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March 4, 2020

Stock Market and Bitcoin Investing Strategy

March 4, 2020

Most people are curious about Bitcoin, and many of them say, “Is this still the way to make a fortune?” It is nice to idly think about investing a few thousand dollars and watching the value grow enormously as happened with Bitcoin in 2017. Can you comprehend how fantastic it would be to watch an investment increase by 1,000’s of percentage points per annum?

The stock market is going through a boom period. US stocks are the highest they have ever been, and that trend has generally followed suit around the world. Investment bank Credit Suisse has recently tabbed the Australian stock market as offering the best returns since 1900 at over 6.5 percent per year on average. There are clearly great options in the world’s stock markets.

The question that should interest us is whether investing in Bitcoin is a viable alternative to the stock market? Or should we be looking at using them in a complementary manner by combining investments?

What Can We Learn From the Performance of Bitcoin in Recent Years?

Bitcoin has shown tremendous returns since its creation and has far outpaced even the elite FAANG shares (Facebook, Amazon, Apple, Netflix, and Google). It has shown the ability to ride out hard times and recover as it is purely reliant on demand rather than regular market forces.

Many investors follow the simple strategy of investing in prestigious and well-performing companies when stocks are available at a discounted price and then “buy low and sell high.” The key to success is finding the right moments to buy and sell.

The intelligent investor will also buy a mixture of stocks and bonds to diversify the risks inherent in both. History has taught us that one tends to perform well while the other suffers a downturn and therefore balances the risk.

Perhaps adding something different such as investing in Bitcoin would add another level of managing risk? The aim is to have a way to counter market volatility in any scenario. There is no guaranteed way to predict the performance of Bitcoin in the future, but $1 of the cryptocurrency bought at the start of 2010 was worth $90,000 towards the end of the decade.

No stock anywhere in the world could duplicate that. It was clearly the best investment to make in that decade.

2020 started in a similarly positive fashion, with Bitcoin being up by over 29%.

Conversely, $1 invested in the American stock market during that same period would have only seen a rise to $3.46. It is a similar story with bonds. A $1 investment in a 30-year US treasury bond would have only risen to $2.08 in that period.

Let’s take a look at the main reasons people are still not readily investing in Bitcoin…

5 Reasons People Are Still Reluctant to Invest in Bitcoin in 2020

Without analyzing everything too deeply, it seems a no-brainer to invest in Bitcoin. So, why are so many of us still so reluctant? Well, it will be hard for Bitcoin to defend its title as the best investment of the 2010s. Past performance can not be a guarantee of future success, and the volatility shown by the price of Bitcoin could always mean it stays at a low cost for an extended period.

The upsides include that almost everyone seems confident about the future. Bitcoin is becoming accepted by mainstream businesses, it is decentralized, and you can buy Bitcoins anonymously.

That being said, let’s take a look at the 5 main reasons people are still reluctant to buy Bitcoin.

People Still Lack Education About Bitcoin

People are still uncertain about how Bitcoin works. They often don’t know the difference between cryptocurrencies and blockchain. It is a complicated process, and many people simply don’t have access to useful information.

A Google search will reveal a million articles relating to Bitcoin. Still, many of them are confusing and hard to trust.

An excellent way to profit from Bitcoin would be to start an online class about the ins and outs of Bitcoin with supporting materials and market it as an affiliate program. There is a vast market of people desperate to get involved in the world of Bitcoin, though they still remain uncertain about how to proceed.

Once more mainstream investors correctly understand how Bitcoin works, the demand for Bitcoin will surely go up, and prices will inevitably increase. We may be in the last period before everyone realizes the value of Bitcoin, and are in a position to buy at a “bargain” price for the last time.

Cryptocurrency and Bitcoin are Seen as too Risky

There is a perception that cryptocurrency is too volatile in general, and people tend to remember shocking headlines about Bitcoin losing thousands of dollars in value overnight.

While there have certainly been some wild price fluctuations, it is worth remembering that overall there has been a tremendous rise in the value of cryptocurrency.

