2. A Short Track Record
Bitcoin has only been around for 17 years. And only in the last 7–8 years, has it become mainstream enough to test under real-world conditions.
[BTC failed to hold up in its first proper recession (Covid crash, 2020) and failed again during the 2022 inflation and interest rate shock].
Compare its lifespan to assets like:
- Gold, with thousands of years as a store of value
- Stocks, with over 150 years of long-term data
- Bonds, with hundreds of years of yield and cycle history
- (Options are centuries old)
A core portfolio should be largely comprised of proven, tried and trusted assets.
3. No Earnings or Cashflow = No Valuation Anchor
Crypto has no clear source of revenue, profits, dividends or interest. That means it can’t be valued properly.
Unlike a stock which generates earnings and has a P/E ratio. A valuation can be derived by multiplying one with another.
Or property which generates rents and has a rental yield. A property’s value can be derived by dividing annual rent by the rental yield.
But with Bitcoin, any price can be justified. It could go to $1 million. Or we can equally make a credible case for $1.
That makes Crypto highly speculative, by definition.
Speculation is ok in your Satellites portfolio – but never in your core portfolio.
I’ve heard some investors rely upon their Crypto holdings for their retirement pot. That would be a highly risky strategy to rely upon a single asset class which can conceivably be valued at $1m or $1.
4. Increasingly institutionalised = No more “Special Status”
In the 2010s it was valid to describe Crypto as a new alternative asset class, independent from the traditional financial system.
Today – it’s heavily institutionalised:
- Wall Street holds billions
- Banks and large asset managers run crypto-linked funds and products
- Professional institutional investors could manipulate pricing
Crypto can’t now just “do its own thing” …
It’s now largely driven by the same liquidity conditions, risk appetite and macro forces that move tech stocks.
The more institutional it has become, the more it behaves like mainstream financial assets – as seen in the chart above.
So the argument that crypto provides diversification is weakening all the time.
Should we own Crypto?
My mentees and I typically hold it in our smaller satellites bucket. But it would never drift into core territory.
After the recent sharp decline, it may well rebound from here.
But it doesn’t exceed 5% of my portfolio, as I explained in my note from Nov 2024 – even when it was rising fast.
I’m not against ownership – I own Bitcoin too. My point is to not let your portfolio be dominated by it.
And certainly don’t rely upon it for your retirement
Does Crypto pass the GPI criteria?
Is your portfolio properly balanced? My article from November has some insights on this.
Your core portfolio must include at least one of these key ingredients:
G – Growth
Stocks – via diversified Funds and ETFs – have a proven track record of inflation-beating long-term growth backed by real earnings.
Crypto has grown (historically) but that growth may not be dependable for the 4 reasons mentioned above.
P – Protection
True protection for your portfolio comes from assets that appreciate during times of stress.
Crypto failed miserably anytime there was a hint of stress.
I – Income
Important for those that need to generate income from their assets.
Crypto doesn’t generate income.
Bottom Line – 3 things to remember:
- Crypto is an asset class with potential for high returns – and high risk. Be fully aware of this risk/return profile.
- As such, size your position appropriately. It belongs in your Satellite bucket, not your Core.
- Above all, don’t believe that it’s a special, uncorrelated, new asset class. That may sound convincing, but the evidence makes for a different reality.
For a brief chat with me about our Options and investment training, book a call with me here.
Always Remember:
- Time in the Markets always beats timing the markets
- Stay Diversified
- Minimise those leakages: Fees, Inflation, and Taxes
- Financial Markets are a great source of recurring income
- ETFs, Balanced Funds and Options achieve all the above
- Being educated helps you outperform 99% of the population
… to ensure your investments work for YOUR financial freedom (not someone else’s)
And …
For more guidance, our Investment Academy will help you implement all of this in a step-by-step way.
Thousands of people have learnt how to diversify and pound-cost-average into low-cost, set-and-forget ETFs & Funds for inflation-beating growth. And Options to create recurring income.
Click here to learn about our Investment Academy
Finally …
– Don’t take the above as advice as it may not apply to you personally
– Your Capital is at Risk
– You may not be covered by the FSCS
– Anything mentioned in a podcast or in a previous article was valid at that time and may not continue to be now |
