Become a Creator today!Start creating today - Share your story with the world!
Start for free
00:00:00
00:00:01
TILP #08: Bitcoin is not a financial plan, but it should be a part of one w/ Jim Crider
64 Plays1 year ago
In this episode Jim relays his journey in becoming a successful financial planner, addresses common questions he has received over his career, and talks about how he weaves Bitcoin into people's lives.
Recommended
Transcript
Introduction to Intentional Living Podcast
00:00:00
Speaker
Hi, I'm Jim Kreider and this is the Intentional Living Podcast where we have conversations about how to use your resources, your time, your money, your talents for what's important to you in life in an efficient and effective manner. I'm glad you're joining with us today and I look forward to this journey with you.
00:00:24
Speaker
In today's episode, it's just me. I don't have a guest. If you'd like to listen, I'm going to warn you.
Bitcoin and Financial Planning Overview
00:00:32
Speaker
It's just my ramblings talking through my experience with Bitcoin, conversations that I have with clients, with other financial planners,
00:00:41
Speaker
our views on Bitcoin and financial planning, the intersection of Bitcoin and planning, and other musings. I think it's a great conversation. Again, this is really a summarization of conversations I have on a very, very regular cadence. And I hope you enjoy it. Over the last several weeks,
00:01:03
Speaker
I've had a lot of conversations with really smart people talking about Bitcoin in particular areas. So from the current macroeconomic environment and Bitcoin's involvement, the debt spiral and Bitcoin's involvement, how do you buy Bitcoin?
00:01:18
Speaker
How do you store it? The intersection of Bitcoin and financial independence. Bitcoin itself and the technological side of things and Bitcoin on the monetary side of things. We've had all these conversations, the future implications of Bitcoin. And I encourage you to go listen to those conversations. There's a lot of great nuggets in those through my wonderful guests. I just want to sort of finish up this series about Bitcoin.
Role of Bitcoin in Financial Planning
00:01:46
Speaker
addressing a few particular areas that I'm confronted with regularly as a financial planner. Not that many people are overly interested in my specific viewpoints on Bitcoin, but that's what we'll be talking about today is how I view Bitcoin in financial planning, the questions I'm most regularly asked, how I approach Bitcoin in financial planning, and
00:02:13
Speaker
Yeah, how we're gonna utilize this moving forward, rebuttals to common questions, those sorts of things. So it'll probably be a brief conversation and I appreciate you joining me here. So we're gonna start off, I wrote an article a few months back titled Bitcoin is not a financial plan, but it should be part of it.
Bitcoin in Financial Planning: Article Insights
00:02:33
Speaker
And the opening statement of that article is, I'll just read it. So living in the seemingly dichotomous worlds of financial planning and Bitcoin maximalism, I hear a good deal of impassion takes and see many of stones thrown from camp to camp. Bitcoin is just tulips, yells the trad-fi community. Bitcoin is my financial plan for towards the laser-eyed maxi. Yet here I sit.
00:02:56
Speaker
Observing two groups grow up at just parts of an elephant while misunderstanding the full picture blinded by their inability to set aside their Familiarity bias and see the whole for what it is When the world I just say so again, I live in this strange world of very traditional
00:03:16
Speaker
relatively conservative financial planning through CFP certification and studies and working at large firms those sorts of things and if you Bitcoin Primarily through this lens of it doesn't make sense. It does not fit into a portfolio It's foolish to own so I have have one foot deep in that that area
00:03:43
Speaker
Meanwhile, also living in this world of Bitcoin maximalism, where I engage with a bunch of crazies on Twitter and in real life talking about Bitcoin.
Traditional Finance vs. Bitcoin Maximalism
00:03:56
Speaker
And many of these people think that Bitcoin itself will be the saving grace of humanity, will be the saving grace of an entire financial plan. And a financial plan is not necessary beyond Bitcoin itself.
00:04:08
Speaker
It's an odd place to live because I love both of those places. And I try to approach both of those conversations in a dualistic way. One, I try to approach it gracefully and to help
00:04:23
Speaker
show here's what you're not seeing and why the other person's viewpoint can make sense to an extent. But then also I try to be somewhat of a thorn in their side to force them to pay attention to the other things that they might be missing.
00:04:45
Speaker
So I just want to take a few minutes today and talk through those, what I think financial planners are primarily missing and also what I think the Bitcoin community, a lot of those I talked to are missing and to really bridge the gap between those two things to really help someone's financial life.
Decentralized Money and Bitcoin's Foundation
00:05:02
Speaker
Throughout this conversation, I'll weave in
00:05:09
Speaker
lots of questions I'm asked regularly about Bitcoin and planning, how it works with financial planning. We'll also talk through some historical references of allocating to Bitcoin. So let's dive in. So when we talk about Bitcoin, it's important that we first lead off with what is Bitcoin itself?
00:05:37
Speaker
Again, the problem that I see many people have when they say that you shouldn't own Bitcoin because it doesn't make sense.
00:05:45
Speaker
or you should own Bitcoin plus these other crypto assets. Usually those conclusions are arrived to because the wrong question was being asked. So again, in order to answer the question properly, you must first be asking the correct question. And Satoshi did that. When Satoshi created Bitcoin, the question being asked was how do you create this decentralized form of money that can't be manipulated by any
00:06:12
Speaker
a particular group, be it a government or a company or an individual organization, how do we move centralized control and create a form of money that is truly peer to peer? And that's what Bitcoin's done. And that's not something that was created overnight. Again, Bitcoin is by the financial planning community. Often time is related to Beanie Babies or Tulip Mania.
00:06:39
Speaker
But I think that comes from a misunderstanding of the history of not just Bitcoin, but cryptographic assets and the actual history of money. My last statement there is what I've the conclusion I've come to over the last couple of years is many financial planners are really, really smart and I have so much respect for a lot of people in this community.
Understanding Money: A Financial Planner's Perspective
00:07:08
Speaker
And most financial planners or many financial planners are great at managing pieces of people's financial lives. If it's reducing their taxes or managing stock compensation or interweaving their personal and business finances or budgeting or so many things.
00:07:29
Speaker
A lot of smart people with actually addressing particular areas of money in people's lives. But what I've come to recognize in my opinion is that most financial planners, while they're good at managing money, have not stopped to actually ask, what is money? And that question, when it's actually pondered and thought through fully, should lead you to realize that our current money system
00:07:59
Speaker
in the US and globally is not what we think it is.
00:08:08
Speaker
The problem is stopping to ask what is money itself is sort of like a fish asking what is water. It's something we're so used to being around that it seems foolish to even take time to ask that question. And especially when you're taught that money is a certain thing and the definition of money is sort of changed and loose and it's sort of up for interpretation, asking that question again can be foolish.
00:08:32
Speaker
The good news is I personally sort of enjoy people thinking I'm a little bit stupid. So I like asking the questions that most people are maybe intimidated to ask because they don't want to look foolish. And I enjoy that. I'll be the first one to raise my hand and ask the question that I know that most people, most of the people are wondering in their head, but too afraid to raise their hand and ask. So I'll ask those questions. I'm okay to look foolish. I want to learn.
00:09:00
Speaker
not here to protect an ego. And ironically, that's one big thing I've recognized with adopting Bitcoin is one thing you have to do to actually understand and adopt Bitcoin is to first say, this is almost the vast majority of people, almost the full amount of people I've ever met with Bitcoin is step one to actually accepting Bitcoin is to say, I was wrong about Bitcoin in my initial interpretation of it.
00:09:30
Speaker
It's a humbling experience to say I was wrong, and this is actually important, and I'm willing to learn and move forward from a proper mindset, proper heart. So it's a humbling experience. So I think it's also another barrier that is up, is you're forced to confront the fact that you were wrong, admit it to yourself, and maybe admit it to others. Okay, so let's talk through this.
