Should you own Bitcoin in your portfolio?

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• 1 Bill February 11, 2021, 4:09 pm

  I remember reading about bitcoin and downloading the mining software back in probably around 2010. Decided not to bother as would have had to leave my pc on for 2 weeks to get 1 bitcoin that was worth around 8 quid or so I think…
  A few years later in 2014 I came across a bitcoin cashmachine in a pub in shoreditch on a boozy day round london. Thought it was cool so I got £10 worth of bitcoin, then bought a pint with it at the pub for the novelty.
  The £5 worth of bitcoin was worth £700 quid last time I checked a few days ago (once i eventually remembered my password). Glad my friend didn’t also want another pint!
  I still don’t really understand why it is valuable and think at somepoint it will all come tumbling down, but I’m not going to touch the small chunk of a bitcoin I own just to enjoy the ride.
• 2 Andrew February 11, 2021, 4:55 pm

  Bitcoin and other cryptocurrencies inevitably are going to be regulated, governments just haven’t got around to it yet.

  A lot of authoritarian governments are going to ban it entirely. It doesn’t smell right. It has attracted a lot of criminals and is bad for the planet.

  I read that the churn is only in about 30% of bitcoin. 70% of bitcoin is never traded. Probably people lost their keys years ago.
• 3 NorthernLight February 11, 2021, 5:24 pm

  Good article as ever, thanks. I invested a very small amount just for fun back in 2017 and modestly topped up my holding quite a few times last summer just on the basis that whatever people think about it, there seemed to be a lot of potential price catalysts ahead.
  I’m still sceptical about the long term prospects – regulatory risks, being overtaken by better technology etc – but for now I’m quite happy to hold it as a small part of my portfolio and watch with interest (similar to holding an AIM tech stock which could soar or sink). I’m also getting more than 4% interest on it!
  One thing I do find interesting is reading the comments on the many recent Bitcoin articles in the mainstream press and on financial forums – as you say it very much divides opinion.
  I am surprised at the number of people who outright dismiss it as the Emperor’s New Clothes (and I’m not saying it isn’t!) when they clearly haven’t taken the time to find out more about it.
  Given the price gains to date who knows where it might be in ten years’ time. To potentially miss out on what could be the investment growth story of the decade without at least having given it a fair hearing seems a bit daft.
• 4 Fremantle February 11, 2021, 6:17 pm

  The spectacular gains of bitcoin may have passed newcomers by. My thoughts are to pound cost average into a basket of crypto, litecoin, bitcoin and etherium are my initial thoughts. This is outright speculation and amounts to, for now, lockdown entertainment spending. When pubs, restaurants, cinemas and theatres re-open, it might be more difficult to justify spending my beer and skittles coin on crypto.

  I’m probably not the only bored lockdownee, which may explain the Gamestop, Bitcoin explosion, so I’m definitely not risking my or my family’s financial future on it.

  Current allocation <0.01%, expected max commitment of new funds to crypto is 0.2% of current net worth
• 5 AJ February 11, 2021, 6:47 pm

  It’s probably worth mentioning HMRC’s classification and treatment of Bitcoin. Their cryptoassets page is an interesting read in itself. Do you burden your estate with inheritance tax if your electronic keys die with you? Has anyone tried to approach an exchange regarding inheritance? Bitstamp at least seems to be UK domiciled but a quick look didn’t turn up anything related to bereavement.

  I don’t own any cryptoassets directly. I do own a small number of shares in a UK listed company that invests in companies in the sector. I bought them on a whim. They are now up over 1000% which seems like madness to me.

  You could create a Monevator coin with a willing software developer and a spare Saturday.
• 6 Naeclue February 11, 2021, 7:36 pm

  One way passive investors could choose their allocation is by market cap. The total value of US shares is about $50T. If the Bitcoin market was worth say $1T, you could allocate 1 part Bitcoin to 50 parts US shares. Similarly you could work out the proportions to put into bonds, gold, silver, land, etc. You would need to correct every year or so for newly created (and lost) Bitcoins, new share listings, etc., but broadly your wealth would passively move up and down as valuations fluctuated, with little need to churn your portfolio.

  Although I consider myself a passive investor, I have decided to set my exposure to Bitcoin (and gold, silver, ..) to zero – an active choice. As of last year I no longer hold bonds either, but that is another story. I will not invest in non-income producing assets. Now if a company existed to facilitate trade in Bitcoins, or produce Bitcoin (or gold,..) based products, that is different. I am prepared to benefit from any profits they might make.

  Prepared, but not happy. I am not happy as I really hate the enormous energy wasted on something that is completely futile and would rather have nothing to do with Bitcoins. The World would have got along just fine had Bitcoins never been invented. But I have similar attitudes to other things, such as tobacco and historically it has been hard to avoid shares in activities I would prefer not to profit from, whilst still remaining a passive investor.
• 7 The Investor February 11, 2021, 8:04 pm

  Now if a company existed to facilitate trade in Bitcoins, or produce Bitcoin (or gold,..) based products, that is different. I am prepared to benefit from any profits they might make.

  You could look at Argo Blockchain (disclosure: I own a few). It’s a bitcoin miner. Expensive-looking, though arguably not on a P/E basis if you believe the Bitcoin price will stay up here (I say arguably because it’s hard to know how best to depreciate the mining assets etc). Recently switched to a HODL model rather than selling the bitcoins it mines, so over time it should even move more to reflecting the prevailing bitcoin price.

  Although to your second objection, it recently did a deal to purchase a 300+ (!) acre site in Texas to build a new mining facility. At least it says “most” of the energy will be renewable.

  The energy thing annoys me a lot, too, although I suspect the real-world energy coins of say traditional High Street banking, all-in (printing paper, heating and lighting bank branches, pulping paper, petrol to move it all around, sandwiches for the security guards) is probably higher than we usually think about.
• 8 Naeclue February 11, 2021, 8:26 pm

  A company attempting to claim green credentials whilst mining bitcoins doesn’t wash. The world is currently short of renewable energy, so if someone is using some to mine bitcoins that is renewable energy not being put to better use. Once we are awash with clean energy, and we may be one day, then wasting some on this pointless activity would not be quite so objectionable. Even then I would prefer to see excess energy being used to do something like recycling our landfill or clearing the plastics from the oceans.

