There are so many things I could say about cryptocurrency investing. I first heard about it around 2010 when I worked at Dave Ramsey's company. As part of the leadership team, we were encouraged to follow Dave's philosophy on money, and bitcoin was not part of the program. It's one of my greatest financial regrets, but you can't live in the past. After leaving Dave's company in 2016, I began investing in crypto currency in late 2017 after meeting up with a few cryptocurrency enthusiasts here in Nashville, TN. I wish I'd listened sooner and been open to the idea.
This morning, I attended one of my weekly networking events and asked, "how many of you invest in cryptocurrency?" One person out of the twenty plus people there raised their hand. Just one. Including me, 10% of the people in the room were cryptocurrency investors. Keep that in mind as I explain my thoughts around cryptocurrency.
Is Cryptocurrency a Real Thing or Passing Fad?
I don't have a crystal ball, and I can't tell you the future. What I can tell you is that there were many smart people calling it a fad in 2010 who are now buyers and investors of cryptocurrency.
In 2019, institutional investors came on board and cryptocurrencies were added to many IRAs as purchasable asset. And probably the most interesting thing recently is that bitcoin is now one of the top assets in the world. In fact, it roles in at #8 on the world's top assets at just over $1 trillion. Bitcoin is even valued above Facebook! Crazy right? Well don't be surprised when it finally gets to #1 which is where i think it is headed in the not too distant future.
List of top global assets - https://companiesmarketcap.com/assets-by-market-cap/
Technology eventually innovates everything. Banking has been stuck in neutral for decades if not longer. Slow transactions. Slow movement of large sums of money. Cryptocurrency offers to solve many of the current financial systems problems, although in my opinion, it's not all positive. However, my opinion won't make a difference in whether or not cryptocurrency is successful.
Elon Musk recently began accepting bitcoin as a viable currency to purchase Tesla cars. This trend will continue.
Where's It Headed?
In the world of money and business, there's this rule of sorts which goes like this. "Find something a lot of people want and get in on it."
For example:
Companies create products. Great products sell. Companies make a lot of money, and consequently, investors in those companies make a lot of money. i.e. Nike, Apple, etc.
Why do stock prices in companies go up? Some people will say the value of the company is increasing and the stock price goes up. That's bogus. The stock price goes up because more people want to buy the stock. Regardless of why they want to buy it, it only goes up if more people want to buy it and they are willing to pay for it.
Why does gold or silver go up in price? more people want it and are willing to pay for it.
Why do diamonds go up? same thing.
This is pretty much true for everything. The more people want something and the more scarce it is, the more people are willing to pay for it. Enter Bitcoin and cryptocurrency.
Bitcoin, in my opinion has potential to become the #1 asset class in the world. Why? The answer is pretty simple I think.
Accessibility. More people in the world have access to purchase Bitcoin than almost any other thing on the planet. If you want gold, you have to find someone to sell it to you in your area or you can order it online. If you want to buy a share of Apple stock, you need access the NYSE, etrade, or another platform. If you want some bitcoin, all you need is the internet, a mobile device or computer. Bitcoin has the ability to become the most available asset in the world and this will drive its price up. While Apple stock is being traded by millions of people, Bitcoin has the ability to be purchased by billions of people. The more people that want something, the higher the price will go.
Infinitely Divisible. Unlike the US Dollar which is built on being a multiples of pennies (the lowest form of money in America), the total amount of bitcoin is fixed, but it can be subdivided infinitely. This is one of the things drives the price up so astronomically. It's why 1 bitcoin valued at $60,000 is worth 30x an ounce of gold at $2,000. Investors aren't buying complete Bitcoins. They are buying fractions of bitcoins. You can buy as small a part of Bitcoin as you want. For example: If you have $10, you can buy $10 worth of bitcoin. If you have $100, then you can buy a $100. Bitcoin is currently around $60,000. If you buy $1 worth, you're buying 1/60,000th of a bitcoin. Get the picture? It may sound confusing, but it's not. Gold and silver are similar. Gold is priced by the ounce. 1 ounce of gold is around $1,800 right now. You can buy 1/10th of an ounce or you can buy a gram or 1/2 gram. You're buying fractional amounts of gold, just like bitcoin.
Belief Drives Price. People often ask me why are people paying this much for bitcoin. The answer is amazingly simple at it's core. As long as people believe something holds value, it will. The more people that believe something has value, the more stable the value of that item will become. It's why gold and silver have been considered money and the backbone of economies for thousands of years. Let that sink in. Societies have placed a value on gold for 1,000s of years. Some yellow metal out of the ground has perceived value. Yes it also has some other tangible value in technology, but 80% of gold's perceived value is as currency or store of wealth. As long as gold has a perceived value by people, it will have value. You can go to any country in the world and gold is worth something. This is also becoming true with bitcoin and other cryptocurrencies. Bitcoin is merely the cryptocurrency leading the charge at this time.
For the Skeptics
I spoke to a friend in 2018 about investing in cryptocurrency. I actually spoke to several friends. One declined the opportunity citing the risk. The other bought $30,000 of various cryptocurrencies throughout 2018, and 2019. Today, his $30,000 portfolio has grown to $80,000. Parts of my portfolio have grown from $10,000 to $140,000. Other parts of my portfolio are just starting to grow.
Is cryptocurrency for everyone? No. Should you dump a huge chunk of money into cryptocurrency or bitcoin? Probably not. Should you learn more and make an informed decision? Absolutely yes.
I believe cryptocurrency will be around for a long time. For those who got in years ago, they took advantage of the best opportunity. For those getting in now, they are taking advantage of the next best opportunity. For those that get in later (3-10 years), they'll just be getting in as part of the system. Very little opportunity.
In the world of technology innovation, there are innovators, early adopters, early majority, late majority, and laggards. In the cryptocurrency world, we are in this weird hybrid of investing and technology innovation, but the cycles are very similar. As bitcoin and cryptocurrency investors, I believe we are in the early adopters phase and will be moving the the early majority phase over the next 3-5 years. As that happens, you can expect Bitcoin and other cryptocurrencies to continue to increase in value. Jesse Powell, CEO of Kraken, recently stated that 1 Bitcoin will be worth a Lamborghini by the end of 2021. We'll see.
Ponder this...where would you have preferred to put $10,000 over the last 10 years from 2011 to 2021? To help you out, take a look at this comparison of $10,000 cash left in the bank, $10,000 invested in an S&P Index Fund, and $10,000 in bitcoin.
Yes. If you had put just $10,000 into bitcoin in 2011, you would now have an asset valued at $128,000,000. That's $128 million. Six 0s. Bitcoin's growth outperformed Google, Apple, Netflix, and virtually everything else.
Cash, on the other hand, was a big loser due to inflation rates. Leaving cash in a bank is almost a waste. However, you do need some cash on hand to operate your life, pay your bills and for emergencies.
Here's a teaser for a new article/teaching I'm working on... The New Emergency Fund: Cash, Silver, Cryptocurrency. coming soon.
If you want to learn more about cryptocurrency, here are a few resources to get your started. Also, feel free to use one of my free Life and Money Mentor Hours.