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A few weeks ago we provided a bunch of information regarding Bitcoin for those trying to get a grasp on this cryptocurrency.  If you missed it, you can check it out here:

Literally within days of publishing that post, Elon announced that Tesla bought $1.5 billion in Bitcoin and plans to accept it as payment.  And what did Bitcoin’s value do?  It went up 20.56% in a single day and jumped to $46,982 USD.  Nuts.  Honestly, just nuts.

Now, I read, listened, and watched all of these sources and I still do not feel like I have a good enough grasp on Bitcoin.  There are a ton of words in the crypto space to try and grasp which can honestly get exhausting. From altcoins, to blockchain, to central ledger, to cold storage, to cold wallet, to distributed ledger, to ether, to fiat, to fork, to HODL, to halving, to hot storage, to hot wallet, to ICO, to miners, to mining, to open source, to satoshi, to Satoshi Nakamoto, to whales, and on and on and on (and these are the more surface level terms). I still do not fully understand the mining process.  I still do not fully understand how the deregulated networks function.

All that to say I truly wonder how many people who are investing in Bitcoin actually understand it???

Bitcoin 101

Basically, for those who aren’t too interested in the topic to dig into those links provided in the previous post but want a quick and dirty breakdown – my understanding is that Bitcoin allows people to store value outside any fiat currency system in something with scarce units (only 21 million Bitcoins can be mined) and that value can be transported anywhere around the world.  The idea is that it is the digital gold.  And the thought is that it’s market cap (currently $962 billion as of mid-February 2021) can one day become the equivalent of gold’s market cap (~$10 trillion).  So this means we have a clear indication of Bitcoin’s market potential (10x if it replaces gold completely).  Any maybe one day it becomes a global settlement network, a protection against the seizure of assets, and/or a catalyst of currency demonetization in emerging markets.  Many are estimating that by the end of 2021 the market cap will cross the $1 trillion threshold and that each Bitcoin will be valued around $100,000 USD.

My guess is that people see this gap of $962 billion vs $10 trillion and think Bitcoin is headed towards that $10 trillion figure someday as it will take over gold and you might as well get in while it’s undervalued.  Of course, this is the intention/goal/hype with the idea that others will see the current price and want to get in knowing that it *could* reach $100,000 within a year.  That’s the bet that everyone is making.  Will Bitcoin continue to gain it’s popularity or not?

Like gold, it’s price improves when there are concerns about inflation and when governments spend a lot of money, as they are doing now.  But it’s more finite than gold so supply and demand would indicate that Bitcoin’s price should rise over time.  In reality, no one really knows how it will play out.

It’s open sourced, decentralized, uses encryption based on blockchain technology that is calculated by multiple parties on the network to verify transactions and maintain protocol.

It’s founder, Satoshi Nakamoto (who no one knows who that really is – guy, girl, group of people), created something with scarce units that can be traded in a decentralized way.  So rather than the US government printing dollars (fiat currency) on a whim, Bitcoins cannot be magically created.  Once the 21 million have been mined, there are no more Bitcoins to be had (so it’s said).  As of this writing, 18.5 million Bitcoin have been mined with the remainder, less than 3 million, to be mined around 2140.  So supply is capped.   The idea is this scarcity potentially gives it value – if there is demand for it.  That’s the big ‘if’ that everyone is betting on.

Like gold, there’s no intrinsic value but its price goes up or down based on public sentiment and speculation.  Investors will bid the price up if they believe the demand for Bitcoin will grow, or conversely, sell and drive the price down if they believe demand will fall.

Bitcoin has a 4 year halving cycle and during each 4 year cycle there seems to be a pop in the middle then a calming/crash session but each new cycle starts off at a higher price (so far).  From January 2012-January 2014 (2 years) there was a big bull run.  Then from January 2014 – October 2015 (~2 years) there was a drop.  Then from October 2015 – January 2018 (~2 years) there was another bull run up.  Then from January 2018 – April 2020 there was a drop again.  And now, we’re back on the climb again.

We are currently in the 4th cycle (since May 2020) and this tends to be a very bullish phase for Bitcoin as demand remains strong but new supply is limited.  People are estimating that Bitcoin will go over $100,000 by Q4 2020.  The media will continue to go crazy.  But what happens after that?  Likely there will be a dip.  By how much?  Who knows.  And what will it climb to next?  Will it continue to climb or will another cryptocurrency take over?  Or will cryptocurrencies fizzle out all together due to some unforeseen circumstance that our present selves cannot see? (As Optionality author Richard Meadows would call an “unknown unknown”.)

