To Bitcoin,
or not to Bitcoin
To Bitcoin, or not to Bitcoin, that is the Question?
TheAnswerIs.ca is about long-term investing, i.e., capturing stock market returns over 10 years or more, but I have received many questions about Bitcoin, and felt compelled to provide a bit of context. So here goes.
The best reason to buy Bitcoin is FOMO, (fear of missing out for my older readers 😊).
The best reason to not buy Bitcoin is the potential to lose most, or all your money.
To Buy Bitcoin
Bitcoin is a crypto currency. Today there are over 4,000 crypto currencies such as Ether, Litecoin, etc., but Bitcoin is the largest by far. At today’s prices, the total value of all Bitcoin is about $1 TRILLION. For comparison, all the gold ever mined in the world is worth $10 Trillion. Gold has been around for thousands of years, Bitcoin for only 12 years.
Since inception, on a percentage basis, Bitcoin is the fastest growing asset value of all time, easily out pacing Apple, Amazon, gold, real estate, etc.
There are now a growing number of publicly traded companies that own Bitcoin, ( https://bitcointreasuries.org/ ). These include some companies with some eccentric CEO’s, (thinking of you Elon Musk at Tesla, and Jack Dorsey at Square).
On February 10, 2021, Mastercard brought crypto onto its network. On March 29, 2021 Visa announced they will allow payment settlements using crypto. On March 30, 2021, PayPal announced they will allow US customers to pay with Crypto. Re-read those last three dates and company names. Interesting eh?
Today, using Bitcoin, you can attend an NFL game (Miami Dolphins) and NBA game (Dallas Mavericks) or book a flight with Virgin Galactic or Norwegian Air.
The price of Bitcoin was less than 1 cent 12 years ago. In 2017 it hit $1,000 and then later in the same year, spiked to almost $20,000. It then dropped like a rock to under $4,000 in January 2019, until it spiked again to about $12,000 in July 2019. It then dropped again to about $8,000 with the onset of the pandemic in March 2020. From there, Bitcoin has been a rocket ship to just over $60,000 in March 2021. Today as I write, its about $59,000, but depending on the day you read this, it could be 10%-20% higher or lower. It’s a fun ride!
Bullish forecasts for where the price of Bitcoin is going are wide ranging to say the least. In March 2021, 22% of Goldman Sachs clients are expecting Bitcoin to hit $100,000 within 12 months. JPMorgan, the largest bank in the USA , says Bitcoin could hit $146,000 as it competes with gold. And not be outdone, former Goldman Sachs Executive Raoul Pal says Bitcoin could hit $1,000,000!
The upside seems fantastic and exciting!
To Not to buy Bitcoin
With so much upside, why would anyone not jump onto the Bitcoin bandwagon?
Here is what of some of the world’s smartest and richest investors have to say about Bitcoin:
Warren Buffett blasted Bitcoin as a worthless delusion and “rat poison squared”. Buffett says, "I don't have any Bitcoin. I don't own any cryptocurrency, I never will.”
Bill Gates, ex-Microsoft Chief says, “Bitcoin is not for me”. With respect to Elon Musk’s $1.5 Billion investment in Bitcoin, in February 2021, Gates said, “My general thought would be that if you have less money than Elon, you should probably watch out”.
Ray Dalio, American billionaire hedge fund manager and founder of Bridgewater Associates says, “I don’t think digital currencies will succeed in the way people hope they would”.
Other critics of Bitcoin point to possible regulation or government’s out-lawing of Bitcoin.
In June 2019, the Peoples Bank of China, which regulates financial institutions in China, said “it would block access to all domestic and foreign crypto exchanges”. Further in March 2021, China shut down one of the worlds largest Bitcoin mining areas in a bid to cut energy consumption.
On March 14, 2021, Reuters reported that India intended to propose a law banning cryptocurrencies. This bill would criminalize possession, issuance, and trading of crypto.
While China’s and India’s actions may sound outrageous to free market western societies, lest we forget that in 1933, by Executive Order 6102, the US government made it a criminal offence for US Citizens to own or trade gold anywhere in the world, with exception of some jewelry and collectors’ coins. It was not until 1975, that Americans could again freely own and trade gold.