Historical Context of Money and Bitcoin
00:09:58
Speaker
people, clients, friends, strangers. When people ask me about Bitcoin, I'm not gonna give you the full spiel right now. You've heard some of this through conversations over the last several weeks. But when people ask me like, what is Bitcoin? It is emphatic that we begin with discussing what is money and what is a store of value. And we take that through a historical lens. So I'll do a brief summary of money and stores of value through history. So we'll talk through
00:10:28
Speaker
Again, things that were used initially as collectibles and then built their way up into actually being means of transactions, that being glass beads or rhinestones or seashells. We'll talk through precious metals. We'll talk through Rome and the Daenerys and the devaluing of their currency and how war is funded through
00:10:56
Speaker
the debasement of their currency. We'll talk through those things. Then we'll sort of skip ahead through history after laying several examples of here's different forms of money and here's how all these different forms of money have been hijacked in some manner or another through erosion.
00:11:12
Speaker
be it some form of manipulation from an outside party or an internal party taking some control. So we'll talk through that, but then we'll sort of fast forward through history and we'll land back again in the 1900s and we'll go to post World War II Germany. Right wherever you're next to me, I have a picture of some children building a
00:11:36
Speaker
tower using German marks and they're playing with it. I'm sure you've probably seen pictures of maybe that picture, people with wheelbarrows of money or burning money or wallpaper in their house with their money. We'll talk through how that happened and the war reparations and the money printing and the troubles that caused and how does that come about. We'll talk through in the 1930s when it became illegal to actually own
00:12:02
Speaker
Gold in the US outside of ornamental pieces and jewelry. We'll talk through the force the confiscation of gold and how immediately following the confiscation the The purchase price the value of gold was was changed
00:12:24
Speaker
for the better of the government immediately after. So I might be off on the numbers, but I believe it was $20 per ounce is what you had to turn your gold into to the government. And then basically immediately after it became illegal to own gold in the US, again, outside of ornamental jewelry, gold was repriced at about $35 per ounce. Again, don't quote me on those numbers, but that's the theme is we'll give you a certain amount. And then once you weren't able to hold it anymore,
00:12:52
Speaker
The gold became worth more. And the funny thing is gold is not worth more, your dollar is then worth less. And to keep that in your mind of assets being worth more versus your currency being worth less, we're gonna revisit that in a bit.
Bretton Woods and Fiat Currency Transition
00:13:08
Speaker
After that, we'll talk through the 1940s. There's a thing called Bretton Woods. It's a group of central bankers gathering from around the world in the US on the East Coast to talk through the global financial system and our gold backing our currencies. Essentially, what happened there is
00:13:35
Speaker
different banks around the world. It was agreed upon that the U.S. would hold gold on our balance sheet and we would back our U.S. dollar by that gold. And then other currencies would back their currency by the U.S. dollar. So they were peripherally backed by gold because they were backed by the U.S. dollar. We took that bet, we said, hey, we'll accept those terms. So we took those terms and
00:14:02
Speaker
It worked out really well. It was a few decades of the US manipulating and abusing our ability to create money that was supposedly backed by a hard asset that's much more difficult to create than the money itself. And then, of course, in 1971, we came clean that, hey, the amount of gold versus the amount of dollars that we've created that are supposed to be backed by that gold, it's no longer at parity and we're gonna default on that.
00:14:30
Speaker
So when we defaulted on our gold position in 1971, because other currencies were essentially backed by our currency, pretty much every currency became, it's called a fiat currency, and it's no longer backed by gold or anything that actually takes resources or energy to procure, but rather backed by the enforcement of government.
00:14:54
Speaker
So I was in the 70s, a lot of funky things happened after 1970. When money is manipulated, money itself, in my loose definition, money is a means of communicating, storing,
00:15:10
Speaker
and transferring value across space and time. So it's a means of communication. And when that means of communication is hijacked and manipulated, the messages themselves become distorted. That's what happened starting in the 1970s, really. It happened before through other hijacking of money systems. But we see this massively in modern era, starting in 1971.
Impact of Manipulated Money on Society
00:15:39
Speaker
Because again, there became a massive distortion of money itself. And money is a means of communication. It's when the means of communication is hijacked, then the messages themselves become distorted. Fast forward, we don't really get too far into, you can go do your own reading on all these things, but we have the petrodollar system. Anyways, we'll go through that a little bit. Then we'll talk through
00:16:02
Speaker
Bitcoin, now it's important to recognize that Bitcoin is not something that was arbitrarily created five years ago by some tech pros or a kid living in his basement. Maybe that's Satoshi, that's Satoshi is, but it wasn't just stumbled upon as a way of making a quick buck as a Ponzi scheme. This is something that a group of people have been trying to work on for a very long time. How do you use cryptography to create some sort of online money?
00:16:30
Speaker
And there was a few issues that these people kept running into for decades. And Satoshi came on these chat forums essentially and said, hey, I think I've solved these. And I think I have this payment network, this money system that will actually work by solving these issues that have come about. And you put his work out there, others agreed.
00:17:00
Speaker
This is 2008, then 2009 Bitcoin actually began running.
00:17:06
Speaker
So again, this is not something that just came out overnight. This is something that lots of people who are way smarter than I am were trying to create for decades. And Satoshi was able to crack the nut that had stumped many of people up to that point.
Bitcoin's Technological Breakthroughs
00:17:22
Speaker
When he wrote the Bitcoin white paper, he referenced those people who also contributed to the work of Bitcoin, different parts of it, the coding itself was not just him, there were parts of their graph of other people.
00:17:35
Speaker
and he referenced those people in his paper. So Bitcoin itself, again, this is money. I was talking to my wife Kendra last night about our kids. My oldest, he's six and his name's Atticus. And Atticus is now starting to understand money to an extent and have a lot of questions. He's now carrying around a wallet with a few bucks in it.
00:18:05
Speaker
and picking up change anywhere I can find it. And we'd been talking about what all money can buy. He wants to go to the toy store with his $2 and buy a bunch of things. So the other night he wanted to buy dinner for our family. Had to tell him that your money doesn't go as far as it used to. And explaining inflation to a six-year-old is exciting and rather difficult. We talked through that. We also talked through Bitcoin. He knows
00:18:32
Speaker
He knows sort of what Bitcoin is, and after explaining it, he recognized that, okay, Bitcoin is money, and he wants to trade his change, his US dollars that he's been finding, he wants to trade that for Bitcoin because it's a better form of money. So these are conversations we have in our household on a regular basis, probably not most family conversations, but it's fun to go there with the kids.
Bitcoin's Qualities as Money
00:18:59
Speaker
So,
00:19:02
Speaker
This leads us to, again, if Bitcoin is money, money has a few properties, and again, I'm not gonna go super into this. We've talked to this in other conversations, but some of those properties are scarcity. Money itself, there has to be a certain
00:19:16
Speaker
It needs to be scarce. If it's too plentiful, then it loses its value over time. Now, if it's exceptionally plentiful, but we know there's a fixed amount and it's easy to count those amounts or relatively easy to account for the amount of units there are, that can be okay.
00:19:35
Speaker
But we have to make sure that it's not overly plentiful where you just have zero record of how many exist. And also we have to make sure the inflation rate is not too high, or ideally is is very low or non existent. So again, it needs to be scarce needs to be portable when you will take it from one place to another.
00:19:54
Speaker
Again, if you're going to use this means of trade, it's important to be able to move this thing from one place to another. So portable, it needs to be verifiable. So you have to be able to verify that, okay, this actually is a US dollar. This is actually gold. This is actually a Bitcoin. I'm not going to go through all these properties, but there's a few things that we have to have. It has to be divisible.
00:20:20
Speaker
Mona leases are difficult to have as money or fine art because you can't take a Van Gogh or Renoir and chop it up and use that as a means of trade. So we have to have something that's divisible.
