We’re fans of bitcoin because we’re fans of disruptive technology. In fact, we’re fans of technology. No other economic activity can have quite the same world-changing effects as advancements in technology. That’s why – if you saw our portfolio – you’d find (long-term) holdings in Microsoft, Amazon and – dare we say it – Tesla, amongst others. Although we don’t put bitcoin in the same league as Microsoft or Amazon (maybe Tesla), it does carry disruptive potential, and given our propensity for long term investment, we can handle the ride.
But that last part is important. By its very nature, each individual disruptive technology has an uncertain future, and the path it follows is extremely unstable. That was true of Microsoft in the ‘70s and Amazon in the ‘00s. But at least they were entrepreneurial for-profit entities making sales. Bitcoin’s reason for existence – and its future – is less certain, and that’s coming from keen supporters.
That uncertainty creates a huge range of possible outcomes for bitcoin. From a purely statistical point of view, if returns and volatility from the past continue, then our ‘monte carlo’ analysis suggests an attractive set of futures for bitcoin in 5 years.
Moderating past returns results in a less attractive set of future scenarios, but there is still substantial room for upside.
But risk is more than just statistics. From a more fundamental point of view, it’s quite possible that bitcoin becomes worthless, fast. That could happen for any numbers of reasons: a showstopping regulatory clampdown, sustainability pushback, a second-mover cryptoasset superseding bitcoin… to name a few. An investment in bitcoin, therefore, means speculating that a good number of likely things don’t happen.
So, should you invest in bitcoin? Those of you who regularly read our work will start to hear the sound of a broken record at this point. But here it goes:
We’re happy for you to invest in bitcoin as long as:
- The amount you invest is not a large proportion of your overall wealth
- You wouldn’t be upset if the value of your investment fell by 80% a few days after you invest
- You don’t need to make money from the investment
- You don’t need your money back in the foreseeable future
Sound familiar? If it doesn’t, then it should. Get used to ticking those boxes before making any speculative investments.
For the record, one of your authors – who has a fairly sizeable overall portfolio – has about 0.25% of his assets invested in bitcoin. The amount, in monetary terms, ticks all of the above boxes for him, so he’s comfortable with his investment.
As we’ve said before, the question is not whether bitcoin is a good investment, but whether investing in bitcoin is right for you. If you ask yourself the right question, you’ll work out for yourself whether you should invest in the bitcoin.
To the pound 