The exchanges for cryptocurrency are still unnecessarily hard to use for a newcomer, and it can be difficult to get trustworthy information. There is also a perceived lack of reliable security. All of this leads to a reluctance for the cryptocurrency newbie to get involved. It is far easier to buy some more stock in Apple.

Some people are just not ready yet to take a risk in something like Bitcoin. They perceive it as not fully developed and still dangerous – no matter how high the potential rewards.

Bitcoin is Thought of As Being Too Complicated to Buy

Signing up for an online Bitcoin wallet and making the first purchase is thought of as way more complicated than the reality. The average layperson thinks of this as a huge deal and figures that buying stocks and bonds is far simpler.

Other ways to buy things such as PayPal, Apple Pay, credit cards, etc. seem so much easier. People wonder if it is essential to take the plunge and get involved in using Bitcoin.

There Have Been Too Many Sensationalized Stories about Bitcoin

It is human nature to remember the negative stories over the great ones. People tend to remember the hacks and attempted hacks on crypto-wallets, public blockchain, and Bitcoin exchanges rather than the enormous increases in value.

There have also been too many high profile stories in the press about ICO (Initial Coin Offerings) scams. It just adds to the unease surrounding cryptocurrency.

Moreover, many people hold the idea that they could lose everything in their Bitcoin wallet overnight with no recourse to solving it. In fact, these issues have been mostly resolved, but the perception remains.

It feels more comfortable and reliable for most people to call a broker and order to buy some stocks than take a walk on the wild side with Bitcoin.

Bitcoin is Seen as Unregulated and the Equivalent of the Wild West

It is true to say that many countries have struggled to define cryptocurrency and adequately regulate it. People hear about it being used for nefarious purposes on the Dark Web and think of it as a tool for criminals.

While that has undoubtedly happened, the reality is that Bitcoin is becoming more mainstream, and it is being regularly used by everyday folk.

Regulation is enforced in most areas. The horror stories about cryptocurrency are about to become a thing of the past.

The overall issue here is that people need to be educated better about the opportunities provided by Bitcoin. The riskiness that they perceive is no longer a real factor, and studying the modern realities of cryptocurrencies would alleviate these fears.

What is the Best Strategy for Combining Investing in Bitcoin With the Stock Market?

Most investment experts would still recommend making stocks and bonds the central part of your investment.

I find it hard to believe that there is a safer way of investing in the long-term than buying FAANG stocks whenever they are available at a reasonable price.

Peter Mallouk, the president of Creative Planning, a reputable wealth management firm, is skeptical about the long-term viability of Bitcoin and other cryptocurrencies.

He expects the majority of them to fail, stating, “there is no way that even a fraction of them can survive.” He doesn’t like that buying Bitcoin is purely speculative. There is no dividend or yield. You are only getting income from the price increase.

He suggests that you can invest in cryptocurrencies through companies that are investing in blockchain. Buying stock in businesses such as Accenture and IBM is a safer way of investing than buying cryptocurrencies directly.

This makes sense to me. You are still investing in technology, which might well be developed for use as a different purpose. While there is always the opportunity to profit if Bitcoin explodes in value while still being paid a dividend.

You can ask your broker for advice about what bonds to buy, but he is likely to recommend a long-term, rock-solid, safe government bond.

What should you do with your “crazy money” – the percentage that you wish to invest in something entirely speculative?

I still like the idea of putting aside a certain amount to be purely speculative with Bitcoin. If this decade is only as half as profitable as the last with Bitcoin prices, there is a tremendous amount of profit to be made.

One of the issues with Bitcoin is that it is still a new technology. This makes it a challenge to make an informed projection about future value. Due to this, there is a wide divergence of expert opinion.

The sensible approach seems to be to invest conservatively in stocks and bonds while leaving some money aside to speculate in Bitcoin. Only invest an amount which you can afford to lose in Bitcoin, and the future could possibly make you very rich indeed.

What Do Industry Experts Predict will Happen to the Value of Bitcoin in the Coming Years?

Looking at a sample of industry experts’ options makes for some interesting reading.

Andy Edstrum, the wealth manager for investment advisory firm WESCAP, believes Bitcoin will reach a market cap of $8 trillion by 2030. This would put it on a similar size level to the gold market and set the price of a single Bitcoin at $400,000.