00:20:35
Speaker
Again, so these parts of money that, or these attributes of money that make it good money. And Bitcoin is that. So it's scarce. We know how many units will ever exist. So we know that there will only ever be 21 million Bitcoin in circulation. Right now, about 19 million of those 21 million are already in, in
00:21:01
Speaker
existence and the remaining couple of million will be mined and come into circulation over the next hundred and 17 years. So we know that the rate that Bitcoin gets issued through mining and we know how many Bitcoin will ever exist. We know the last Bitcoin will be mined roughly in the year of 2140. So we know the quote unquote inflation rate of Bitcoin. We know the exact amount that will ever exist.
00:21:29
Speaker
So it is it is scarce. It's divisible. So you don't have to buy a full Bitcoin. You can buy a Satoshi. Satoshi is obviously a reference to Satoshi Nakamoto who created Bitcoin. But a Satoshi is one one hundred millionth of a Bitcoin. So you can buy multiple Satoshi's with a penny at this point. So it's divisible. It is certainly transferable.
00:21:54
Speaker
portable so I can take my Bitcoin and I can send it, receive it basically instantaneously for a super low cost and it will settle within a few minutes. That's unlike our current payment rails that can be expensive and inefficient with time. We're trusting multiple layers of protocols to actually achieve those transfers.
00:22:27
Speaker
Let's go into some questions, and I apologize. This is tough for me. I'm not having a conversation. I'm talking to myself right now, and I don't do that often, at least for this amount of time.
00:22:39
Speaker
So be patient with me, and I appreciate it. So let's go into questions that I'm asked, and this will jog up other things to continue the line of thought I was on. So questions I'm asked regularly by other financial planners, clients, people are curious. Let's see, what if someone bans it? What if someone bans Bitcoin? I think that's a legitimate question when you're first coming into this.
00:23:03
Speaker
One thing with Satoshi Nakamoto, when he created Bitcoin, that's really impressive, is not just the depth of knowledge he had in a particular area, but the depth of knowledge he has in multiple areas. Those areas being, again, cryptography, economics, game theory. These different areas all work together to make Bitcoin a valuable asset on a technology side of things, but also on a monetary side of things.
00:23:32
Speaker
Individually and then globally so how You know what happens someone bans Bitcoin well funny enough bitcoins being a lot been banned a whole lot So China it sort of became a running joke a few years ago China banned Bitcoin it seemed every other week in some capacity they would they would ban The on ramps and off ramps of Bitcoin they would ban the mining of Bitcoin they'd banned Bitcoin itself and they a common meme amongst Bitcoiners is you can't
00:24:00
Speaker
You can't ban Bitcoin. You can only ban yourself from Bitcoin. So banning Bitcoin in your country would be sort of like North Korea banning the use of the internet by its citizens. Does that hurt the internet? Not at all. Internet will carry on. It'll help those who have access to it and utilize it properly. You're hurting the citizens of your country.
00:24:28
Speaker
So when you ban Bitcoin, you're not hurting Bitcoin itself. You're not stopping Bitcoin. In order to stop Bitcoin, you'd have to go through and destroy every node out there. Every computer that's running Bitcoin, you'll have to go and destroy those essentially at the same time. Because if one survives, that information will then replicate and continue to circulate globally.
00:24:56
Speaker
So banning it itself is, again, that's working in analogies, banning Bitcoin, like banning the
Bitcoin vs. New Cryptocurrencies
00:25:06
Speaker
Internet. It's also sort of like, I guess another question would be, what if someone creates a better Bitcoin, Bitcoin 2.0, maybe a gem coin? That's doable. I mean,
00:25:17
Speaker
I could go create gem coin in a few hours. I could build it just like Bitcoin, and it's just Bitcoin 6.0. So what if someone else does that? And it's something I hear regularly is, well, someone could just build a new Bitcoin. And so why is Bitcoin itself valuable? Well, there's a few things there. One,
00:25:43
Speaker
You can do that. If you want to try it, please go ahead and start your own coin. That's fine. But it better be not just a little bit better, but far superior to the existing Bitcoin system.
00:26:01
Speaker
Because what we're working with here is not just technology, but also is adoption. And adoption by lots of different interested parties who are interested for different purposes. People who own Bitcoin already, the people who are mining Bitcoin, the companies who have adopted Bitcoin, the people who are legislating for Bitcoin. These groups already have a vested interest in Bitcoin itself.
00:26:23
Speaker
So if you go and create a new cryptocurrency that is similar to or slightly better than Bitcoin, it's probably not gonna cause many people to flip over to your new thing. Again, we also have to ask why is your cryptocurrency better than Bitcoin? And if it's better because it has these features, it's better because you can send pictures over it quickly.
00:26:51
Speaker
Well, maybe that's a neat feature that you want, but you're answering the question that Bitcoin did not set out to solve. Again, we wanted a peer-to-peer network that's decentralized. And if you're creating a currency or a system that does something else that's superior, it's superior in something different. That'd be like having a world-class distance runner. And then you say, well, what if I get someone who's faster? It's like, okay, well, and then you bring in
00:27:19
Speaker
You bring in a sprinter, and the sprinter is faster. The problem is you're running the wrong race. So Bitcoin's not here to run a race that makes it better as everything. We're looking for a better form of money. That's what we want. So I'm not concerned about other cryptocurrencies coming in and beating Bitcoin at a race that Bitcoin's not trying to run. And it's super simple. Bitcoin itself
00:27:40
Speaker
It's ingenious, but at the same time it's very simple. It's genius in its simplicity. The base layer technology of Bitcoin is, it's meant to be simple. The simplicity, it reduces the attack vectors that's susceptible to, and also reduces the amount of features that it's trying to protect against being hijacked.
00:28:05
Speaker
Keep that simple and then allow other layers to be built on that over time if necessary. That's what Bitcoin's done. What if someone wants to change Bitcoin or what if Satoshi comes back and wants to change Bitcoin?
Misconceptions about Bitcoin's Use
00:28:20
Speaker
Well, again, that would be like if the person who created the wheel came back and said, hey, guys, I made the wheel.
00:28:31
Speaker
I changed history, sorry, that's a terrible analogy. If the person who created the wheel came out and was able to prove that they actually created it, get a standing ovation, good job, you really helped civilization. And then if they said, you know what, I thought long and hard about this, and I think I would like to have square wheels instead of circle wheels. The initial wheel I made was good and all, but I'd like to change things up, I think this one's gonna be better.
00:28:57
Speaker
We might, simply because they made the wheel, we'd probably give him a moment to speak. All right, we'll hear you out. But he better be really convincing why this new wheel's better.
00:29:08
Speaker
And I eventually say that a square wheel will not be superior than the circle wheel. So even the person creating the wheel, if they wanted to come in and change it, that change does not have to be adopted by those who use it. Some people could go and start using square wheels. That me as a circle normal wheel user does not have to adopt that change. That's how Bitcoin works. People can come in and say, hey, I like this feature better. Let's tack this on.
00:29:31
Speaker
If you want to go that route, if you want to choose this fork of Bitcoin, or if you want to adopt this total new cryptocurrency, you have the option to do so. And your choosing to do so does not necessarily impact the existing wheel itself, unless you're able to wield a large enough impact and a large enough change in adoption rate where actually
00:29:54
Speaker
wheels themselves are changed. But again, it better be not just a little bit better, but way better and square wheels won't work. So it doesn't matter who's making that change. It doesn't matter if the person who created the wheel or Satoshi who created Bitcoin came in and said, Hey, I'm making this change. Or if it was me, a relatively
00:30:16
Speaker
Neanderthal, when it comes to these things, came in and said, how am I making this change? It doesn't matter. It doesn't matter if it's BlackRock or a government. They said, hey, I'm making these changes to this. They have no authority or ability to make changes beyond any other person. So again, that's not something that you should lose sleep over. What about the use of Bitcoin?
00:30:41
Speaker
That's something you know when I was first introduced to Bitcoin was back in 2012 There's a guy I worked with who would regularly ask ask our bosses to pay us in Bitcoin and I didn't know what Bitcoin was first time I heard about it and All I knew was that guy seemed to be stoned the majority of time even at work So I didn't have too much
00:31:06
Speaker
weight in his opinions. So when he mentioned Bitcoin, I brushed it off. There was an equated Bitcoin with the Silk Road and the Dark Web, and again, wrote it off because it's used for nefarious cases and certainly did not understand it as money itself.