  The real-world energy cost of traditional High Street banking is a necessary expense and one that a lot of people are trying to reduce. It really does not compare with bitcoin mining. If you compared it to the tobacco industry you might have a point. AFAIK Bitcoins cannot cause cancer. Although they may ruin some peoples lives in other ways.
• 9 The Investor February 11, 2021, 8:40 pm

  @Naeclue — I am not trying to persuade you of anything. The fact is there is a real-world energy cost to keeping real world physical banking rolling. Do you know what it is? No, neither do I, but I’m prepared to guess it’s high.

  I’d also agree its falling, despite the ridiculous lobbying to keep redundant bank branches open by certain news outlets.

  I broadly agree with your environmental position, but the list of useless things that we do instead of sorting out those issues is extremely long. I am quite sure you’re invested in trillions of dollars worth of companies that are not actively advancing these causes and likely making them worse in many cases.

  (I won’t even buy plastic tat for my relatives’ kids for Christmas to add to their personal tat mountains. You can imagine how that goes down. 😉 )

  Singling out cryptocurrency for examination is perfectly valid, but hardly the end of the story.
• 10 The Investor February 11, 2021, 8:53 pm

  Just to add I had a Google and not surprisingly we’re not the first to wonder about this. 🙂

  Here’s a climate change blog suggesting Bitcoin was 3x more efficient than the traditional global banking system, albeit from 2018 so it’ll look less good today:

  http://climatestate.com/2018/01/15/energy-consumption-bitcoin-vs-banking-system/

  I have no particularly affinity with that figure, but as the piece illustrates our traditional banking system uses a vast amount of energy. There are links to other more mainstream guestimates, too, if anyone is interested.

  Another comparison would be with the gold extraction industry. I’ve read enough mining reports talking about extracting ounces of gold from tons of raw material to know that industry is guzzling energy, too, at a clip, and virtually none of it will be renewable.

  I am definitely not making a claim for Bitcoin as an environmental win. I’m just pointing out it’s complicated. 🙂
• 11 Naeclue February 11, 2021, 8:58 pm

  @AJ, the HMRC treatment page is interesting. The statement “HMRC does not consider the buying and selling of cryptoassets to be the same as gambling.” essentially says it all. If you are carrying out a trade involving buying, selling or mining, cryptoassets are subject to income tax (or CT if incorporated), otherwise it is subject to income tax for receipt of coins/fees from mining and capital gains tax for changes in value.

  This puts cryptoassets at a disadvantage to gambling, which is free of tax (unless gambling is your trade), or investing in gold sovereigns, which is free of CGT.

  As regards IHT they are treated as any other property, so need to be valued as of data of death, subject to estate CGT if the price rises on disposal, etc.
• 12 Matthew February 11, 2021, 9:53 pm

  It cant really function as digital gold because it’s risk on, and it can’t function as a currency because its too volatile. One day every password will wind up forgotten and scarcity might limit the prospect for utility. All this is is speculative FOMO, it’s hard to see it be more than a ponzi scheme that hasnt peaked yet. It did open up to a massive new market with us regular investors considering it, but we would steady the ship and make it correlate more to other assets, there ultimately has to be a limit to what people can or will put into this, and surely now the cat is already out the bag, the good profits already creamed, will people try to look instead to the next bitcoin?

  I suppose like with gamestop there will always be the get rich quick crowd so it might pay to ride the early days of every fad, although I bet theres one of the esteemed hedge funds for that – if they cant reliably do it and work their way into my index what hope do I have?

  And yes, the tesla example shows that exposure will come automatically with success
• 13 Algernond February 11, 2021, 10:53 pm

  Not sure about the Rihanna analogy… since I don’t think she’s a long term store of value. The again, maybe bitcoin won’t be either…

  Does the shares / real assets (not bonds) part of portfolio effectively hedge for Bitcoin supplanting fiat currency, since those shares / real assets would become valued in Bitcoin?
• 14 c-strong February 11, 2021, 10:56 pm

  I was always disdainful of bitcoin when I viewed it as “just” a currency. I was partially turned around by listening to Zac Prince of BlockFi on the Animal Spirits podcast (27 November 2020) who made a very compelling case that it isn’t like any one traditional asset, but has elements of many of them. I can’t do justice to it here but would recommend if anyone is interested in learning more – he is way more convincing than the usual “fiat money bad, HODL forever” crowd.

  My problem though is that I’m a value guy, and (a) there is no way to value bitcoin and (b) I’m inherently suspicious of something that (with Tesla) is basically the poster child of the “everything bubble” that we’re in now. So by dint of squinting at the last few years’ price chart I decided on a target price of $10k. I think it could easily go back down to that level (look at how the price of gold has fluctuated over the years), but if it doesn’t I have absolutely zero FOMO when it comes to bitcoin – if I never have a holding I won’t lose any sleep over it.
• 15 Nivex February 12, 2021, 10:14 am

  The other complication with considering the energy cost is that some energy is surplus and can’t be transported so mining bitcoin near to a hydroelectric dam isn’t necessarily using energy that could be used somewhere else for something more useful. Plus as others have pointed out lots of energy isn’t used for actually useful things – how does bitcoin compare to mindless doomscrolling / watching Tiger King / leaving hall light on / buying a new car every three years and driving it to the shops?
• 16 Mark February 12, 2021, 10:32 am

  Just a comment about the X number of accounts hold Y% of all bitcoins. This ignores that most of these accounts have several ultimate beneficiaries behind them. They are either exchanges, custodians or funds. Or even companies, like Tesla, with millions of shareholders owning them in turn. By a similar logic, 20% or whatever of all US companies is owned by just two firms, Vanguard and BlackRock.
• 17 G February 12, 2021, 10:32 am

  A few years ago, I thought it looked interesting enough to put £1K in (a fraction of a % of my overall wealth). I figured if it 100x, I’d be kicking myself at missing out on a reasonably life changing sum. If it went to 0.01x, it would be a good lesson. Currently bouncing between 6x and 7x. Not enough to consider rebalancing/taking out the original investment.

