Diversifying our portfolio with the options we have in the market can help us to improve our returns.
The popular Uphold crypto portfolio now allows us to buy stock. If you have Uphold, you can now buy equities with Fiat or Bitcoin. Basically, we are talking about one more option, available especially for bitcoiners. The problem is that this is an unknown world for many in this space. There’s a lot of talk about the adoption of Bitcoin by traditional investors, but little is said about the adoption of traditional investments by Bitcoiners. Now, let’s talk about this.
It is always a temptation to fall into the error of idealising Bitcoin. I refer to the romantic idea of Bitcoin as the perfect and total investment. In other words, all we need is Bitcoin. In the specialised press, there is no talk of Tesla, Amazon, Disney or Apple shares. Sometimes, gold is mentioned. And the dollar is mentioned very often. But the dollar is usually presented as the great adversary. The story is always told that the dollar loses its value due to inflation. So it is crazy to save in dollars. The problem with the dollar is that the Federal Reserve prints inorganic money, thus diluting its value. It is best to invest in Bitcoin because it is a scarce currency. End of story. The only solution is to buy Bitcoin. Really?
This curious story is a sacred word in many parts of the world of Crypto Comeback Pro. However, it is extremely strange for traditional investors. Because no one ever defends the dollar as an investment. So it is extremely rare that in the middle of 2020 some bitcoiners talk about this as if it were the discovery of the millennium. On the other hand, since the 1980s, inflation has ceased to be a serious problem in most developed countries. Because inflation has long been kept under control (2 per cent per year). This means that the apocalyptic rhetoric that we hear so often from some people is more like a conspiracy theory than a reality felt by the traditional investor.
Before the creation of Bitcoin and after the creation of Bitcoin, the idea that the dollar is a bad investment does not belong to the great discoveries of humanity, but to the elemental and natural things of life. „Cash is trash“: Cash is trash. Before Bitcoin and after Bitcoin.
The dollar is mainly a medium of exchange. And the most important thing is its stability. If the dollar goes up in value, it is bad for the economy because it creates unemployment and a deflationary picture. And if the dollar falls in value, people’s purchasing power deteriorates. It is best to establish a monetary supply that reflects domestic production. But the ideal is to maintain inflation at 2 per cent per year, because at this level it is possible to achieve healthy economic growth.
However, the solution to protect against inflation is simple. The solution is to buy goods. Or, to put it another way, the solution is to invest in goods. In other words, the solution is not savings. That is putting cash under the mattress. The best thing is to invest. We can invest in objects, works of art, real estate, businesses, bonds, stocks, precious metals, commodities or cryptosystems. In other words, Bitcoin does not have the exclusivity on these items. I’m afraid Bitcoin is not the centre of the universe. It’s just another option.
The fact that the US government is weakening the dollar by injecting liquidity into the system is not part of an evil conspiracy against the common man’s pocket. It is simply a state policy that promotes economic growth with investment. Monetary stimulus is received with applause on Wall Street, because a weak dollar implies increases in the price of investment goods. Bitcoin, being an investment good, also benefits from these stimuli.
If we look at the Forbes list of the world’s richest people, we can see figures in dollars. However, dollars here are only one unit of account. Because, in the vast majority of cases, this wealth is not in dollars but in goods. Jeff Bezos is mainly rich in Amazon shares. Bill Gates is rich mainly due to a diversified portfolio of stock shares. And Warren Buffett is rich mainly in Berkshire Hathaway shares. But the list goes on. It should be noted that there are not many billionaires on this list who owe their wealth to gold. The crypto space does have some names and the number could grow quite a bit in the near future.
As you will see, the problem of inflation was solved a long time ago. It is no mystery. There is no battle against the dollar. There is no conspiracy theory. There is no demon that wants to eat up our savings. This fight just lies in the imagination of some goldbugs and some bitcoiners. The rest of the mortals are busy investing.
Anyway, we already know that cash (fiat) under the mattress is not a good option and the best thing is to invest in goods. What goods? Normally, we should consider building a diversified and balanced investment portfolio that takes into account our needs, our personal objectives and our temperament.
If your portfolio is heavily concentrated in Bitcoin, you may want to consider diversifying a little. But it’s not a question of just buying other assets. The smart thing to do is to balance risk/return. Bitcoin is a very volatile asset. That is, it is a very high return asset, but a high risk one. So the most sensible thing would be to balance our portfolio with more stable assets.
Although it may seem a contradiction to the above in this article, in this balancing process, the first option could be fiat (at a cost of -2% per annum). Bitcoin’s performance should compensate for this -2% inflation, but we will obtain a slightly more liquid and stable portfolio. On the other hand, a fiat reserve has the advantage that we could respond better to a good investment opportunity appearing out of nowhere.
Of course it is best to place that fiat in some instrument which offers a fixed income. This could include a Fintech or Defi product. But it could also include Treasury bonds, corporate bonds or a bond fund.
We also have a middle ground in terms of risk/return. Fiat would be the security end. But there is a riskier option than Fiat, but a little more stable than Bitcoin. It is the stock market. That is, an S&P 500 fund.
In my opinion, it is best to invest in the S&P 500 and not in individual companies. Why? Well, it’s much easier and safer this way. Choosing individual stocks takes a long time and we would still need to diversify. Investing in the S&P 500 saves us that work and already gives us the diversification we need. This way, we can dedicate all our time to Bitcoin. We should not worry that we are missing out on the next Google because we are investing in an S&P 500 fund, because we have already found the next Google. It’s Bitcoin. We would only be using the S&P 500 to diversify and balance our portfolio a little bit. Growth is what Bitcoin does.
Here I am refraining from mentioning percentages, because percentages depend on our risk tolerance. As a general rule a conservative portfolio would have more fiat and stocks. And a more aggressive portfolio would have a higher percentage of Bitcoin. This is already a matter of designing our own strategy.
My recommendation is to think like an investor. And take care of our pockets. I would say that all that anti-system battle rhetoric so prevalent in the crypto space is not a very good advisor when it comes to investing wisely. Political passion does not always help us to design the best financial strategy. We must remember that being a good investor is also a perfectly valid aspiration. Our pockets will thank us for it.