00:31:29
Speaker
I viewed it more as chucky cheese tokens for buying drugs. I think it's where a lot of people still are. They think that, man, Bitcoin, and this is propagated through media and through politicians who are running their own agenda, who continue to say these things that Bitcoin is used primarily for nefarious cases. Ironically, the vast majority, I think it's about 90%. I hate making this up. I think it's 76% of statistics are made up on the spot. That was a joke.
00:31:57
Speaker
I feel like I am making up numbers here, but I believe it's about 90% of US dollars. Cash bills have traces of cocaine on them. So if we're talking about nefarious use cases, then we need to address the US dollar itself, not to mention the amount of wars that have been
00:32:20
Speaker
funded through US dollars and other fiat currencies. If we're talking about violence being propagated through money, well, we need to address that as well. Drug trade, arms trade, human trafficking, all kinds of stuff that's often used, paper bills or different means of fiat currencies.
00:32:49
Speaker
And also using Bitcoin for illicit activity is actually pretty foolish. It is not fully anonymous. Each address is a line of figures, but if you're able to understand who that person or who those figures belong to, that address, then you understand whose address that belongs to. So if you're gonna be buying a bunch of
00:33:19
Speaker
I don't know. Rocket launchers online using Bitcoin, then you're probably using the wrong thing. You might want to go get a stack of hundreds and do that in the back alley.
00:33:34
Speaker
This is something just recently I believe is Hamas. Jesse mentioned this in our podcast a few weeks ago. I believe Hamas recently actually told people who were giving the money to stop using cryptocurrencies to give to them because it's too traceable. This is how a lot of people actually been stopped and found out who's using or who is funding criminal activity is because they were using
00:34:03
Speaker
Bitcoin or other cryptocurrencies. So again, that's a poor argument. If we're gonna argue against this, we have to argue against everything else that's also being utilized for illicit activities. What about the volatility? I see this all the time. I actually saw this again yesterday. Bitcoin's too volatile.
Volatility vs. Risk in Investments
00:34:25
Speaker
There's a few thoughts there. One, we have to start with understanding that volatility and risk are not synonymous.
00:34:32
Speaker
Volatility is just the means, the amount that the purchasing power itself of an asset moves throughout a duration of time. Risk is your inability to achieve a stated goal. Now volatility and risk become more and more correlated as your time horizon gets compressed and
00:34:56
Speaker
generally speaking become less correlated as time goes out. That's why if you're going to own, if you're going to use money tomorrow for something that's super important, you have a hundred bucks today and you're going to need $100 on the dot tomorrow. You're going to keep that a hundred dollars as dollars. It would be foolish to take that a hundred dollars, put it in the market. I don't care what you're buying.
00:35:18
Speaker
put in the market and hope that tomorrow it's $101. Because if it goes to $99 and you can't buy that thing, it doesn't make any sense. So with your time horizon that compressed, risk and volatility become highly correlated. That's why we have, typically when you're younger, most people are going to have a higher stock allocation when they're saving for retirement versus when you're actually approaching or in retirement, you're going to reduce your stock allocation.
00:35:43
Speaker
because again, risk and volatility, as we talk through distributions and sequence of return risks, those become highly correlated. We need to reduce volatility because again, volatility and risk then become almost synonymous. But risk and volatility are not synonymous in its totality. So yes, the purchasing power of Bitcoin moves a lot, daily, weekly, monthly, over the last decade, it does move a lot.
00:36:15
Speaker
But to equate that, the level of movement with risk and to turn a blind eye to the lack of high movement of other assets is foolish.
00:36:30
Speaker
So for instance, in the US, let's be generous and give CPI the benefit of the doubt. Let's say inflation, historically US has averaged about 3%. We know that right now it's significantly higher. I know for my family, we go to the grocery store, our inflation rate is way higher than 3%, 3.5%.
Inflation and Purchasing Power
00:36:52
Speaker
over the last few years, given we've had several more kids over the last few years, but accounting for that, our grocery bill's minimally 25, if not 45% higher than it was just a few years back. So the US dollar, again, let's go back. US dollar, it's the average inflation rate, let's call it two to 3%, we'll say 3%.
00:37:13
Speaker
in the US annually. And if that's a smooth transition down, if it's a smooth 3% every year, that's not volatile. That feels safe. But a safe lowering of yourself into a pool of acid where you're being eaten away or lowering yourself slowly to be drowned still leads to eventual death versus
00:37:43
Speaker
Bitcoin has gone up over a long period of time. Bitcoin has overall gone up. Yes, it's gone up like up and down a lot. I'm moving my hands wildly for those who can't see me. It's gone up and down a whole bunch, but over its totality, it's worth more than it was initially, than it was
00:38:05
Speaker
14 years ago, unlike the US dollar. The purchasing power of Bitcoin is greater than it was 14 years ago. The purchasing power of US dollar is less than it was 14 years ago. The movement to get from here to there of Bitcoin was high gyrations. The movement of the dollar to get from there to here was smooth.
00:38:27
Speaker
But again, volatility and risk are not synonymous. So we have to begin with that. What else? It's too volatile. Oh my goodness. You have to think through portfolio sizing. If you, again, if we're gonna, if,
00:38:41
Speaker
If we're gonna put volatility and risk even remotely in the same area, maybe you're retired, not just retirement, you're gonna use that money soon. In the next, between now and the next few years at minimal, then yeah, there's a high correlation of volatility and risks. Again, there's sequence of return risk. And sequence of return risk is if the, not just the total return I receive, but the time of those returns intersecting with the need of distributions
00:39:09
Speaker
if a distribution is necessary when your value of your money you're gonna use for that distribution is down.
00:39:21
Speaker
that has a poor impact on you. It doesn't matter if, oh, well, over the average 10-year, this goes up 10% per year. If you're one and two, it goes down by 20%, and you have to take out that year. I can't sit in here and say, oh, well, it would have smoothed out over the next decade.
00:39:40
Speaker
the sequence of returns, what's going to impact you. That's again, that's much more, that's really important when you're actually taking distributions from an account, less important. It's still very important, but still, but significantly less important during times of just accumulation when you have a longer time horizon. Okay, back to it. So volatility, just think through your portfolio sizing.
00:40:03
Speaker
If you're afraid of the volatility of a certain asset, then you want to account for that of how much of that asset do you own in your entire portfolio. Your portfolio can consist of a lot of things. It can be equities or fixed income or cash or cash instruments or real estate, private businesses, private equity.
00:40:27
Speaker
I don't know, whatever you want to own. Give you all these things. How does this one asset impact the rest of your portfolio? And we'll talk through that in a few minutes. I'll come to some illustrations of portfolio weighting and Bitcoin's impact in that over historical terms.
Bitcoin in Comprehensive Financial Planning
00:40:50
Speaker
I'm going to speak to the Bitcoin community for a second. Again, I hear regularly from Bitcoiners that they don't need a financial plan because they own Bitcoin. I like Bitcoin. I own Bitcoin. I talk about Bitcoin a lot. I probably said the word Bitcoin 100 times already in this conversation with myself and you. I feel silly saying Bitcoin so much over and over again as I look at a giant Bitcoin three feet from me. Bitcoin science, not a real Bitcoin. They don't actually exist in
00:41:23
Speaker
in a tangible way. I don't have a wallet of bitcoins that could fall out of my pocket. Sorry, terrible jokes. Yeah, for those who say I have Bitcoin, I don't need a financial plan. Things I'd like you to consider. I'm just gonna go through these real quick. One, Bitcoin, owning Bitcoin is not tax planning. There's a lot of opportunities with tax planning that can arise even if Bitcoin's your only asset. So consider that. Estate planning, Bitcoin's not an estate plan.