  I think I agree with you. It gets more credible as a store of value the more people are in it – not unlike other network based technologies. A Facebook with one participant has little value, but one with 1bn participants has rather more.

  It seems to me there are technological problems with it in the long term, but that the brand is strong enough and there are enough big players in it for those to be surmountable.
• 18 Daniel Stevens February 12, 2021, 11:00 am

  As a very basic observation, the minute a sovereign country feels that BTC might represent a risk to the financial system/reduce tax revenue/reduce their levers of control, it will be regulated out of existence by banning transactions and penalizing use. The launch of the Digital Yuan, and the inevitable launch of more practical subsequent ‘sovereign’ blockchain based digital currencies will be the death of BTC.
• 19 two shillings and sixpence February 12, 2021, 12:07 pm

  There was an episode of BBC money box about crypto currencies awhile back. What struct me was the amount of fraud around crypto currencies, being sold fake currencies Or being tricked out of your coins through hacking. I guess the same could be said for many investment. The digital wallet seems to be the best option. I haven’t ventured to buy so far.
• 20 Factor February 12, 2021, 2:17 pm

  @TI – If you were serious when you said, “I have no idea what a hackle is …..”

  A dictionary definition is, “the hairs on the back of some animals, or the feathers on the back of the neck of some birds”. The Darwinian explanation perhaps being that the raising of such hackles makes the animal/bird look larger when facing a rival/enemy.
• 21 MrOptimistic February 12, 2021, 3:37 pm

  Yep, specifically the hair on the back of a dog’s neck which is a indication of aggression and impending attack.
• 22 Naeclue February 12, 2021, 4:20 pm

  @Nivex, that’s a whataboutery argument. Dubious activity X is somehow acceptable because dubious activity Y takes place.

  @G “I think I agree with you. It gets more credible as a store of value the more people are in it”. That’s probably what tulip bulb investors told themselves.
• 23 Matthew February 12, 2021, 4:45 pm

  Pyramid schemes tend to have a lot of members as they get bigger…
  If it crashes and a lot of people leave it suddenly loses its true value with it?
• 24 Nivex February 12, 2021, 5:07 pm

  @naeclue – that’s fair enough I suppose
• 25 G February 12, 2021, 6:36 pm

  @naeclue – there’s a tipping point with any system relying on network effects where it becomes unstoppable (at least until a better thing comes along).

  I don’t think Bitcoin is quite there yet, but it may not be far off and nor does it have the obvious momentum of the early days of the WWW. I remember logging onto a website in 93 which listed the new websites available every few days. Over the space of a few months it went from under a dozen or so a week to hundreds (and then they gave up tracking). The pricing of bitcoin is obviously exponential, but the use cases of it is not. It might still be in the early disruptive phase tech wise, and the pricing suggestive of hype.

  The key problems with tulips, of course, are it’s relatively easy to make new ones and only the Dutch are really obsessed by them.
• 26 John Bray February 12, 2021, 7:07 pm

  Anyone considering investing in Bitcoin needs to wrestle with their conscience if they care at all about the environment.

  Annualized Total Footprints

  Carbon Footprint 36.95 Mt CO2 Comparable to the carbon footprint of New Zealand.
  Electrical Energy 77.78 TWh Comparable to the power consumption of Chile.
  Electronic Waste 11.74 kt Comparable to the e-waste generation of Luxembourg.

  Single Transaction Footprints

  Carbon Footprint 306.12 kgCO2 Equivalent to the carbon footprint of 678,462 VISA transactions or 51,020 hours of watching Youtube.
  Electrical Energy 644.46 kWh Equivalent to the power consumption of an average U.S. household over 22.09 days.

  https://digiconomist.net/bitcoin-energy-consumption

  I think these figures are appallingly wasteful of energy, and I won’t touch Bitcoin because of them
• 27 Naeclue February 12, 2021, 7:14 pm

  @G, “The pricing of bitcoin is obviously exponential” Eh? You have looked at the price chart haven’t you?

  “It might still be in the early disruptive phase”. What is it disrupting? Clearly failed to catch on as a currency. Now touted as “Digital gold” instead, but we already have digital gold in the form of ETNs, etc. and digital gold trades with far less friction (and energy use) than Bitcoin. I guess you could wrap up Bitcoin wallets or whatever in notes and trade the notes, but why bother?

  @Daniel Stevens, this would not surprise me at all. Or Bitcoin may be just overtaken by other technological developments. Either possibility must surely be a significant risk.
• 28 ZXSpectrum48k February 12, 2021, 8:02 pm

  I bought a Rolex in 2005 for £2.5k. I don’t wear a watch anymore so it’s been stuck in it’s box for a decade. Last year, dug it out of the attic and sent it off to be given a service. Startled to find they would buy it for £12.5k. Thing is: it was a crap watch. Just a lump of steel. Didn’t even tell the time very well. Frankly, the £50 Seiko I owned as a student was a far superior watch.

  In a world where people have significant excess wealth and savings, the prices of things often have little relation to the value ascribed to them. Bitcoin (XBT) is just like Gold, Kim Kardasian or a Rolex. Completely pointless but if enough Homo Sapiens want these the price goes up. Until fashion changes.

  So I own a bit of XBT (and Ether). I don’t like them but I don’t like Instacrap, Facetweet either. Yet they are all buried in my portfolio somewhere since other humans do assign value to them.

