As Bitcoin seems to be hitting the bottom of this cycle’s rollercoaster ride and seemingly coasting sideways for the time being, I thought it would be a good time to recap some of my favorite ideas that relate to investing. These are ideas that I’ve used to build my conviction and plan my approach, hopefully they can be useful for you as well, dear readers.

Enjoy this random hodge-podge of ideas! :)

Don’t just do something, sit there!

Fidelity, one of the largest financial custodians in the world conducted a study to see if they could find who their best investors were. They found a group of folks that consistently outperformed the market: dead people. The dead are not capable of selling their stocks so whatever portfolio allocation they ended up with on their last days on this planet, they’re stuck with for a long time. The dead do not have a bias to action and have seemingly benefitted greatly from inaction. A good reminder that investors should control their emotions and disregard hot news that comes out so fast and frequently.

Investors look for things to buy, traders look for things to sell

I recently heard this on The Investor’s Podcast and I think it accurately captures the difference between the 2 types of folks that are in the markets. The game plan for an investor is to find an asset that they can buy and hold for a very long time, a decade at least. Traders are constantly looking for what they should be selling as they exit their positions quickly. I put myself squarely in the camp of the investors. I’m in pursuit of acquiring scarce desirable assets that have an ideal holding time of forever. The target number of taxable transactions for the tax year should be 0, 2 at most.

Bitcoin is ultimate diversification

Dear reader, follow me along this train of thought as I make the case as to why bitcoin is the ultimate diversification of a portfolio:

Given:

• The purpose of every business is to generate profits (to make money)
• The purpose of every investment is to generate profits (to make money)
• The purpose of a job is to make money

Assuming:

• The best money is bitcoin since it outperforms on all the characteristics of money (durability, scarcity, transportability, divisibility, fungibility, verifiability etc..)

Then:

• A portfolio solely allocated to bitcoin is the most diversified portfolio possible.

As companies and individuals perform work to make money, they will want to store that value in the best money: bitcoin. Holding bitcoin allows you to become a shareholder of every profitable company as well as sharing in the profit of every new innovation, every new idea.

Take for example Apple, the largest company in the world by market cap (~$2T) currently storing their excess profits in USD. Around $50B of cash on hand. They’re losing around ~8% to inflation every year (as are all who hold USD). If they wisen up and convert all of their cash to bitcoin right now, that would be around ₿2,869,527.84 at the current price of ~$16,700. There isn’t that much for sale so they would be driving the price up astronomically if they try to buy even a quarter of that amount. If you have bitcoin, you would be in for a ride.

Tesla, Twitter, Microstrategy, Snappa, Tahini’s and many other companies have bought bitcoin. You can go buy shares into businesses as wide ranging as a car manufacturer, a social media giant, a corporate software firm, a local software firm specialising in creating graphics for websites and a local kabob shop, or you can just buy bitcoin. Eventually every company will make the same move for their treasury.

Do not buy everything under the sun to diversify. Buy bitcoin and bask in the ultimate diversification.

Buy, Borrow, Die

If you look at the most wealthiest people in the world, you’ll see that they have one main thing in common: most of their wealth is in 1 or 2 asset. Jeff Bezos with Amazon stock, Bill Gates with Microsoft stock, Elon Musk with Tesla, Warren Buffett with Berkshire Hathaway and Michael Saylor with MicroStrategy. How do they retain their assets and yet live comfortable lives? Perhaps they sell a portion of their assets, pay the capital gains and then live off of their profits. Another strategy is they can use their assets as collatoral to borrow money and then pay off the loan in the future (maybe with another loan). They can do this indefinitely as long as their assets are increasing in value. Buy, borrow, die.

The trick is to buy and hold a scarce, desirable asset that always goes up in value. Historically, these assets included stock of a company, land, gold and art. Enter bitcoin, a supremely scarce asset that trumps all other assets for those who wish to execute on this strategy.

• Scarcity: bitcoin is provably scarce, there is only 21M that can ever exist and many millions have already been lost. Art goes up in value when the artist dies as they cannot paint any more, making their pieces more scarce. Sometimes hidden pieces are found that take away from the overall demand in the market. Can we provably say that there aren’t any more van Gogh or Picassos out in the wild?
• Durability: bitcoin is digital and suffers no deterioration
• Verifiability: there is free, open source software that verifies with 100% certainty whether the bitcoin you have is real. Can the same be said about a land deed or bricks of gold?

Bitcoin is pristine collateral - Raoul Pal

Above all the other characteristics, bitcoin’s digital nature lends itself the most to executing this strategy. Instead of just sending your assets over to a bank and trusting them completely, bitcoin can be collatoralized in a multi-signature setup where you are still in posession of your coins! Collatoralizing bitcoin is not just theoretical, there are many “bitcoin banks” that have been providing this service for years now: Unchained Captial, Ledn. The future is bright and orange.

Risks

Be warned, dear readers: borrowing against a volatile asset is very risky. Not only are you taking on exchange risk (bitcoin can move a bit and triger a sale of your asset if it drops steep enough), but also custody risk (depending on your approach). If 2022 has taught us anything, it is holding on to your bitcoin and not collatoralizing it is the best way to not get rekt. However, there are ways to mitigate these risks by borrowing only 5% of your stack and then using a collaborative custody model with no rehypothication.