00:41:53
Speaker
I have four young kids. If I own all the Bitcoin in the world but don't have an estate plan and I get hit by a bus, I'm driving today. I'm driving up to Dallas. If I get in a car accident and pass away, Bitcoin itself will not help my family. Bitcoin won't tell my family what's supposed to happen with my children and won't tell the state what's going to happen to my children. My wife and I pass away together.
00:42:14
Speaker
It won't tell doctors my wishes medically if I'm on a respirator. It's not going to tell my family what I want to have happen with my assets, with my house,
00:42:33
Speaker
personal belongings. Bitcoin is not an estate plan. You need an estate plan. Bitcoin's not insurance. It's insurance against a lot of things, in my opinion. It's insurance against the fiat system. It's insurance against the demonetization of assets, but it is not life insurance.
00:42:54
Speaker
I don't sell life insurance, I don't have a life insurance license, but Bitcoin is not life insurance. There's this odd place though. Like right now, if I went and got a million dollar policy, life insurance policy on myself for 20 years, okay, well, let's just think this through. If I kick the bucket next week, Bitcoin, one Bitcoin is not worth a million dollars next week, most likely. If it is, I will be very happy and will gladly eat these words.
00:43:23
Speaker
So I'm glad I had that policy. Now let's fast forward 20 years from now. Let's say that we experienced hyperinflation between now and then. Well then yeah, the value, the purchasing power of that million dollar life insurance policy has eroded. That's why we want to own other assets. And heck, owning Bitcoin I think is a good insurance against the erosion of that insurance itself. That life insurance policy.
00:43:49
Speaker
So this is interesting to think through long-term life insurance with inflation and especially hyperinflation. We have to consider though that if you're paying monthly premiums or annual premiums on this and we're experiencing high or hyperinflation, yes, the death benefit of that policy is reducing over time.
00:44:18
Speaker
but also the
00:44:22
Speaker
the value of the dollars that you're using to pay your premium is also reducing. So we want to consider that. But anyways, Bitcoin's not, it's not tax planning, it's not estate planning, it's not insurance. I just talked about life insurance, there's other types of insurance, there's key man policies, there's health insurance, there's lots of insurance, you know what I'm saying. So it's not insurance. Bitcoin itself is not, it's not
00:44:48
Speaker
a savings rate. I've talked with a lot of people who are super smart and maybe they've invested really well, but if you have not saved enough of your income, if you do not have enough savings, then the equation for compound interest still won't work for you. You're going to have all the time in the world and have the best rate of return, but if there's nothing there that's experiencing time and returns, you're still not going to have anything at the end of the day.
00:45:15
Speaker
You need to make sure you have a good savings plan. Are you optimizing your savings rate? Bitcoin does not necessarily solve for that. I think it helps. It helps your view on time horizons and priorities financially, but it is not a savings rate or savings plan. There's lots of other things. Bitcoin itself is not a financial plan is what I'm getting at, but man, I think it should be part of it.
Future Value of Bitcoin and Overvalued Assets
00:45:41
Speaker
Okay.
00:45:43
Speaker
I had this conversation a few days ago, and I have this regularly, is how much do you think Bitcoin's gonna be worth? I don't know. How do I think it will get to a certain price? I think it'll be eventually worth a lot more than it is today. I can't guarantee that. All right, it's time for disclosures to satisfy everybody. This is not investment advice. It's not tax advice. It's not legal advice, estate planning advice. I'm not giving advice. We're having a conversation here. Don't take it as advice. If you're looking for advice, talk to an advisor of
00:46:13
Speaker
said sector you're looking for. This is not a guarantee of performance. Past performance is not indicative of future results to state otherwise is against the law. So don't take it as any of those. We're having a conversation here. Okay. I personally think that Bitcoin in the future will be worth substantially more than today. And I'm personally positioned in a way that reflects that viewpoint in my life. Okay.
00:46:43
Speaker
Now, why do I think that is? Where will the value of Bitcoin come from? The adoption rate? Okay, if it's being adopted by more people, those people are adopting Bitcoin in lieu of something else. That's how it's going to go. Again, I guess we could have more monetary units, more dollars being printed, and those new dollars pro rata going to different assets, and more of those assets could be
00:47:09
Speaker
Bitcoin, but if it continues to grow at just a normal pro at a basis in line with inflation and new money printing, then Bitcoin's nominal value would go up, but its real value would stay
00:47:24
Speaker
The same, I'm not talking about nominal value, I'm talking about real value. So again, if we're just talking about more people doing the same thing, then yeah, number might go up a little bit, but in real terms, not substantially. So we have to think through then, how will the price of Bitcoin go up itself? That can be answered through a few ways, but I think the easiest place to bring that in is the demonetization of other assets. So what in the world does that mean? Well, there's lots of other assets out there that
00:47:53
Speaker
don't make sense from a price standpoint right now. And I think they will make more sense in the future because I think the inflated values of those will reduce or go away. And that inflated value that's currently in those assets will move over to Bitcoin. Those existing assets will go back to a more normalized place and things will be at a healthier spot again. So for instance, stock valuations are, compared to historical norms, very high.
00:48:26
Speaker
Especially index funds, most people utilize index funds not as a means of actually investing and doing scrupulous work of analyzing companies and cash flows and risks and all these things to think, should I use this index versus another one? No, we're just buying an index. That's what most people do. You're buying a fund that's correlated to an index.
00:48:48
Speaker
And that's led to these things being propped up and it's not investing. They are used as a savings mechanism. Index funds are almost just long-term bank accounts. And because of that, we have a large monetary premium in the stock market overall, in my opinion. I'm gonna side note right quick.
00:49:09
Speaker
Again, so one thing I hear a lot from financial planners is if you're trying to be tactical and you're investing, if you're buying Bitcoin because you're trying to do whatever, time the market, buy Beanie Babies, follow a fad, whatever you want to call or whatever accusations people make, one thing I ask is how they choose their portfolio allocation. And a lot of times they'll tell me that they just buy index funds and call it a day, so they're not being tactical at all.
00:49:34
Speaker
Again, it's something they're not thinking through what they're saying. If you're buying anything, you're making a decision, either consciously or subconsciously, about what you're purchasing. There's opportunity costs and decisions being made. If you're buying primarily US large cap, you're making a decision to buy more US large cap than mid cap or small cap or international being at
00:49:59
Speaker
a small percent or a large percent of your portfolio, if you're buying mostly bonds or stocks or money market instruments, you're choosing that. If you're going for a 60-40 portfolio for your clients, you're making a decision. If your decision is based off of that's what most people do, just admit it, but that is a decision you're making.
00:50:21
Speaker
There's no money manager out there or even person who's managing their money who is not making some sort of decision. So to say that, you know, if you're buying something, you're trying to be active in some capacity, please do recognize your level of activity in any decision that you're making, because you are making a decision in anything you do.
00:50:42
Speaker
recognize that. Some decisions are more involved than others, but at least recognize you are making a decision. Okay, back at it. Sorry for that. I get that a lot. It doesn't make sense. Again, I'm not the smartest guy, so I have to take everything to its most base level. Begin there, which sort of helps out because a lot of people don't go to the base. When you go to the foundational level, it actually makes things simpler. And when things are simplified, they'll also become clarified to view. And that's where I like to begin and sort of stay.
00:51:12
Speaker
I don't even know where I'm at. Bitcoin and planning. Let's see. I told you it's going to be rough. I'm sorry. Gosh, I wish there was someone here who could tell me where I'm at.
00:51:36
Speaker
Oh yeah, okay. Portfolio sizing, making decision if or how to put it into your account. Monetary premiums, that was it. That's where I was. Okay, so we're talking about monetary premiums. Monetary premiums, again, I think there's a large monetary premium or monetization premium in equities.