  Of course, if there was a “Bezoscoin” it would be different. If that was backed by the revenues of Amazon, that really would be “digital gold”. More credibility than the Fed, BoE and ECB combined.
• 29 diy investor (uk) February 12, 2021, 8:08 pm

  A couple of years back I was reading the David Wallace-Wells book “The Uninhabitable Earth”
  http://diyinvestoruk.blogspot.com/2019/03/the-uninhabitable-earth-review.html
  It pointed out that the energy used in mining Bitcoin was greater than that generated from all the worlds solar panels.
  I would not wish to speculate with holding such an energy-hungry form of currency and I believe it should play no part in a portfolio of anyone who cares about the climate crisis.
  I believe it was an error of judgment by Musk this week and I decided to offload my Tesla shares.
• 30 bingo February 12, 2021, 8:26 pm

  @naeclue
  You’ve disappointed me. Clearly Godwin’s law for bitcoin applies even on the monevator site: “As an online discussion about bitcoin grows longer, the probability of a comparison involving tulips approaches 1”

  No doubt the South Sea Bubble will be along shortly.
• 31 Nivex February 12, 2021, 8:30 pm

  Well Taleb himself has tweeted he is getting rid of his…
• 32 Peter February 12, 2021, 8:56 pm

  The narrative around Bitcoin has been changing, and it has been changing for many years. I remember reading an article on december 2nd, 2017, where the author wrote that “For what it’s worth (not much) I think bitcoin is in a bubble. Probably.”

  At the time, Bitcoin was worth $11.000. So… was Bitcoin in a bubble then, because at one time, it was worth $100? Probably, when Bitcoin was worth $100, it was in a bubble because Bitcoin was once worth a few cents. And so, now, Bitcoin is in a bubble because, you know, once, it was worth only $11.000?

  I believe it’s pointless, impossible, to declare Bitcoin a bubble (or not) just by looking at the price.

  It makes more sense to look at the Bitcoin ecosystem, and look at how it’s changing. Fact is, a lot of money is going into Bitcoin, not only in direct investments (Tesla, MicroStrategy, …) but also in growing the ecosystem itself.

  You have companies like Grayscale that are catering to institutional investors, buying up more Bitcoin than is being mined. You have Blockfi, Nexo, offering very lucrative interest rates in exchange for storing Bitcoin with them, up to 8%.

  It seems like only yesterday, I read that JPMorgan’s CEO, Jamie Dimon, threatened to dismiss any of his employees when caught having anything to do with Bitcoin. Today, I read that JPMorgan co-president Daniel Pinto said that the current demand “isn’t there yet” for the firm to get into Bitcoin, but he is sure that “it will be at some point.”

  Also, as more and more money is being thrown at Bitcoin, the stakes are getting higher and higher. More and more people, and more and more powerful, influential people, will get involved. I believe this will also decrease any chance of Bitcoin getting banned. And, why would governments ban Bitcoin, if they can tax Bitcoin gains? Isn’t taxing much easier and more lucrative than banning?

  Bitcoin has been declared dead almost 400 times (https://99bitcoins.com/bitcoin-obituaries/). Yet, to me, it seems to be thriving. Maybe you’re a believer, perhaps even a HODLer. Or you think its a pyramid scheme, destined to die Any Day Now. Or perhaps you’re not sure what to think of Bitcoin.

  I believe that, really, it does not matter what you think about Bitcoin.

  Consider this. You invest 1% of your wealth in Bitcoin today. Tomorrow, suddenly, Bitcoin dies. Will this hurt? Yes. Will this seriously impact your future wealth? I don’t think so. You’ll live.

  Now consider this: you invest of 1% of your wealth in Bitcoin today. In a couple of years, it’s x10. In 20 years, it’s x100. Will this seriously impact your future wealth? Yes! The risk profile is asymmetric. Worst case, you stand to lose a little, but best case, you stand to win a lot. What’s not to like?

  As Grayscale Investments CEO Michael Sonnenshein recently said about Bitcoin, the question is no longer “why”, it has become “why not”.
• 33 An Admirer February 12, 2021, 9:15 pm

  > There’s the same self-fulfilling quality to Bitcoin.

  I think you’re being selective here. It’s certainly self-fulfilling but Bitcoin is not a fiat currency and hence there are no tax payers to be called upon to prop it up.

  > What do you think is the future of Bitcoin?

  It gets more and more expensive to transact Bitcoin in electricity/energy terms over time in a linear fashion by design. There is a “moral hazard” because miners receive Bitcoin for mining/processing transactions – so the Bitcoin price needs keep rising to subsidise the increasing energy cost of mining and because the “spice must flow”, transactions must continue which people want to do because the price keeps rising etc. It’s a beautiful speculators market. Perhaps even a physical limit will be reached – like we (humanity) cannot build power stations fast enough. Perhaps confidence/the price will drop so it then costs more in electricity/Bitcoin “reward” for miners to transact a Bitcoin than it’s worth. I’m sure one could calculate this cost point. Perhaps Greta will shame the Western speculators out. But digital gold, it is not.

  > It’s estimated 1,000 whales control 40% of the market.

  What could possibly go GameStop – I mean – wrong? (Apart from that whole power station problem).

  > Bitcoin will be controversial all our lives.

  I’m pretty sure I’ll outlive it 🙂

  > Owning Bitcoin over the past five years would have turned $1,000 into $118,000. That’s an annualized rate of 259%.

  As a wise man once told me – ride that gravy train until it hits the buffers.
• 34 An Admirer February 12, 2021, 9:22 pm

  @ZXSpectrum48k

  > Of course, if there was a “Bezoscoin” it would be different. If that was backed by the revenues of Amazon

  Facebook two years ago introduced Libra with plans to physically back it via money market funds. The government reactions to this have been very interesting because it would effectively grant Facebook it’s own (controlled) currency – the implications of this are wide reaching (sovereignty, even). Well worth a dig if you’re interested.
• 35 FullTimeFinance February 12, 2021, 11:12 pm

  Is there a third option? In all seriousness I believe crypto currency is the future. But…
  Bitcoin is just one of many possible currencies that represent that future. Eventually one or two will come out on top, and first mover status of Bitcoin does not guarentee it will be the one. So no I won’t buy Bitcoin as there is no guarentee it won’t go the way of MySpace to be replaced by some other coin. Theoretically I could hire an expert coder and build a better coin tommorrow. Then FTF coin could be the future. Sadly there is no way to invest in the underlying technology.
• 36 bingo February 12, 2021, 11:35 pm

  @ An Admirer
  “As a wise man once told me – ride that gravy train until it hits the buffers.”

