or may not own in the crypto space. I just view it as gambling, not investing. The 30-60 year time frame for crypto it is probably a horrible investment. Currencies are not something you invest in. In the 5-15 year time frame, there may be some considerable appreciation in it, but as I said it is hard/impossible to know what to own. The best crypto investment might not yet exist. If you want to throw 0.1-1% of your retirement assets towards it, go for it. Just don't plan on it making you rich.
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Indeed. I did a 7/1 ARM for residency. Haven't refinanced due to my own laziness. But I could likely drop my rate by 1% if I did.
There are overt and covert ways to communicate. Feel free to communicate overtly and let me know how much you have put in if I am wrong. You don't seem to be the "gambling" type.
I do all sorts of gambling. I go to Las Vegas frequently. The amounts I gamble are not really relevant to anyone's finances except my own, especially since I make so much more money than most. But when it comes to investments and investment advice and retirement savings, well those things need to be clearly separated from gambling.
Here's a double gambling tip: I bought lots of long dated out of the money calls on SRAD this week. It's a company that sells sports data for gambling purposes. I am literally gambling on the business of gambling.
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not really.
When it comes to investment advice, KISS, index funds, low costs, diversified, maintain asset allocation, etc. are the important things. For you, for me, for everybody. But if you like to gamble or think you can outsmart the system or whatever, I see nothing wrong with using a small defined portion of your assets to do so. I just don't pretend like it is advice I should give to others. I hold myself to a fiduciary standard when offering advice.
Crypto still falls under the gambling spectrum if you ask me. I have a little exposure to it that has grown over time, but it's just fun money not part of my retirement plan. I don't talk about all the random dumb little things I do with money because it isn't relevant advice I would give to someone else. I mean I made a 125x return in 2 days on some short dated far out of the money calls on Tilray stock earlier this year when it was on the meme WSB rocket ship but that is just me getting lucky reading the tea leaves and my bet paying off. I've also made plenty of bets I thought were smart that didn't pay off.
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I, for one, have always appreciated your financial posts over the years and like the fact that you intentionally don't cloud the forum with bs garbage nonsense about WSB style "advanced" pseudointellectual trading (read: gambling). That type of posting has made reading finance online almost unbearable because you have to sort it all out to read pertinent content.
For example, I was on r/fidelity the other day just checking something real quick during downtime and spent the whole time scrolling past 19 year olds asking about direct registering their $200 in meme stock like it was serious business. Every venue bar probably bogleheads is flooded with this junk and it drowns out adult conversation.
Have you ever experimented and learned something new and then implemented in on a large scale?
I'm open to new ideas (crypto is just one of them) and I seek them out all the time as it allows me to innovate. I don't mind shifting through 99 crappy ideas to find something that gives me new insight. I wouldn't mind if you talked about the "dumb little things" you've done. The market changes and a wise investor would also change, kind of like how Picasso kept on reinventing himself.
I started out as a value investor and since then I changed my strategy a few times. Each change resulting in better and better results. Even Benjamin Graham (founder of value investing) realized that market changes:
"I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities. This was a rewarding activity, say, forty years ago, when our textbook “Graham and Dodd” was first published; but the situation has changed a good deal since then. In the old days any well‐trained security analyst could do a good professional job of selecting undervalued issues through detailed studies; but in the light of the enormous amount of research now being carried on, I doubt whether in most cases such extensive efforts will generate sufficiently superior selections to justify their costs."
You can't go wrong with index investing. You reported making a high income so there is no need to deviate from indexing. But on the flip side, why not take more risk if you can afford to?
I respect your view on cryptocurrency and in some aspects I agree (e.g. which utility coin will be dominant) but I disagree that it is gambling. Network effects and Lindy effects apply and there is one in particular that has been dominant for over a decade and is king of store of value. Very smart people have studied this in depth and came up with different conclusions compared to yours and to them it is a sure thing.
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I, too, have read Ben Graham. The Intelligent Investor and Security Analysis are both sitting on my bookshelf. And just like many people (Warren Buffett included), realized it was not the optimal way to invest even though many of its tenets still ring true today. When it comes to crypto coins at the moment, I imagine Graham would classify it as speculation as opposed to investment.