00:51:59
Speaker
Say that's in the debt markets. Heck, I would account for that in our current money system. I think it will grab some value from our current money system. I would attribute that to real estate as well. Heck, I feel really bad for a lot of people when it comes to real estate. I don't feel too sorry for myself. I won't allow that. I feel bad for people when it comes to homes. What's happened is we've seen a hijacking of homes become as a place
00:52:30
Speaker
for refuge and safety and creating memories and moments and to live and spend life for yourself and a family. And being a use asset,
00:52:44
Speaker
And that's been hijacked as being a store of value for people. Homes are now just houses. They're assets to be acquired to preserve your purchasing power over a prolonged period of time, which is sad. You see lots of institutions who are doing this. Massive hedge funds and private equity companies, real estate investors, they're going out, they're scooping up properties to
00:53:12
Speaker
preserve their purchasing power over time. And that's my house. We live in Texas. And yeah, there's a lot of people who move into Texas, a lot of people who move into our town. But a few years back, the stated value of our house went up by 31% in a single year. Did my house become 31% better?
00:53:36
Speaker
No way. There's sheetrock holes in our inside of our house from our kids running into the walls. It's not 31% better, I guarantee you that. Did our population increase by 31%? It didn't. Our town's growing a lot that did not increase by 31%.
00:53:54
Speaker
If we count for those, the factors, maybe I did some work on the house, I didn't. But if I did, and if our population and town increase, so the supply demand communication system was impacted, causing prices to go up, you have to account for that. But that's not the full amount. So where's this other signal coming from? It's from new dollars hitting the market or flooding it. That goes back way back when I said earlier, so I took this one away, we're gonna reference this later. The value of my house did not go up by 31%.
00:54:24
Speaker
The value of your avocados and meat and milk at the grocery store did not go up by 31%. The value of the money that you're using to procure these things went down.
00:54:38
Speaker
by a substantial amount. Maybe there is some intersection. Again, there are people moving to my town. Maybe the population increased by 8%. Okay, well there's still a 25%, this is an example, there's still a 25% premium coming in that I can only explain by the insertion of monetary units and also people purchasing houses because they're trying to protect against the devaluing, the debasement of their currency.
00:55:08
Speaker
So they're purchasing homes or purchasing people's houses to protect against inflation. So what happens if we have a better form of money?
00:55:20
Speaker
that would remove the need of purchasing houses. If you think about it, a house, real estate, real estate historically is really just basically kept up with inflation over a prolonged period of time. If we stretch real estate out over a very long period of time, it's basically kept pace with inflation. Those who have done well with inflation generally do so for a couple of reasons. Maybe they're really good at finding deals or flipping things.
00:55:47
Speaker
But a lot of times, real estate does pretty well because it's compared to a lot of other forms of leverage. Real estate is a safer use of leverage compared to other types. So you can utilize leverage in a quasi-safe way through real estate. Also, there are some tax benefits of owning real estate. But the value of real estate going up over time
00:56:15
Speaker
is not been anything to write home about, really. I'm sure I'll get a lot of flack from this. Not that anyone will listen to this conversation, or many people will, but if anyone knows who's super in real estate, I'm sure I'll take a beating from you. I'm sorry, you can have a conversation.
00:56:35
Speaker
So real estate itself, I think that's where some of the monetary premium will come as well. Again, my house went up by 31% a couple of years ago. Maybe it should have gone up by 8%. That 25% or that, sorry, that 23% difference.
00:56:48
Speaker
Where does that come from? Well, I think when we have a better form of money, people will realize that, that my goodness, I'm paying acquisition fees and sales fees, and I'm paying property taxes and CapEx, and I have vacancies in this thing. I have repairs, all these costs. If I just had an asset that held its value or kept pace with inflation or maybe do a little bit better, I'd rather own the other thing that was easier to own.
00:57:14
Speaker
And I think that's Bitcoin. So I think we'll see a demonetization of real estate heavily in the Bitcoin. So I think these are all different places that Bitcoin will start going up. Again, not just in nominal terms, but in real value is by taking people owning these other assets and assigning some of those assets.
00:57:36
Speaker
allocations towards this other asset. So again, we have the money printing that's going on, inflation, but then we also have the adjusting of total allocation from certain things to another, depending on how much you think will be reallocated from historical traditional assets over to Bitcoin, that will massively impact where you think Bitcoin will arrive as far as value or purchasing price.
00:58:02
Speaker
We also have to put it in terms of what are we valuing Bitcoin against. If we're valuing an asset against a currency that becomes worthless, then that asset against that currency becomes infinite in value. So again, next to me over here in my desk, I have a $50 trillion Zimbabwean note.
00:58:26
Speaker
So, yeah, if you owned a cruddy piece of land in Zimbabwe, maybe you own like just the worst house and say, hey, in a few years, this will be worth trillions of dollars. You would think you're nuts because that house itself did not become that much more valuable. But again, you have to ask, what is the measuring stick for using and the measuring stick that we should be using in that scenario would be Zimbabwean dollars. And yeah, it became worth trillions of those. So when you hear people say that Bitcoin will be worth a million, 10 million
00:58:56
Speaker
infinite dollars. We have to put that to two places. We're putting that in actually purchasing power value. And we often assign that with, are we referencing that against the US dollar? If you think the US dollar is going to continue to be debased, then
00:59:15
Speaker
Then we would say that yes, Bitcoin could in theory go to infinity if the US dollar disappears. That's where you hear these cases. I'm not going to make a price claim. I think it will go up. But my goal today is not to sit here and make price claims.
00:59:30
Speaker
That's when you hear value claims and statements of Bitcoin going to X amount. That's generally how those things are being arrived against is the demonetization of assets, the adoption rate, and then also the devaluing of the thing that's being priced in terms of. And the intersection of all of those things is how people arrive at certain numbers typically, or at least I do.
00:59:57
Speaker
One last thing is adoption. Let's just talk about that right quick. So Bitcoin, how I view where Bitcoin is right now is sort of like the Internet in the 90s, maybe in like the mid 90s, except for Bitcoin is being adopted at a faster rate and a more distributed rate than the Internet was during the 90s.
Bitcoin's Adoption and Portfolio Impact
01:00:14
Speaker
So I think that's going to be a massive contributor to the adoption rate, the growth, the scale and the appreciation of purchasing power in Bitcoin as it's being adopted at a faster clip, more diversely and more largely over time.
01:00:32
Speaker
The internet itself, again, during the 90s, I love, there's a video of, it's like the morning show or today's show, one of those goofy talk shows in like the mid 90s. And they're trying to figure out the internet itself and email addresses. And they talk through the app symbol. They don't know what to call it. And even just the concept of what the internet is was foreign. And the way they talk about it is absolutely hilarious because it's second nature to us.
01:01:00
Speaker
And that's sort of where Bitcoin is right now. Like I'm sure that in, I would think that in 30 years from now, I'll look back on this conversation and think I sound like an idiot because I'll sign like those people talking about the internet in an email address in the nineties, the verbiage that we use, the concept, the way we conceptualize this is so then we'll be archaic and, um, uh,
01:01:29
Speaker
Yeah, it's going to be so foreign at that point. Maybe I'll watch this in 30 years and laugh. Maybe I'll laugh not at that, but just how terrible this is.
01:01:50
Speaker
He had the adoption rate. I mean, I remember in 2009, I had a roommate in college who would buy his Doritos using Amazon, and I couldn't figure out what the heck he was doing. Like, Amazon to me, again, I'm sort of slow. I didn't understand how Amazon worked. He was like, ah, it's sort of like eBay and Walmart mixed. And I couldn't understand why you'd buy or how you would buy Doritos online, how it would ship to you, how that worked. That's only, that was 2009.
01:02:16
Speaker
You know, that was over a decade after that video on the Today Show came out, talking about the internet. So the adoption rate, like where we think the internet is now, just the internet a few years ago looks totally different. So we have to again think through the adoption rate of Bitcoin. I think it's just
01:02:33
Speaker
It's absolutely astonishing to watch. The conviction of people actually understand Bitcoin is incredible. We sort of seem like a brainwashed tribe. Is that because we've thrown our brains out? I don't think so. I think it's because we've done so much time of study to figure this thing out and to understand it and also to understand the total monetary situation that we're in that's hard to look away.