  One doesn’t have to be all that wise to apply a profit-taking strategy that siphons off the gravy while the train is running and leaves one with a tidy boatful when and if the derailment occurs.
• 37 Matthew February 12, 2021, 11:56 pm

  Riding gravy trains = momentum = not expected to beat passive
  Also good points about carbon cost of bitcoin, certainly helps with fomo, maybe ESG funds should exclude bitcoin holders
• 38 bingo February 13, 2021, 12:10 am

  @Matthew
  I don’t fully understand your first point. Buying btc and selling fractions thereof to realise profit is certainly expected to beat passively hodling until the price crashes to zero. Only a btc zealot would advise NEVER selling.
• 39 The Investor February 13, 2021, 12:36 am

  @all — We’re degenerating into short comments that don’t add much substance here. I appreciate the interest in the topic and the post, but these short 1/2 liners aren’t really great for this blog comment format. Better to follow the lead of commenters who write a more substantial comment that covers their various points.

  If you’d rather not comment under such onerous restrictions no worries! Cheers and have a great weekend. 🙂
• 40 Steve B February 13, 2021, 2:25 am

  Did someone mention “Bezoscoin”? https://www.techradar.com/uk/news/amazon-set-to-launch-its-own-bitcoin-rival

  Bitcoin rival looks a stretch to me based on the job descriptions but even accepting Crypto on Amazon for purchases would be another massive step to normalisation.

  Speaking personally I was sceptical and most definitely bought into the “It’s a fad in a bubble” glib assessment and let the various peaks and crashes was over me these last few years.

  However various Monevator links in recent times prompted me to actually read and think about the subject. I’ve now fully come round to the asymmetrical risk/reward point of view with a healthy dose of FOMO providing a final push – can’t deny the Finumus post was an eye opener.

  Pushing 5% of fresh monthly investments towards crypto is not going to derail anything and certainly provides some interest in my portfolio. Although I can’t lie when I see my £20 “Test the exchange” purchase of SXP go up 200% in 3 weeks I tend to think something is too good to be true and I’ve likely missed the boat!
• 41 Matthew February 13, 2021, 7:02 am

  @bingo – with bitcoin you can assume that all traders are playing this same momentum trading game, so by simply hodling you get the average of everybody’s experience (including the lossees) but without the trading fees – trading fees hidden in the spread. It’s the same with stocks – its hard to beat the average on average if youre paying fees. Remember too that especially with bitcoin there is survivorship bias – by and large you’re only hearing good stories from the lucky.

  Consider that all along hedge funds have been free to do this as much as they like, but all this time have failed on average to beat the s&p 500, these paid professional city experts are therefore either terrible at valuing bitcoin or timing it – and if they cant do it what hope do I have.

  If trading was really a profitable activity, youd find trading companies work their way into the s&p, so by simply indexing you automatically own anything that works and slowly drop what doesnt. The trading that other people do transfers some of the gains of previous gravy trains to new ones so thats why companies that make profit today and go bust in the future are still reliably adding to the indexer’s return.

  If you dont want to Hodl Bitcoin forever youre admitting there are limits to your faith in it
• 42 JJ72 February 13, 2021, 8:46 am

  It might be easier for some to get on board with something like BCHS, a blockchain etf with exposure to companies with exposure to bitcoin and some miners I think. Also some bigger beasts with a tangential connection. But perhaps offers a gentler way into things.
• 43 Tim February 13, 2021, 10:03 am

  Ref all the comments on energy use, I have started working my way through the course on Bitcoin on saylor.org. According to that, the banking system uses 2340M GJ of energy a year, gold mining 475M GJ and Bitcoin mining 183M GJ. There’s a whiff of media sensationalism going on methinks.
• 44 Tom-Baker Dr Who February 13, 2021, 10:08 am

  Great article, TI, thanks.

  Ray Dalio published recently his thoughts on bit coin and other crypto currencies (https://www.bridgewater.com/research-and-insights/ray-dalio-what-i-think-of-bitcoin). There’s some quantitative analysis and he makes some very interesting points too.

  One of Dalio’s points is that there’s a real possibility that bit coin will be replaced by a new technology. This is something that I have thought about since before the first rally. I think this new technology is already here and it is about to revolutionise the whole internet: quantum cryptography. It’s so mature that the first bank ATM transaction using quantum cryptography already happened back in 2004 (https://www.newscientist.com/article/dn4914-entangled-photons-secure-money-transfer/) and the US military has probably been using quantum cryptography for secret communication even before that.
• 45 John Bray February 13, 2021, 11:01 am

  @Tim, but bitcoin only does about 5 transactions a second, Visa does 1700, the world digital financial system probably 5 times that, and cash/m-pesa 5 times again.

  If Bitcoin became universal for buying coffee, its energy consumption would rise 10000 fold

  And as soon as someone comes along with a digital currency where rarity is guaranteed by proof-of-stake rather then proof-of-work, its energy consumption will be minimal by comparison. And Bitcoin will die.
• 46 SemiPassive February 13, 2021, 12:36 pm

  I’m going to wait until iShares bring out their Physical Bitcoin ETF so I can add to my SIPP at between 1-2.5% of asset allocation. By that time it should have already reached $250,000 in value and be due a 99% correction the day after I buy.