The technology and logic/algorithms behind cryptocurrencies are truly fascinating.  I’m not dismissing that one bit.  Trying to understand blockchain is very interesting.  But will Bitcoin forever be a leader in this space?  That’s where I personally have my doubts.

It’s truly amazing to see what’s been happening over the past few months.  Demand has surged from institutional buyers as many of them eye Bitcoin as a hedge against inflation.  Outsized government budget deficits, stimulus money, and a decline in the US dollar all factor favorably for Bitcoin.  More and more retailers are joining the party and allowing retail purchases to be completed with Bitcoin.  The recent rally since October has been nuts.  Many Bitcoin believers are saying “I told you so” and “this is just the beginning”.  Any maybe it is.

At one point I was considering buying some QBTC and putting it in my TFSA or buying a fractional amount from Bitbuy.  But then I saw the premiums they charged on top of the 1.95% fee and I was less than impressed.  I told myself if/when it got back down to $20,000 USD I’d throw a little in.  And then I just kept watching it go up.  Literally just last week I decided to pull the trigger and put 1% of our portfolio into the new Purpose Invest ETF that goes by BTCC.  BTCC is North America’s first bitcoin ETF on the Toronto Stock Exchange.  It traded over $160 million on day one, just crazy. Gemini Custody secures all BTC for this fund and Gemini Clearing clears every BTC transaction for this ETF.

This is purely a speculative/FOMO play and I recognize that completely.  Can it get hacked?  I have no clue but I sure as hell hope not.  Gemini is supposedly safe but we shall see.  We purchased $10,000 USD of BTCC.U at $10.14 per share on it’s launch date (which is when BTC was valued around $51,000 USD) which is honestly insane to be writing but here goes to the unknown.

Now, that’s not to say that I think Bitcoin is going to the moon.  I do think it will reach the $100,000 mark as more and more institutions and high net worth individuals put anywhere from 1-5% of their portfolio in.  (Will that actually happen?  Who knows, but that’s my view.)  Will it remain high long term?  Will it cross over the $500,000 mark ever?  $1,000,000?  This is where I have my personal doubts but who knows.  Is it’s current price even sustainable???

Here’s our plan for the 1% of our portfolio that we put in:

  • If the ETF ever doubles in size, we will remove our original 1% and then the remaining balance is purely “fun money” at that point.  This means BTCC.U would be valued around $20 aka the price of BTC would have to reach around $100,000 USD.
  • If after removing the initial 1%, bitcoin continues to grow, we will sell anything above 2% of our portfolio.  Meaning we would let it double one more time and then scrape off any additional earnings.  This means the price of BTC would somehow have to steadily remain valued at, or above, $200,000 USD.
  • If it crashes to fairy dust, Nic and I have agreed that we are ok with this risk.  This would equate to having to work my part-time shift-work gig for an extra 2.5 months to make up this loss.  I was talking about Bitcoin (more like teeter-tottering back and forth… and back… and forth….) for far too long that I think Nic one day just said “lets just buy some already!” – and so, we did.

I understand we are gambling at this point.  We are speculating.  We are not Bitcoin fanatics.  In fact, I think there are still many flaws to it.  Yet here we are investing in it.  It has first mover advantage and I wonder if that’s enough to sustain it long term.  Mid life crisis anyone?!?  So lets dig into some of the cons I’ve come up with.