01:02:56
Speaker
And we're seeing a higher and higher adoption rate, and not just adoption rate, but long-term adopters of this thing. And I think that will continue to progress over time.
01:03:10
Speaker
All right, let's talk through a couple things here. This can be tough, you can't see it. I can do my best to give you some numbers. Again, this is all past performance, non-dick of the future results. These are loose numbers. Iran, thanks to Swann Bitcoin, they have a tool. You can go poke around yourself on here. It's the Nakamoto Portfolio Institute, or Nakamoto Portfolio. Go to NakamotoPortfolio.com. I'm not endorsing it.
01:03:39
Speaker
whatever, not making legal statements about it. But it's a fun spot to go check out. There's a lot of great tools on there. We can look at the implications and impacts of dollar cost averaging versus lump sums during different periods of time. You can look at the demonetization of Bitcoin. If Bitcoin takes X amount of premium of certain assets, how would that impact the current and future price of Bitcoin in theory?
01:04:06
Speaker
There's a tool that you can look at utilizing Bitcoin as different percentages of portfolios in historical terms, what would happen there. So it's a fun little spot. So I'm actually gonna walk through some examples of that last one I just mentioned. So I grabbed a couple different portfolios and here's the criteria. So this first portfolio I looked at is, all right, for the last five years,
01:04:34
Speaker
So we're looking at the end of 2018 till, I believe it was yesterday I used, I believe I used December 11th of 2018, yeah, December 11th, 2018 to December 12 of 2023, so over that five year period, what different portfolios look like? So this first portfolio I looked at, and again,
01:05:01
Speaker
Anyone who's out there, don't take this as investment advice. This is historical. These are loose numbers. Get what I'm saying. All the disclosures.
01:05:13
Speaker
So if we use a portfolio, a generally widely used in a sense, quote unquote, growth portfolio, we're using a 65% allocation, this model is 65% allocation to VTI, that's Vanguard Total Stock Market Fund, and VXUS at 35%, so 65% US, 35% international, all stock portfolio over the last five years.
01:05:40
Speaker
that portfolio over that period had a return of 66.17%. So that's its total return. It had a sharp ratio, a sharp ratio of 0.43%.
01:05:56
Speaker
Sharp ratio is essentially looking at risk-adjusted returns. You want a high sharp ratio, ideally. The way you get a higher sharp ratio is by increasing returns and reducing volatility. So you can go and run these numbers yourself. I'm not going to give you every statistic that built this model.
01:06:23
Speaker
But yeah, so a 65 VTI 35 VXUS over that five year period of time had a return of 66.17% with a sharp ratio of 0.43. Bitcoin during that period of time had a 1,178% return. Okay, and that a sharp ratio of
01:06:50
Speaker
0.96, so a little bit more than double the Sharpe ratio, which again, you want a high Sharpe ratio, that's the goal. Okay, what if we just took, what if we substitute part of your portfolio with Bitcoin?
01:07:04
Speaker
So again, let's say we kept our portfolio, 65 US, 35 international, 100 total stock allocation, but then we grabbed Bitcoin and plugged that in for 1% of that portfolio. So your original portfolio had a return of 66%. That new portfolio with 1% allocation of Bitcoin would experience a 73% return during that same period. So the 73% return and the Sharpe ratio went from 0.43 to 0.47.
01:07:34
Speaker
We can look at as we plug in different numbers. So again, an original portfolio is 66% rate of return. A 5% allocation of Bitcoin plugged into that would get us to a 100% rate of return during that same period. A 10% allocation of Bitcoin would get us to a 138% return during that period. 25% Bitcoin would bring us to a 272% return.
01:07:56
Speaker
and 35% allocation would bring us to a 379% rate of return with a sharp ratio on that last one landing at 1.11%. Okay, so I think it's clear, this is all past performance. This is not indicative of future results to do or say so, to say that it is not right, it's against the law, can't do that, and I'm not doing that, this is past.
01:08:21
Speaker
Past performance says, owning some Bitcoin in your portfolio makes sense. This is rebalance on a quarterly basis. Take note of that, okay? So I'm looking at this if we rebalance on a quarterly basis. I thought, okay, well that's fun. What about people who maybe who are working with a financial planner typically and they're maybe about to retire or already retired? What would happen there? So I just grabbed a super generic,
01:08:50
Speaker
It's 70-30 portfolio, okay? Or sorry, 60-40 portfolio. So what I did here was a Vanguard total VTI, 40%, VX US of 20%. So again, 40% US stocks, 20% international stocks, and then 40% of BND.
01:09:11
Speaker
which is Vanguard's total bond market ETF. So we grabbed a 60-40 portfolio, pretty darn generic, same timeframe, that five years, what would happen? That portfolio, a pretty traditional 60-40 portfolio over the last five years had a 39.69% rate of return, we'll call it 40%. So at a 40% rate of return over that total period, it's a 6.91% annualized. It had a sharp ratio of 0.38%.
01:09:41
Speaker
Let's see what happens if we plug some Bitcoin into that. And I apologize, I know I'm throwing numbers out here. Hop on that tool if you'd like and you can play with this as yourself. So just to remind you, that portfolio, roughly that 60-40 had a 40%, we'll call it rate of return during that five year timeframe. Bitcoin was a 1,178% rate of return in that same timeframe.
01:10:08
Speaker
So if we grab that 60-40 portfolio and just substitute 1% of it with Bitcoin, you would take your rate of return from 40 to 46%. Your Sharpe ratio increases well from 0.38 to 0.45. We march along. We move to a 5% allocation of Bitcoin. We're at a 70% rate of return. We move to a 10% allocation. We're at 105% rate of return.
01:10:32
Speaker
And again, that's 105 versus 40%. We moved to a 25% allocation. We're now at a 230% rate of return. In a 35% allocation, we're at a 323% rate of return. Landing that last sharp ratio of a 35% allocation would bring us to a sharp ratio of 1.09% compared to the 0.38% sharp ratio of the initial portfolio. Okay, now I'm not telling everyone to go put
01:11:01
Speaker
1, 5, 10, 25, 35, 80% of your portfolio in Bitcoin. Norma is saying to go and keep your existing portfolio, what do we have? Saying that you should do some research and to say that owning zero Bitcoin is foolish. I think it's foolish to just say that blanket statement and not look at
01:11:22
Speaker
what it's done, and again, not just basing our, we're not basing this off of just past performance, but also what is it itself? Someone mentioned to me yesterday that they think that Bitcoin is only going up because of the hype around it. It has nothing to do with technology. That doesn't make any sense. Because again, this technology is something that people spent decades trying to build. Satoshi Nakamoto himself was able to finally build it, and that's when Bitcoin, compared to other cryptocurrencies of past, actually took off.
01:11:51
Speaker
Bitcoin would be useless without the technology. It's the technology itself. It is the removal of the double spin issue or the solving of the double spin issue. It's a decentralized ledger. It is digital scarcity. It is these technologies that are beyond me how I can figure out how you're supposed to do this. Like I couldn't have built these things. It is the technology itself that allows the value as a monetary asset to even be built on.
01:12:18
Speaker
Okay, so we're looking at this from a technology standpoint, from a use case standpoint, and then we're looking at what is the use case? What's the problem that's stating it's trying to solve? And then, okay, will this be adopted? What's the adoption rate? Will it continue to be adopted? How so? And then you'll start arriving at, should I own some?
01:12:42
Speaker
Why should I own some? Where do I think this is going? How should I value this? How should I position this in my portfolio? Thinking about risk, volatility, portfolio sizing. You need to think through these things. Last thing I want to talk through is just real quick, historical numbers with
01:13:00
Speaker
lump sum purchases, dollar cost averaging. Another thing I hear regularly is like, well, Bitcoin's down a lot compared to its all time high of roughly 69,000 and now it's at 40 something thousand, it's down a bunch. We have to look at our timeframes we're using and also how we're purchasing this thing. I was hesitant to use a five year time horizon on my last illustration because some people come out of the woodwork and say, Jim, that's not fair, you're using your cherry picking data.