  But in all seriousness I did catch myself keenly watching the Microstrategy share price a lot this week and watched some of Saylor’s interviews on youtube. I think that is one of the few Bitcoiny proxies UK investors are still allowed by the FCA to buy in a tax wrapper account.
  Think the Canadian regulators have just approved a new bitcoin ETF – but not sure if the FCA will allow that to be traded by UK investors in GIA/ISA/SIPP accounts.
• 47 The Investor February 13, 2021, 12:42 pm

  @all — Some good thoughts here on both sides on the pros / cons, and some kneejerk responses from people who’ve made no effort to understand the technology and are just repeating what everyone has been saying for a decade. (No worries, I am definitely not saying anyone needs to own Bitcoin! Just saying why I don’t take throwaway cliches very seriously 🙂 ).

  A few quick replies.

  Firstly, I wouldn’t hold your breathe waiting for an alternative coin on the grounds it will be ‘better’. There are probably already better coins out there among the hundreds of candidates. Bitcoin is valuable because people think it’s valuable and so they own/use it. And the more people use it, the more valuable it gets. This is *not* a trivial point. It’s a deep, deep point, although hardly revolutionary. It underwrites the investment case in my view.

  The world is full of less optimal solutions that thrived. I’m typing on a QWERTY keyboard that was designed to slow down typists back when the key levers used to jam. Older readers will remember VHS video tapes, that were worse than Betamax. The internat protocol TCP/IP is non-optimal, but good luck changing it.

  Could another coin displace Bitcoin on utility grounds? Maybe. I suspect more likely it would be an alternative.

  I accept energy is an issue, and it could get a lot worse. There may be ways around this (for instance using the byproduct heat of server farms in more useful ways, or putting all your farms next to new build renewables in crappy places in the world) but it’d clearly be better if it didn’t use a lot of energy. As those who’ve studied crypto know, the energy use is a feature not a bug, in as much as it’s supposed to be obtusely computationally complicated. It’s a real shame Satoshi didn’t link the calculations to something tangential useful in other fields, but we are where we are and maybe it would have borked the incentives.

  I did mention quantum computing in the piece, from memory, though perhaps in a footnote. It’s a factor. Maybe some of the whales with billions in bitcoin could orchestrate some sort of transition to a new ‘Quantum Bitcoin’ that preserves the blockchain as is if Bitcoin starts to look vulnerable as is. There’s $875bn with a stake in Bitcoin succeeding.

  The issue of lost passwords slowly de-capitalizing the base of bitcoins is interesting. Personally I think the whole having a password thing will disappear over time. Sure you’ll always be able to get a private wallet and your bitcoin, just like you can withdraw £1m from your bank account and keep it in a wheelbarrow in your shed if you wanted to. Who does? I think Bitcoin if it survives will likely become buried under layers of platforms, wallets, and other architecture. In as much as a I have a non-store-of-value thesis for Bitcoin, it’s the ‘Bitcoin maximalist’ one that says you can do most things you’d want to do with a private blockchain using Bitcoin (i.e. you don’t actually need smart contracts on the blockchain) with a software layer on top, so why bother with the rest when you can use the best? 😉 But who really knows, this is clearly an emergent technology.

  As others have said, it’s hardly worth getting massively worked up about unless you’re putting a crazy amount of money into it. I began with far less than 1% of my net worth in Bitcoin, now it’s more than 1% but I’m more comfortable with that as it’s because Bitcoin has gone up, not because my other stuff has gone down. I’m happy just to HODL it and see what happens.

  Smart people who’ve looked at it hate it, and other smart people who’ve looked at it have 10% or more of their money in it. Some smart people have changed their minds in either direction. It will probably ever be thus.

  I don’t expect to ever buy a hotdog with Bitcoin, but from today’s imperfect vantage point I’d be surprised if it doesn’t always merit a line in my personal accounting spreadsheet. 🙂
• 48 bingo February 13, 2021, 12:55 pm

  @Matthew
  We’re slightly at cross purposes, probably not helped by the ‘gravy train’ metaphor. I wasn’t suggesting trading in btc, but more of a buy once, sell little and often approach. I absolutely don’t have complete faith in btc retaining it’s value forever, but if there’s a sustained rise prior to any calamitous crash, then wise coiners should already have locked in a profit. Of course, if the price only ever falls from it’s current peak, then that doesn’t work. But my point is that a crash to zero at some future date isn’t necessarily something to be feared.

  @John Bray
  As for a better ‘bitcoin’, being developed in the future, then again that’s quite possible, but I don’t see that necessarily rendering btc worthless. It’s still not going to be trivial to generate a btc, so I can imagine btc retaining an exchange value against whatever digital currency ultimately prevails
• 49 tom_grlla February 13, 2021, 2:48 pm

  To reiterate, I hope, one of TI’s points, I think one of the most important things if you buy Bitcoin is to know WHY you are doing it.

  I do not think anyone can seriously consider BTC to be a currency (though I acknowledge it’s subjective) due to e.g. a) volatility in price b) transaction times. It is effectively a ‘trading sardine’ (some people will know what I’m talking about).

  When you invest in a company, you own part of something that is hopefully growing, and producing cash, which you can share in. Property will produce rental income.

  In contrast I still see Bitcoin as a speculation that you can’t value in any traditional way – except possibly by looking at gold – Druckenmiller made good points about the idea of their success being linked to the power and duration of ‘the brand’.

  I note @Peter’s point that it’s an assymetric risk profile, but you could argue that so is a bet at the horse races or casino.

  Anyway, personally it seems entirely reasonable to put 1-3% of your portfolio in it, though there’s a whole other can of worms in what ‘part’ of your portfolio you put it in. Six months ago, I was thinking of it alongside gold as an inflation hedge (limited supply), but right now I’d put it alongside mid-cap hhhypergrowth tech stocks i.e. risk-on high beta equity.
• 50 FullTimeFinance February 13, 2021, 7:52 pm

  ‘ Bitcoin is valuable because people think it’s valuable and so they own/use it. And the more people use it, the more valuable it gets. This is *not* a trivial point. It’s a deep, deep point, although hardly revolutionary. It underwrites the investment case in my view.’

