You mentioned bitcoin and maybe let’s start there in terms of uh, there’s a lot of folks in the institutional asset management, world financial advisors, uh, who they were very bearish. They were critics, they said, there’s no way. This is going to work. I think now we’ve gone from kind of contrarian to consensus, being okay, fine, let’s put one percent of assets in uh. There may be some non-correlation over really long periods of time or there may be some asymmetry, but let’s not get too crazy.
Let’S not try to get too confident here, we’ll put half a percent one percent, maybe two percent. How do you think about the sizing of these assets, especially when you look at you know five year, sharp ratios and kind of you know you get more sophisticated analysis. Is this something where you think people will stay kind of in that low single digit percentage allocations? Or do you already see financial advisors talking about? No, actually, we want.
You know, target allocations of 10 20 to the space or what are you seeing and hearing? What do you think people should be doing? I think advisors are still in the low single digit area uh. That’S where i am and my advice to consumers in my book, the truth about crypto. I talk about a one percent asset allocation and i say that because it’s a safe, easy, non-threatening way to get started, meaning if you put one percent of your portfolio into this and it blows up on you and it goes bad yeah.
So what you’ll call it annoying, not devastating? In other words, if you put one percent into bitcoin and bitcoin blows up and becomes worthless, you’re not going to destroy your financial security you’re not going to find yourself in poverty in retirement. In other words, it’s okay to invest, one percent, because if you do one percent and things go as well as many hope that one percent will materially improve your financial future, you might even be able to retire sooner or with more money. So the upside reward dwarfs the downside risk with a one percent allocation. Many people are arguing that a more effective approach is two or three or four percent.
One study from yale says six percent of assets is all you need, but everybody’s talking, low, single digit. My assumption what my belief, my prediction for you pomp, is that over the next 10 years as people invest, one percent or two percent they’re going to discover that it grows faster. It doubles faster than any other asset class, it’ll, double faster than stocks or bonds or real estate or gold or oil, and, as a result, the one percent allocation will become 2 and then 4 and then 8 and then 16 and they’re not going to want to Sell because they’re going to realize the product that the price appreciation potential still persists and they’re not going to want to sell. So while they might start out with a low single digit allocation, inertia will take over and they will discover they’ll turn around one day and they’ll say: oh, i do have a 10 or 20 percent allocation simply because the one or two percent i bought has grown So much in value relative to the rest of my assets and when you think about that, is there a rebalancing that you usually advocate for or is it something where it’s just a buy and hold it forever and if it grows to be, you know: 50. 60.
80 and kind of all of the promises of the technology end up being realized, uh just leave it and don’t incur taxation or whatever, like. How do you think about if you are so fortunate that you make the right decisions and it grows in size? How do you think most people should uh should deal with that? If you are going to manage the money, the way you’re supposed to manage money under modern portfolio theory and effective money management, you should rebalance it helps you take money off the table. It captures your profits, it secures them and when the prices occasionally dip as they’re doing right now, it creates a buying opportunity.
So, yes, you should rebalance. Having said that, i will tell you that i have never rebalanced my crypto allocations, which is one of the reasons i am very overweighted in crypto right now, because my wife and i have been buying since 20 uh, we got started in bitcoin in 2012 started buying In 2014, we’ve never sold any of our positions because, although i of course believe in rebalancing – and i do it everywhere else in my portfolio – i continue to believe that the upside is incredibly strong and i’m not willing to pair back. Because i believe it’s the best asset class in my portfolio – and i don’t see the point of rebalancing – i recognize i’m taking bigger risks as i do it. We are willing to take those risks. We can afford to take the risk uh.
We don’t have children. So there’s nobody’s inheritance that we’re destroying, so you know we’re just having a good time with it. But for most folks i would say yeah rebalance, be prudent. Do the right thing and i’m going to throw another thing out there that you quickly mentioned in passing, and that was taxes. Taxes are a very big, significant issue for crypto owners, like all investors, because you got to pay taxes on the profits.
This is why i’m so excited about fidelity’s announcement that they’re going to allow the 401k plans that fidelity manages the world’s biggest 401k provider here in the u.s 2.7 trillion in assets for 23 000 employers over 10 million workers they’re now going to let all of those Workers buy bitcoin inside the 401k. This is great news, because the 401k or ira is the best place to be buying bitcoin because you’re doing it in a tax deferred environment, where you can trade without having to incur taxes as you do,