Investing in Digital Assets - Do They Belong In Your Portfolio?

The term “digital asset” is very broad. This can include a wide range of items: Bitcoin, Ethereum, digital art, virtual real estate in online games or virtual worlds (LOL), non-fungible tokens (NFTs), etc.

Put another way, digital or virtual content that is unique and has value or a use case.

What is value?

Seneca once said, “Res tantum valet quantum vendi potest” A thing is worth only what someone else will pay for it.

Bitcoin has long been recognized as the first digital asset to hit the market.

Even amidst all of the ramped fraud, regulatory lawsuits, and pure craziness that has gone down over the past 10+ years, Bitcoin refuses to go away.

In my opinion, Bitcoin is not a currency due to lack of price stability but its certainly turned into a legitimate asset class:

It’s hard to ignore the Crypto market in general given it’s size:

A lot of this stuff is hard to wrap your head around. Bitcoin does not produce cash flows or pay a dividend, which is what I want a majority of my investments to do.

It’s pure speculation. Investors like the idea that Bitcoin has scarcity, that’s why it’s been labeled as ‘digital gold’.

21 million Bitcoins are able to be created, that’s it. But they are not all released at once, but rather on a schedule.

Around 19.5 million have already been released, and the remaining 2.5 million will be released by 2140.

The supply is fixed, so if demand increases significantly, then the price will follow.

Fun fact: it is believed that 4 million Bitcoin have been lost forever from hard drives being destroyed or lost, passwords forgotten, etc.

I don’t think all of this stuff is bullshit, just most of it. There are some interesting use cases such as cross-border payments, E-Commerce, greater access to credit, smart contracts, gaming, and so on.

But a lot of the early use cases are being put to the test. It originally was supposed to be the great inflation hedge against the US printing money like drunken sailors. That hasn’t come to fruition.

It wasn’t supposed to be correlated to other assets, but it has almost traded like a tech stock, mirroring the Nasdaq.

During last years market sell off, crypto and other digital assets lost its luster. NFTs, (remember those?), dropped significantly in value and the price of Bitcoin fell by around 64%.

But what I find most interesting is that people continue to hold it. A majority of Bitcoin holders aren’t trading it on a daily or yearly basis. They are viewing it as long-term value play.

Not to mention you have a lot of these psychopaths foaming at the mouth at the possibility of a long-awaited bitcoin ETF hitting mainstream brokerages soon, which could drive people to pile in and make the price go up.

So how do you think about this as an investor?

Remember, a lot of this comes down to what game are you trying to play?

My bread and butter will continue to be primarily low-cost, passive index funds. But I do have a small account to scratch my degenerative itch.

I own a small amount of Bitcoin and Ethereum (not financial advice) in a Coinbase account. I admittedly don’t want to do the legwork of creating a ‘cold wallet’ and actually owning these Bitcoin outright. I just want to speculate.

Similar to individual stocks, I’d recommend you get off zero, but don’t put more than 1-5% of your liquid net worth into these investments. If it goes to $0, oh, well, it’s only a few percent and won’t crush you financially.

But if I get a 5x or 10x on my investment, could make for a nice trip.

Try and educate yourself before you start throwing money around. Don’t just buy Dodgecoin or Cumrocket because it sounds cool. You worked hard for your money, don’t just throw it away.

Disclosure: This material is for general information only and is not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.

All indices are unmanaged and may not be invested into directly.

All investing includes risks, including fluctuating prices and loss of principal.