My Personal Beef With Bitcoin

  • Security
    • I’m going to start with my biggest issue.  How many headlines have to come out about someone with a large amount of coins mysteriously dying?  Or exchanges suddenly getting hacked?  Or people having to going through hoops to try to keep their coins safe?  Or it’s connection to illegal activity, money laundering, trafficking stolen goods, and financing terror plots?  Bitcoin fans would counter that each transaction is documented on a digital ledger called the blockchain, where a user’s cryptocurrency “wallet” is represented as a unique series of random numbers and letters.  It’s suggested to find a trusted exchange (although I do not think there is a 100% safe exchange) or to store it offline via a cold wallet or on paper.
    • Just Google “Bitcoin exchange hacked” and you’ll see what I mean.  It does not leave you with warm and fuzzy feelings.
    • So what’s the alternative?  The only truly secure way to go about buying Bitcoin is to write down your code on paper and keep it safe and secure on your own.  As in, a lock box or a vault in a bank.  That’s the purest way to ensure it’s safety – but I know myself and my memory and I will definitely lose it somehow.  Same goes with holding it offline on a ledger.  Bitcoin is not insured.  If you get hacked, you’re out of luck.  If the exchange you’re holding your Bitcoins in gets hacked, you’re out of luck.  If you lose that piece of paper, you’re out of luck.  You are your own bank.
    • If you’re interested in learning more about how to safely buy Bitcoin, (which I would highly suggest if you are going to buy some) you can check out this YouTube:
  • Whales
  • Waste of Energy
    • Bitcoin is like digital gold in many ways.  Like gold, Bitcoin cannot simply be created arbitrarily – it requires work to “extract”.  While gold must be extracted from the earth, Bitcoin must be “mined” via computers.  The Bitcoin network currently uses as much energy as a small country.  Some can argue that this energy required is what makes it a scarce resource – similar to how mining for gold takes a lot of time and energy.  Some could argue that this energy is justified in ensuring the system is safe. The news articles above about Bitcoin’s safety are not about Bitcoin’s protocols itself.  The blockchain has never been hacked (will it someday?).  Instead, the hacks are about the exchanges or private keys.  All this energy is being used to build onto the safety of the system.
  • Volatility
    • The whole purpose of Bitcoin is to be a stable decentralized currency that can be utilized around the world.  However, it’s crazy volatile price history is a signal that it’s not a good store of value or exchange at this point in history, and thus fails at the single thing it was designed to do.  You can argue that it’s new and emerging and still growing in market cap and needs some time to level off.  But is that a good enough excuse?  How long do you have to wait?  Will it ever stabilize?  If Bitcoin is $35,00 in the morning and $39,000 by the end of the day, those who transacted earlier on in the same day just missed out on $4,000 of value.  The value of the USD does not swing like this nor does gold and thus is part of the reason why people value these assets and hold them.
    • Volatility swings in both directions.  We’ve seen huge upswings and huge downswings.  After rallying to nearly $20,000 in 2017, bitcoin lost 1/3 of it’s value in a single day.  In 2018 it dropped to $3,122 which wiped out billions of dollars.  Poof.  And now it’s on this massive tear.  With that being said, I view Bitcoin like gambling.  Only invest what you can mentally/emotionally/psychologically/financially be prepared to lose.  Personally, I would never put more than 2% into Bitcoin.
  • What Government Will Support Bitcoin?
    • Let’s say Bitcoin does take off and gain the attraction/market cap some believe it’s trajected towards, what government is going to let it get taken over by a decentralized currency?  Governments can ban exchanges and make it illegal to own Bitcoin.  (Some already are.)  Admittedly, as more and more companies own Bitcoin, this will make it much harder for governments to put the brakes on.  Are governments going to add crazy rules and taxes to Bitcoin in the future that limit it’s allure?  Who knows.
  • Where the Hell Do You Buy It?
    • Well it depends.  Do you want to be a trader or a saver?  Do you want private keys and a hardware wallet or multi-signature solution or do you want to have someone else hold custody of it for you?  The former is more secure but has a learning curve involved.  The latter is simpler but involves counterparty risk (see Security above).  Do you want to hold it in a publicly traded fund in an account like GBTC with Grayscale in an IRA or BTCC with Purpose or QBTC with 3iQ or BTCG with CI Galaxy in a TFSA/RRSP?  Does it make more sense in a registered account or non-registered?  Do you want to buy it on an exchange where it can be sent to a private hardware?  Do you feel comfortable leaving it on an exchange where it’s say 95% safe?  Are you ok paying a premium along with fees in the 2% range? Thankfully now there is more and more competition entering the crypto field and ETFs are coming out with no premiums and lower fees.
  • No Intrinsic Value
    • For those interested in learning more, where can you go to see what a Bitcoin looks like?  You can’t.  There is no physical Bitcoin.  Bitcoin does not produce anything.  Thus, it is not an asset.  Stocks on the other hand produce earnings and dividends for shareholders.  Or a house on a piece of land can produce income by charging rent.  Bitcoin’s value lies in the hope that the person buying it thinks they can sell it for even more as some point.  For many, they believe this because of the scarcity factor.  But that still does not create any true intrinsic value.
  • It’s Speculation
    • This pretty much goes hand in hand with the above bullet.  Since Bitcoin is extremely volatile and holds no intrinsic value, people are buying Bitcoin with the hopes that it becomes the world’s digital currency and that this currency holds some sort of weight.  There is nothing proprietary to Bitcoin and there are literally thousands of other digital coins in existence.  We haven’t even touched on the fact that Bitcoin is one of thousands of different cryptocurrencies in the crypto space.  Who is to say one of these other coins won’t one day outpace Bitcoin’s popularity.  Bitcoin’s biggest thing going for it is first mover advantage.  That’s really it.  Now, how much weight does that actually carry?  That’s one of the big questions.  Bitcoin does take up ~60% of the crypto market share so it’s still a dominant player after all these years.  Will that continue to be the trend?  Maybe there’s this explosive upside where it does become the digital gold and you’re laughing in riches?  Or maybe Bitcoin is knocked off the throne by a superior cryptocurrency and it becomes worthless?  And who’s to say digital currencies are the end all be all of the future?  Some would say absolutely some would say there’s no way.  Basically you are speculating on Bitcoin’s ability to grow its user-base and market capitalization.
  • Risk
    • I’m not hating on Bitcoin.  Like I’ve said before, the concepts and the technology behind it truly are fascinating to think about.  But I understand how risky it is.  And for us, we’re at this point of ‘enough’ where we do not need to take on extra risks.  I’m trying to set things up so we sleep well at night.  Reading The Psychology of Money made me teeter back to the side of “stay out” due to these thoughts of “enough” and “greed”.  But then I read about what the future “could” look like and I teeter back to the side of “hey let’s try it out”. We are not in the camp that it will one day go to $1,000,000.  But I do think there is still quite a bit of upside potential even at its current pricing.  How long will we hold it for? Not sure. As mentioned above, if/when it ever doubles to 2% of the portfolio I’d take out that initial 1%.  If it ever goes to become more than 2% of our portfolio, I’d sell it and shift over to stocks instead to keep the max asset allocation at 2%.  Maybe we’d consider another 0.5% of Ethereum (think of it like digital oil instead of digital gold) with a similar thought process above for a max of 4% of our portfolio in cryptocurrencies. Who knows. But I can promise crypto’s in general will never make up more than 5% of our portfolio. We know some people who are currently 80+% crypto and to me that is wild!

