I wanted to chronicle my exposure to both bitcoin and blockchain as well as talk about suitability or lack thereof.
First is that I don’t think this is anything like the dotcom bubble in terms of fundamentals but there are behavioral similarities. Don’t take this is nothing like the dotcom bubble as saying this is different in that this could end worse than the dotcom bubble, but I don’t know, no one knows.
Just as the internet turned out to be kind of a big deal (nod to Ron Burgundy) cryptocurrencies are a very good bet to be a big deal as is blockchain. The catalyst for my genuine interest here was an investor call in mid-September that was about gold but transitioned into crypto with. The thread that emerged from the call was blockchain is a game changer along with skepticism about bitcoin.
This led me to research and invest in a micro-cap block chain stock in my Roth IRA that was mentioned on the call. I don’t want to tout a micro-cap stock so I won’t mention the name. I also started researching bitcoin and the other cryptos. This is an ongoing process that is interesting but also important as an adviser, it is crucial to learn about these sorts of things. To say I know a lot would be totally incorrect but I have learned some.
Then about two and a half weeks ago I bought a few shares of the Grayscale Bitcoin Trust (GBTC) in my SEP IRA and a few more in my wife’s Roth. For some context on sizing, each purchase was less than one year’s IRA contribution. Today with all the hysteria I sold the GBTC shares. I bought at $909 and sold at today at $1309. That works out to 44% in two weeks. If I had made that much in a year I might have held on but that is just too much in too little time based on my experience to be sustainable. I think I will be able to get back in again as a function of a correction in price or time.
GBTC is like a closed end fund and it trades at a big premium. I bought at a premium and sold at a premium. Anyone considering this vehicle as a way has got to understand this.
As I have been researching (just doing a lot of reading) I have become increasingly convinced that the potential security enhancements that come with all of this will pan out to be transformative but to be crystal clear that can happen without any of the current players. Most of the players from internet 1.0 that we thought would change our lives are long gone but the internet itself has changed our lives.
There have been some seemingly crazy price predictions that have started to emerge. Mark Yusko (disclosure, Mark and I have become friends over the last few years) for one is all over Twitter with a $400,000 price target. I think I saw a $1 million price target somewhere too.
There is no reason to not learn about all of this before idly dismissing those targets, it costs nothing to learn. It will be easy enough for you to find Mark’s reasoning. What I will add is that the bulls on bitcoin narrowly and cryptos more broadly view these as an emerging currency. If they turn out to be right, and remember, no one knows, then this market will be talked about in terms of many trillions of dollars versus $300 billion right now.
Although I am flat bitcoin right now (still long the blockchain stock), I will get back in to it in a small way when the market provides an opportunity.
Part of my logic in owning the little bit that I don’t want to sit on what I know, little though it may be, and watch it go to $400,000 or some other ludicrous number. This is no doubt some form of FOMO. I mentioned position sizing above. If bitcoin goes to $400,000 and blockchain does revolutionize financial services (and logistics and the energy industry and a bunch of other things) then those gains would be enough to have a meaningful impact on our financial plan. If it all craps out, the decline wouldn’t adversely affect our portfolio.
For now, I don’t think the risk of it crapping out is suitable for most clients.