01:13:28
Speaker
That's favor for Bitcoin. You should have used different data. I don't know what data you would want me to use. You want me to use 10-year data? That would skew it in favor of Bitcoin more. You want me to use two-year data? That would make Bitcoin, that would put Bitcoin in its worst position at the moment? Well, then we're looking at a very short time horizon. What data would you like us to use? So let's look at data from a few different places. So now we're gonna look at, all right,
01:13:51
Speaker
As of yesterday, OK, so what I did here is what if we what if we purchase Bitcoin lump sum versus dollar cost averaging? Well, how would that work out? So just to run you through and get this is on the Nakamoto website so you can go and play this yourself. But what I did was, OK, let's say we started buying Bitcoin on November 8th of 2001. It's like right around when we hit the all time high. So you started buying at the all time height date and you kept buying
01:14:20
Speaker
at the same incremental dollar amount till through yesterday, 12-12 of 23. You bought daily, okay? You start off with, you had 10 grand, you bought daily every day from November 8th, 2021, basically all-time high day to December 12th of 2023. What would that look like?
01:14:51
Speaker
Your portfolio is up significantly in doing that. If you dollar cost average, you're up multiple double digits. Roughly, you're in the 40% rate of return. Get better numbers here actually right quick for you. Where are we if you would have lump sum? Well, buying a lump sum as of yesterday versus the all-time high, you'd be down 38%, 38.1% actually.
01:15:22
Speaker
Yeah, that's not exciting. So we had to think through portfolio sizing, your time horizon. Am I gonna use this money next week, next year, next month? Am I gonna use this money in a few years? Am I gonna use this money in a few decades? How much of my portfolio should I have in this thing? How am I buying it? Am I buying this as a lump sum and setting it aside? Or am I buying it in this thing on a regular cadence? And that regular cadence, be it hourly, daily,
01:15:51
Speaker
weekly, monthly, how are you starting to put money into this thing? So we'll look at from that perspective, how do I own it? How have I acquired it? Let's see. I wanna run the same thing right quick. What if we bought
01:16:29
Speaker
Okay, I wanna double check these numbers. Don't take this as gospel. I'm running numbers right quick. So I'm looking, again, going back, if we bought November 2021, December of 23, what I mentioned earlier, you're buying daily. I believe your rate of return, what I'm seeing, your rate of return during that point would be 42.13%, or sorry, 42.83% if you bought daily, starting at all-time high up until yesterday.
01:16:58
Speaker
Okay. Your minimum buy price, you'd have scooped up Bitcoin at around 18,000. You'd have also scooped up some Bitcoin at like 67,000 and change. And you would have bought all throughout.
01:17:15
Speaker
hedge volatility and continue purchasing Bitcoin along the way. Well, if you did that starting in 2018, so I ran this as well looking at five years, that number I mentioned earlier with the five years with if you substitute portions of your portfolio. So if we did the five-year period, what would happen? You would have a rate of return at several hundred percent
01:17:40
Speaker
Again, go double check my math on the Nakamoto portfolio, but it looks like you'd be running like a 593% rate of return during that period by dollar cost averaging. If you'd have bought it lump sum day one, you would have a 1,121.37% rate of return. So lump summing at that point would have been superior.
01:17:59
Speaker
We wouldn't have known that. It's all best performance. I couldn't have told you which one's going to be better. You want to think through this. Again, don't take these numbers as gospel. Plan around the tool in real time while I'm trying to talk to you. But it's evident just looking at simple charts that going back 2018, buying a lump sum versus dollar cost averaging would have worked out better versus buying an all-time high. Of course, buying an all-time high and a lump sum versus dollar cost averaging, the dollar cost average would have been superior.
01:18:25
Speaker
So you want to think of that. If you're going to start buying Bitcoin, how are you going to buy it? Are you going to buy it all up some? Are you going to buy it in tranches? Maybe you're going to establish a sizable position up front and then dollar cost average in over there. Maybe as a way of hedging both. If Bitcoin goes up a bunch.
01:18:39
Speaker
You established a sizable position and you'll keep going up over time and acquiring more as it rises. Or if you put in a sizable position, then Bitcoin drops in value or purchasing power. You didn't put all of your seed in at once and you're able to continue to dollar cost average in as it goes down. So you want to consider these things. I know I just talked a lot.
01:19:07
Speaker
If you're still listening to this, I appreciate it. I would love to have a conversation with you if you have any questions about Bitcoin planning. Again, if you're a hardcore Bitcoiner and you don't understand or you think that financial planning is foolish, more than happy to have a conversation to see if or how
01:19:30
Speaker
actual financial planning can work in with your Bitcoin holdings. If you're a normal person, you don't own Bitcoin, you're just learning about it, would love to have a conversation with you. Again, none of this is tax, investment, legal advice. What I'm trying to do is encourage you to have a conversation with people and to learn. Go do your own research.
01:19:54
Speaker
If you need investment advice, go talk to an investment advisor. If you need tax advice, talk to a tax advisor. If you need legal advice, talk to a legal advisor. Start doing some research. Ask hard questions. Ask simple questions. Don't be afraid to ask the questions of, what is money? Or going back again, I don't make decisions. You're being tactical on what you're buying.
01:20:16
Speaker
Am I being tackled in what I'm buying in my portfolio, even if you're sitting at index? How do you arrive at that? Ask the simple questions, ask questions, then ask the question that builds up from that initial statement. Just keep pulling threads. And I think what I found is when you pull the thread of Bitcoin, it's a thread that you keep pulling. And eventually, a lot of your worldviews on our current money and financial situation begins unraveling and it's rebuilt.
01:20:41
Speaker
Off of a Bitcoin standard and I think a lot of people who like Bitcoin arrived at that because of that same situation. It was humbling To know that that guy that I worked with who asked us our bosses to pay some Bitcoin. It's humbling you think Man, I wish you listen that guy I think we're all gonna be humbled. I think it's fine. I think it's good. I
01:21:05
Speaker
Can you be able to admit that you're wrong about certain things? Anything you're wrong on, you wouldn't admit that you're wrong. So you can keep growing. The goal here is to grow and better, not to be staunch in a position.
01:21:20
Speaker
So yeah, let's be open to growing, learning, becoming better, seeking truth. I'm excited for Bitcoiners. I'm a Christian. And I think that Bitcoin also causes a lot of people to think through like, well, what is actually truth? And yeah, I like Bitcoin, but truth itself is certainly not Bitcoin.
01:21:40
Speaker
Bitcoin is good money, but it is not truth ultimately. I believe Jesus is truth. He says, I'm the way, the truth, and the life. I think truth is a person. His name's Jesus. There's something so much deeper, and I think a lot of Bitcoiners are starting to understand that or at least ask like, wow, I understand this. What other things or misconceptions have I had? And sort of thinking through the worldview. So yeah, I think it's great. I want you to think through things that you've been questioning and really search out
01:22:11
Speaker
truth from reliable sources. I'd love to have a conversation with you. If I can answer anything with you, if you think I'm an idiot, I still love to have a conversation with you and talk through why. I won't have a mind changed. Again, my goal is to learn and to grow, not to be staunch in a position either. I'd love to have a conversation with you. Thanks for listening to these ramblings. Hope it was helpful in some way. I'll see you in the next episode.
01:22:34
Speaker
Hey, thanks for listening to the Intentional Living Podcast. Now, today's show is simply entertainment and educational in nature. Do not take this as tax, legal, or investment advice. If you are looking for tax, legal, or investment advice, you should go talk with a tax, legal, and or investment advisor. Again, this content is simply educational and entertainment purposes.
01:23:01
Speaker
Thanks again for listening. We look forward to you joining us on the next episode.