Now, how could someone coming up with all those cons go out and then purchase Bitcoin?  I have no idea!  I’m constantly thinking about the various cons when I also consider what it *could* be in the future. Because we are at a great point with our finances, I’m ok risking 1% of it. It may sound counterintuitive to some, but since our work setup is so sweet, if it means working another 2.5 months to make up for a loss, so be it. Can you tell I’ve been teeter tottering on this topic!?

Please do not go and make a decision just based off of our thoughts and opinions.  Educate yourself.  I truly hope our previous post which outlined many of the pros and cons to Bitcoin helped provide some clarity on the subject to you.

How long will we hold Bitcoin for?  I honestly am not sure.

We understand those who do support Bitcoin and are not here to tell you you’re crazy.  We also understand those who are completely avoiding it like the plague. There are constantly new topics coming out on this subject – both for the good and bad.  Our word of advice is to only invest as much as you’re comfortably prepared to lose.

I’m genuinely curious as to how many people who hold Bitcoin actually understand what crypto and Bitcoin is.  Sure they may have a small grasp on it that it’s intention is to be the digital gold or the hedge against fiat currency, but who actually understands the intricate details of it?  Who understands how Bitcoins are mined?  Or about the backbone of blockchain technology?  I’m going to guess less 25%.  What do you think?

Before wrapping up today’s post I wanted to give a shout out my friends Martina, Jarin, and David for all the back and forth conversations we’ve had on this topic over the past few months.  Thanks for dealing with this yo-yo rollercoaster! 🙂

What are your thoughts on crypto and Bitcoin?  Do you think this is the classic follow the herd trading going on or do you think Bitcoin is going to the moon?  Do you own any?  Do you think you ever will?

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4 thoughts on “My Personal Take on Bitcoin”

  1. Bob Wen

    I view buying Bitcoin as speculation. It might work out, and it might not. If companies in my global ETFs have bought into Bitcoin, then that’s enough for me. I doubt I’ll ever buy into a hot new trend, that’s just not me!

    Still, a great post with enough to help me understand it better.

    Reply
    1. Court and Nic

      Totally agree re speculation. I would definitely not be able to sleep at night if Bitcoin took up a large portion of our portfolio. That’s a great way of thinking about it (knowing that some of the companies in your broad based ETFs hold it themselves) and why I was considering not buying any myself. Glad the post helped you understand it a bit better. I am definitely not an expert on the subject but it has been fun to dig deeper into it.

      Reply
  2. Liquid

    Nice write up. I think bitcoin is still very speculative. I wouldn’t put more into it than what I’m comfortably losing completely. I started buying some last year and will continue to watch the space closely. 🙂 There’s a lot of issues like the volatility you mentioned, and other risks. I haven’t really seen much discussion online around the network fees, which is a big problem to me.

    Reply
    1. Court and Nic

      Thanks Liquid – nice to see you over here – I always enjoy reading your posts 🙂 Definitely agree that it is very speculative and too agree to only put in a small amount that you’d be ok losing. High fees and slow transactions definitely need to get fixed. I think they will over time, but who really knows!

      Reply

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