  The problem with this arguement is it could be made for literally any bubble. Beanie babies got ultra expensive in the 90s because people thought it had value. Then they didn’t and that was that. Unlike a company there are no real moats to slow down an alternative coin. Theoretically since the copyright is in question one could even name it similar to Bitcoin. There are just no protections at all for copy cats. One good crash is all that’s needed to change peoples sentiment.

  Your example of beta falls apart when you think about the value today of a vhs tape or even once a dvd came through. The problem inherently is the bitcoins value is solely tied to interest in it.
  unlike had you invested in blockbuster in the 80s and there being residual later on due to real estate and cash holdings to move forward, Bitcoin has none of that. At least with gold no one has managed to copy its attributes wholesale.
• 51 FullTimeFinance February 13, 2021, 8:16 pm

  I guess what I’m saying is it’s practically a cliche in marketing that the second mover eats the first movers lunch. Will it happen, no idea. But until we get to the point where Bitcoin actually underpins something else like TCP/IP does there is no reason to believe it will be the winner.
• 52 Matthew February 13, 2021, 10:13 pm

  @bingo – That may not be -day-trading, but trading nonetheless in my book – trying to time the market, trying to value it, selling or buying for timing/valuation reasons – sins in the Church of Bogle. Of course there are shades of active I suppose, the thing is that a dividend paying index with proven underlying assets that change automatically is something you can reasonably expect to hodl, wheras a single holding in a currency with no dividend is not, and if someone approacted bitcoin like a passive investor trying to hodl, they’d want to own everything and not one asset – so nearly all involvement with bitcoin is trading, or active investing at least

  Timing is hard, valuation is hard, everything already known is already in the price, and serious professionals have ultra fast computers to cream any arbritage or momentum faster than we could react as humans – you need to know something everyone else doesn’t or have a crystal ball, or luck
• 53 Onedrew February 14, 2021, 11:48 am

  Claims about energy usage and the concomitant cost of mining Bitcoin seem to vary a lot, so a couple of weeks ago I decided work out how much it would cost me to mine some. Amazon was advertising the Antminer S19 PRO as a top spec miner and this runs at 3.25 watts and gives an estimated mining rate of 0.0012 Bitcoin a day. That 3.25 watts a day is 78kWhours of energy so it would take 833.33 days or 65,000 kWh to mine one Bitcoin with this machine. I pay Bulb energy 16p a kWh, so £10,400 to mine one Bitcoin. My Dualit kettle runs at 2.4kW, so the energy consumption would be equivalent to boiling it non-stop for 1,128 days which does seem wasteful. Investing.com is showing BTC at $49,219 as I write, so there’s a good profit. But 0.0012 Bitcoin a day is probably an overestimate today and you cannot actually mine one Bitcoin, as they come in blocks of 6.25.
  If there were a physical (?) ETF from a reliable provider like Blackrock or Vanguard I would probably make it 2% of my portfolio and within an ISA as otherwise the paperwork could become tedious.
• 54 MrOptimistic February 14, 2021, 1:03 pm

  Bitcoin to me seems to be the embodiment of FOMO and it’s success is owing to publicity and chatter which has generated a collective response. GameStop wouldn’t have been an issue if widespread communication hadn’t generated a volume of coordinated action. However there was a tangible business there, not a virtual act of imagination.
  If compared with something scarce like vintage burgundy, the wine is also of limited supply, takes great effort to produce and has grape farms. How does bitcoin differ from something like that ( accept that its a virtual artefact and can’t be drunk). If the price of vintage wine shot up would we be thinking of allocating it to our core portfolios as a long term hold?
• 55 Tedious Pseudonym February 14, 2021, 4:27 pm

  tl;dr – if you buy your Tesla Model 3 using Bitcoin, then just that one transaction will use enough energy to be able to drive it for almost 3,000 miles. If you buy it by credit card, you wouldn’t be able to get it out of the dealership. That is how jaw droppingly inefficient Bitcoin is, and why it’s just a farce.

  I think people don’t really grasp the sheer enormity of the energy required to manage transactions on the bitcoin blockchain, and how its a) getting worse by design and b) the structural limitations of bitcoin that mean it’s not very useful as a practical tool.

  It’s currently using about 40% of the entire electricity usage of the UK. Every lightbulb, kettle, TV, electric car, industrial robot. All of it. Just to handle what you could do in Excel quite easily – see below. Ouch.

  The comparison between global banking including branches and so on, vs the core energy of bitcoin mining, is absurd for a few reasons. Firstly, bitcoin is a transaction processing system, and a database of those transactions. It isn’t an ATM, it isn’t something that people can interact with physically, so why compare it to anything but online banking and transaction processing? What about the energy used by all the platforms?

  The biggest bit by far however, is the difference in scale. Bitcoin, for its (gulp) 125 _Terawatt_ hours of annual consumption, can only process (again, by design) about 6 transactions a second, globally. Visa, by contrast, handles an average of 4,500 transactions a second, and their systems can handle a burst load of 65,000 transactions a second. And that’s just Visa. Visa has calculated (or had someone calculate) their global energy usage, at 740,000 Gigajoules a year – including travel, offices and so on. This is 0.2 Terawatt hours. And includes a lot more than their technology.

  So, to reiterate, Visa will process around 250 _billion_ transactions this year. Bitcoin will handle about 100 _million_. That’s 2,500x less transactions, for 600 times greater energy usage (and more realistically 2,000 or more times, as Visa’s energy includes all sort of non transaction processing uses).

  It’s like saying “oh, I can fly by myself on a Global 6000 because the air travel industry emits 1000x more carbon than private jets do”. Err, yes, but they handle many thousands of times more people.

  Because of the way it works, as more coins are mined, it gets harder and harder – so the energy required will go up exponentially, either massively slowing down transaction processing, or requiring ever greater value of bitcoin to be paid just to process your transfer.