“An investment operation is one which, on thorough analysis, promises safety of principal and a satisfactory return. Operations not meeting these requirements are speculative." -- Ben Graham, The Intelligent Investor
As for bitcoin, I would definitely not classify it as being dominant for over a decade and king of store of value. For the majority of bitcoin's existence, it has existed on the extreme fringes of finance. The first coins were mined in 2009 and from 2009-2013 it was miniscule. Blew up a little in 2013 then back down til the big jump in 2017 when it got a lot of mainstream notice. It's really only been from 2017 to 2021 that it has had any sort of relevance by market cap (didn't cross $20B market cap til 2017 and now sits around $1.3T). And it's not like it has exactly been storing value over those 4 years. If you bought at the peak in late 2017 it took 3 years to breakeven on price.
I like the idea of cryptocurrency. But I don't invest in currencies. I don't trade forex. They are means of exchange of value but not long term creations of value. The smartest people talking and thinking about crypto can go on and on and on about it's uses, but none of that use gives it intrinsic value over another currency or says why it should be worth so much more than it is worth today. It's still just a gamble that somebody else will pay more in the future than you pay today which is the opposite of something like a stock that is ownership in a profitable (hopefully) business that can return money to you in the future whether or not somebody else wants to buy your share.
As for your question about why do I not take more risk if I can afford to? I choose not to take risks that I do not have to take. Besides, if you want to get mathematical about it, pretend you are a huge crypto fanboy and think it will do great in the future. You do not need a very large part of a portfolio dedicated to an alternative uncorrelated asset for it to have a significant impact on long term returns. I don't think even the biggest crypto fans should allocate more than maybe 5% of their retirement assets towards it and if it skyrockets in the future I would continually prune it down to a more manageable level.
I do enjoy gambling and will throw a few bucks at things over the years, but that's just me. I don't want to suggest dumb ideas to other people.
I view Bitcoin separate from other cryptocurrencies. Bitcoin is a decentralized, permission-less, peer to peer cash system. I view it as a store of value and hedge against inflation. It can be used as currency using the lightning network. There will never be more than 21 million bitcoin, and a lot of those coins are "lost". Institutions, politicians, and countries getting involved. I don't think it's going anywhere and I have a portion of my portfolio allocated in btc. Read "The Bullish Case for Bitcoinn" by Vijay Boyapati
mdartclub
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Agree. It is hard to group all cryptocurrencies together into one basket. Bitcoin is more a store of value. Ethereum is more for smart contracts. Then you have stablecoins and meme/alt coins. Stuff starts to get real complicated real fast...
I will just assume you have not looked at it's price chart the last 10 years. There is nothing remotely storing value in bitcoin. It is wildly volatile.
mdartclub
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The price of gold fluctuates as well. Bitcoin has a built in mechanism to become more scarce over time. No one single person or entity can circumvent this. On the other hand, fiat currency is controlled by governments. The US government can print more dollars whenver they want...
if you charted the price of gold and the price of bitcoin together, gold would be a flat line while bitcoin would be vertical in many places.
As for the US government printing money, the US dollar hasn't lost more than 50% of it's value in short term at any point in the lifetime of anybody you know.
You can make some arguments in favor of bitcoin, store of value is not one of them. It's laughable to suggest it. Bitcoin isn't digital gold, it's stocks at 6x leverage.
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Hasn't gold lost money since it has the same price now as in 2013 if you account for inflation it has gone negative. Nothing is certain but I'm more confident in btc being higher several months to a year after the next halving than it ever has before while gold will be single digits in return at best even negative if inflation is accounted for. If you bought 1700 dollars of gold in btc in 2013 its worth 5-6m at the current low of btc for now while that gold is 1800 which is a loss if inflation is accounted for.
I am not really arguing anything in favor of gold, merely replying to a post that said "the price of gold fluctuates as well". The price of gold doesn't even move if you charted it against bitcoin's massive price fluctuations. Bitcoin changes more in value in a day than gold does in years.
While I find bitcoin interesting, I have no confidence in it's future price movements up or down. Definitely not a sure thing to appreciate long term nor should it ever be referred to as a store of value. Something that performs like a US treasury is a store of value.
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People are not buying bitcoin to preserve their wealth like people do with bonds (typical) or gold (need long period of time). They are buying BTC and want it to go up. A lot. How crypto reacts during a market crash is going to reveal a lot because this far it has only run sentiment and and somewhat in line with the stock market. Inflation concerns are not doing it any favors.