On March 30, 2021, Canadian securities regulators imposed new guidelines on crypto-trading platforms that could lead foreign-based platforms to block Canadian users.
Regulatory and legal risks are real.
If Bitcoin and crypto is suddenly outlawed globally, there will be a lot of sellers trying to get out in a hurry. Could Bitcoin prices collapse overnight?
Yeah but, .... the upside!! Can all of the other people making money be wrong?
FOMO
FOMO, the fear of missing out is real. It can cause people to do crazy things. This article will hopefully stop the "crazy" from taking over.
To control FOMO, an investor could consider buying a bit of Bitcoin now, but not more than they would want to lose in a few trips to a casino combined. If an investor can not afford to lose the amount invested in Bitcoin in a casino, then don’t buy Bitcoin.
However, owning a bit of Bitcoin now, may save an investor from feeling like they have “chase” Bitcoin after prices have risen sharply, and right before a potential crash.
Bitcoin is unproven long-term. Only play with what you can afford to lose.
But how to Bitcoin?
I am no technical wizard, but I researched buying a bit of an actual Bitcoin with some "gambling money" myself. Luckily I talked to a few wise friends first, and one sage old friend sent me an absolutely fantastic YouTube video on what you need to do BEFORE buying a Bitcoin, (or part of one).
The video was expertly prepared, logical, and delivered very professionally. It also scared me.
IF an investor is considering buying an actual piece of Bitcoin, they would be wise to watch this video first, https://youtu.be/sEtj34VMClU.
If after watching the video, an investor is as scared as I was about learning how easy it is to have your Bitcoin lost or stolen, then one may wish to explore alternative ways to get exposure to Bitcoin.
In Canada, there are now new publicly traded mutual funds and ETFs that track the price of Bitcoin, two of the largest of which, are summarized as follows:
| Sponsor | Purpose Investments | 3iQ Digitel Asset Manangement |
|---|---|---|
| Type | ETF | Mutual Fund |
| Name | Purpose Bitcoin ETF | The Bitcoin Fund |
| Launch date | Feb-21 | Oct-20 |
| Symbol | BTCC.B | QBTC |
| Bitcoin per unit | 0.00014976 | 0.00112404 |
| # of shares for 1 Bitcoin (A) | 6677 | 890 |
| Share Price Apr 1, 2021 4pm (B) | $11.08 | $80.57 |
| Indicated Bitcoin Value (A * B) | $73,985 | $71,679 |
| Bitcoin Price CDN Apr 1, 2021 4pm | $74,059 | $74,059 |
| Premium/ Discount | 99.9% | 96.8% |
| Management Expense Ratio (MER) | 1.00% | 1.95% |
| Currency Hedged | No | No |
| Market Capitalization | $730 Million | $1.3 Billion |
QBTC is also available in US dollars under the symbol QBTC.U
BTCC.B is also available Canadian dollar hedged under the symbol BTCC, and in US dollars under the symbol BTCC.U.
Both QBTC and BTCC offer the advantage of not having to watch a YouTube video to figure out “hot and cold wallets”. Both QBTC and BTCC.B are RRSP / TFSA eligible, and can be bought and sold on the TSX.
BTCC.B, while newer and smaller, has a lower Management Expense Ratio (MER).
Summary
TheAnswerIs.ca is about long-term investing, i.e., capturing stock market returns over 10 years or more, but in response to many readers questions.... To Bitcoin, or Not to Bitcoin? TheAnswerIs go ahead and have some fun, but only with money you can afford to lose.
Bitcoin is very volatile, and may well go to zero, or $1M one day. I really don’t know.
IF FOMO has a grip on an investor, perhaps buy a little bit now, at a minimum, it will provide an investor with cocktail party conversation. FOMO may cause an investor to wait and then make a big jump in an effort to catch up. That is a dangerous proposition, if Bitcoin’s volatility then causes the investor to sell out after a big price drop.
Remember to conduct your own due diligence before buying Bitcoin or any investment.