His forecast is that lessor cryptocurrencies will fall by the wayside, and Bitcoin will be the de facto world’s currency.

The famous internet marketing expert Tai Lopez is a keen Bitcoin investor and predicts a single Bitcoin value of $60,000 in the mid-term. He points out that this is viable as it is growing as a medium of exchange in global financial markets. An investment of a tiny part of the wealth of millionaires globally will send the value to that level.

Kay Van-Peterson is an analyst at the Danish investment bank Saxo and is an expert in online investment and trading. He was the person who correctly predicted a Bitcoin value of $2,000 by 2017. He expects the cost of Bitcoin to reach $100,000 by 2027.

How this fearless prediction will play out is anyone’s guess – but he has been right before.

Anthony Pompliano is a founder of crypto-friendly asset management company Morgan Creek Digital, and a popular Bitcoin personality predicts a Bitcoin value of $100,000 by the end of 2021. It would represent over a 1,000 percent increase in less than two years.

He must be confident of his prediction as he claims to hold over half of his assets in Bitcoin.

The founder of the Bitcoin wallet startup Xapo and board member of PayPal Wences Casares is even more optimistic about the future value of Bitcoin. He has invested in Bitcoins since his 2011 prediction, and he predicts that the value of a single Bitcoin will reach $1,000,000 by 2027.

Lastly, Chamath Palihapitiya, the co-owner of the Golden State Warriors and founder of Social Capital, predicts a Bitcoin price of $100,000 in the next 3 to 4 years and that it will reach $1,000,000 per coin by 2037.

I love his quote. 

This thing has the potential to be comparable to the value of gold… This is a fantastic hedge and store of value against autocratic regimes and banking infrastructure.”

He more than anyone should have a real view of the future of Bitcoin as at one point, he owned 5% of all of the total Bitcoin mined globally.

Whatever you conclude about these predictions. Bitcoin has come a long way since Laszlo Hanyecz bought two Papa John’s pizzas on May 22, 2010, for 10,000 Bitcoins. Those coins would be worth over 80,000,000 dollars today.

I am quite conservative by nature, but when I hear of industry experts like those mentioned above with real experience in Bitcoin making such predictions, it’s hard not to become ambitious about the possibilities of Bitcoin.

Final Thoughts about a Combined Investing Strategy for The Stock Market and Bitcoin

Bitcoin has made great strides since the early days of 2009. It started out as a wildly speculative investment that hardly anyone knew anything about.

Most of the time, you only heard about Bitcoin being used on the dark web or a sensationalized press story about some scam being pulled off with someone losing a great deal of money.

Bitcoin has created many millionaires, and it has been quite a ride to experience the highs and lows over the past ten plus years. During that period, Bitcoin as an investment has outperformed any stock market, government bond, gold, or currency deal.

It is worth saying again that if you began 2010 with $1 of Bitcoin and kept it, you would have had $90,000 worth of Bitcoins towards the end of the decade. What other investment in history is comparable to that?

People are rightly skeptical about Bitcoin and cryptocurrencies in general. Still, there is no doubt that the issues they face are being addressed.

Bitcoin has comfortably outperformed the FAANG shares of Facebook, Amazon, Apple, Netflix, and Google over an extended period. There is nothing to make us believe that this will change anytime soon.

The main reason people are still hesitant to invest in Bitcoin is a lack of knowledge. It has a reputation as being overly complicated and a pain to organize. This is no longer the case, and the danger of being scammed has been dealt with and solved.

The future seems to be bright for Bitcoin, with industry experts predicting incredible gains within the next 10 years. It certainly seems possible, but it is impossible to know what will happen.

The intelligent and safe approach to investing is to follow the standard advice of buying a combination of stocks and bonds. But leave some “crazy money” leftover to speculate on Bitcoins.

Conventional wisdom might make it hard to make a case for investing in Bitcoins. That has not stopped some people from making vast profits and becoming extremely rich.

Set aside what you can afford to risk, invest it in Bitcoins, and let’s see where the next decade takes us. This might be the last period that it is possible to make a fortune from Bitcoins, and it would be an unfortunate thing to miss the opportunity completely.

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