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As a millennial I have seen a few major shifts in my lifetime where before it occurred I knew it made logical sense to revolutionize things. As social media became a thing facebook, twitter etc, the advent of smart phones ex: smartphone, streaming for digital content netflix. I didn't have money at the time to invest. Digital money is coming it just makes logical sense to me as most people as millennials don't ever use cash and have gone via credit cards into venmo it only makes sense at least what i see in my cohort that something in crypto is another paradigm shift. Huge money transfers will take place in the next 20 years into this generation and they won't be buying gold or putting it into the bank. Electric cars/Energy Revolution and AI are the other 2 going forward. Big cryptos and major players in electric cars/energy will likely at a minimum 2-3x from their highs during 2025 and we will look back and say wish we had invested more than 1-5%
not a single thing in your post details why bitcoin in particular would have such a massive value. Crypto as an idea, sure, but even if you guarantee that crypto will be massively valuable 20 years from now that does not mean anything for the value of a particular coin going forward. It is perhaps more open to be disrupted by a new unknown entrant than any other idea or industry. There is no first mover advantage for something so decentralized.
Also for as much as people talk about not using cash and using credit cards or venmo or whatever, there really isn't any use for crypto in your day to day life right now. It's not like I struggle to make free cashless transactions with ease at any moment in time.
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Network effect and Metcalfe's Law. Nothing is guaranteed and of course there is a chance that some unknown coin takes over but i am not talking about 20 years. So far based on history and given we are only talking about a shorter time frame ex: end of 2025 if crypto is successful in that time frame then big current players would reap most of the benefits catalysts being spot ETF's which are only coming for major players at least in this time frame. Let's see where we are end of 2025 but i stand by 2-3x minimum gains for major cryptos and major electric players but nothing is for certain. Ark Invest is also very bullish on all of the above but bump this end of 2025.
nobody said a wild guess cannot turn out correct. And network effects don't really have much of anything to do with crypto unless the entire world decides that one coin is the be all and end all and that is what everyone wants. Bitcoin doesn't have enough use for transactions to make that possible for it. Also LOL about Metcalfe's Law. Network effects apply to something like facebook, but when everyone has lots of options to pay for things there isn't much benefit to any one particular when costs and speed are already a non issue.
Then again you are literally trying to predict short term price moves in a volatile asset class so actual "fundamentals" will have almost nothing to do with it. I mean is bitcoin more or less useful or valuable today than it was last year? two years ago? 10 years ago? I mean nothing has really changed except it is more expensive to use and people are speculating the price will go higher so they pay more for it.
mdartclub
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Bitcoin is programmed to become more scarce over time. As supply diminishes, demand increases.
it does not become more scarce over time. The supply never diminishes. What happens is the rate of creation of new coins slows, but the supply is going to grow for more than 100 years.
Please tell me you knew this.
mdartclub
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This is just semantics. Technically you are correct. I was referring to supply relative to demand. Bitcoin is capped at 21 million. It becomes harder to mine over time. Some coins are lost forever because people forget their keys, so supply diminishes. Demand will presumably increase over time as crypto becomes more mainstream, although this is an assumption. I am not an expert in Bitcoin or cryptocurrency. When I search Google, there seem to be many articles online debating whether or not Bitcoin is scarce. Here is one example: Understanding Bitcoin’s Scarcity
I'm not sure it is just semantics when you literally said supply diminishes over time. Whether demand goes up or not obviously wait and see. Just worth pointing out to anybody reading that they should never think the supply will go down. It won't. It will continue to go up the rest of your life.
mdartclub
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I agree with you. I meant to say the supply made available diminishes, which is exactly what you said. I just left out one word.
mdartclub
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The message I was trying to convey is that there is a limited supply...unlike fiat currency where you can print as much money as you want.
mdartclub
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Monero (not Bitcoin) is now the most preferred mode of cryptocurrency for ransomware criminals because it is less traceable.
mdartclub
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Personally, I still prefer passive investing with low-cost index funds. However, one has to admit it is becoming more mainstream when finance gurus like Graham Stephan, Kevin O'Leary, and Mark Cuban are advocating putting a small % of one's total net worth into crypto such as Bitcoin and Ethereum (not alt coins/**** coins like Dogecoin or Shiba Inu). Warren Buffett, on the other hand, is still not feeling it...