  Bitcoin usage – https://www.cbeci.org/
  Bitcoin transactions – https://www.blockchain.com/charts/transactions-per-second
  Visa usage – https://usa.visa.com/dam/VCOM/download/corporate-responsibility/visa-2019-corporate-responsibility-report.pdf
• 56 The Investor February 14, 2021, 9:16 pm

  @all — Enjoying the discussion. 🙂 As I said in my piece, I don’t see Bitcoin being used as a currency. It will never do transaction numbers like Visa or even a fraction of them. Others (some of whom know a lot more than me about blockchains) disagree but that’s how I see it. It helps I’m not fueled by monomaniacal hatred of the current financial system. 😉

  As I also said in my piece, I’m something of a Bitcoin maximalist (oxymoron? or just moron haha) in that I think Bitcoin can underpin other systems — possibly other coins/tokens/blockchains, or maybe just software that periodically reconciles to Bitcoin as the ultimate underlying store of value (where ‘periodically’ might be every minute or every hour or every second — again, I’m not expert). The key thing Bitcoin does it does well; everything else it does poorly. So I suspect systems will evolve around that.

  Finally, energy is undoubtedly a massive issue but from what I’ve read over the years it really does seem more nuanced than just ‘Bitcoin is guzzling the world’s energy’. Would China really be allowing so much Bitcoin mining at the same time as it’s sticking up coal-fired power stations and pursuing various energy reducing measures such as electric cars by fiat? Perhaps, if it sees it as a way to get dollars or whatnot, I suppose, but it seems more like that the energy that’s being used by China’s extensive Bitcoin mining wouldn’t be being used otherwise.

  I’ve heard this put down to over-investment in hydroelectric dams. Iceland, from memory (possibly Greenland but I think Iceland) also has an overabundant supply of geothermal energy, which meant that previously it did a lot of energy-intensive industrial stuff that was shipped back and forth around the world. Effectively it ‘exported energy’ via this process.

  You could easily imagine many more bitcoin miners being set up in the middle of deserts using solar power if there really is an energy constraint in the future — it’s easy to distribute the output of a Bitcoin mine — you can do it without wires, via satellite. It’s significantly expensive if not prohibitive to transport energy long distances (though Australia is revisiting the idea of supplying energy to Singapore via cable, hopefully from solar!)

  I’m not dismissing the concern at all. I understand if you don’t see any point in crypto or you think it’s just an expensive Ponzi scheme then the idea of new solar powered bitcoin mines in the Outback will seem like yet more absurd and pointless folly.

  I can only say again that a lot of what person A considers folly person B considers really important. You almost certainly do a lot of stuff I don’t do, and a small amount I’d probably do a way with (e.g. your second, petrol-fueled car).

  That’s why we have markets. 🙂
• 57 Matthew February 14, 2021, 9:58 pm

  @TI – so as soon aa we develop decent (and perhaps portable) energy storage for renewables (ie hydrogen or simply pressurising gas) then bitcoin is done for? Since then there would be no excess renwable energy.
  (nuclear would also be obseleted by that)

  Also technologies might be built around blockchain, but I dont see how it involves anyone buying bitcoins to reverse engineer them or anything
• 58 Naeclue February 14, 2021, 10:06 pm

  @Peter “Consider this. You invest 1% of your wealth in Bitcoin today. Tomorrow, suddenly, Bitcoin dies. Will this hurt? Yes. Will this seriously impact your future wealth? I don’t think so. You’ll live.”

  Beware the patter of the snake oil salesman. Fall for that yarn and next week he will be back with an even better opportunity for you. “This new crypto coin could be even better than Bitcoin and you could be in at the start. Just put in 1%, you won’t miss that”, the following week, “Ever heard of Asos? This microcap could go the same way…”.

  All those 1%s can quickly add up.
• 59 Peter February 14, 2021, 11:24 pm

  A lot of the discussion here centers around Bitcoin’s energy usage.

  As previously mentioned, Bitcoin is using a Proof-Of-Work (PoW) system, which is by design. It’s not a bug. No doubt, at the time, it was the best possible solution, to ensure the safety of the Bitcoin network. So far, so good, Bitcoin has survived for many years, and, no doubt, countless attempts at hacking it. It’s still here, and that by itself means something.

  Alternatives to the PoW system do exist, do not use the same amount of energy, and have been in use for years. Dash is a fine example, which uses Proof-Of-Stake (PoS).

  Also, keep in mind that Bitcoin, like all other crypto currencies, underneath, it’s just software. And software happens to be one of the most adaptable things in existence. Nothing is set in stone! It is not beyond imagination that Bitcoin could be changed to use PoS instead off PoW. In fact, Ethereum is already doing exactly that. There is no fundamental reason that Bitcoin could not do something similar, if and when this is deemed – or becomes – necessary.

  Which brings me to my final point. Bitcoin has the first-mover advantage, and is currently bigger than all the other crypto’s combined, in market cap. Other crypto’s have implemented other ideas and some have advanced capabilities that Bitcoin lacks at the moment, that much is true. However, I doubt this will challenge Bitcoin’s dominance, as Bitcoin can be adapted, if necessary. After all, it’s just software… all it requires is an update to the code base, and an agreement by a majority of the miners to run the new version. This has happened before, and will happen again, when necessary.
• 60 Tedious Pseudonym February 15, 2021, 2:22 pm

  @Peter – absolutely true – but also one of the reasons that undermines the whole “truth” on which Bitcoin is sold to the great unwashed who don’t have a clue as to how it works. It can be changed – the “limit” of 21 million coins is wholly arbitrary.

  What can’t be changed without a truly spectacular one is the PoW, and nor can the limit on the number of transactions.

  You absolutely can avoid the transaction limit by doing things “off chain” – which happens all the time. It does again, however, undermine the whole purpose of it all, because you’re then giving your “money” to a centralised entity (or network of entities), e.g. Coinbase, and allowing them to move things around in internal accounts to avoid having to actually transact it on the real ledger. There’s thus then no point in Bitcoin itself – it could be gold or pork bellies or any other commodity, and you’re just into trading that – but people actually want to wear and use gold for some things, and eat prok bellies etc. Bitcoin has no inherent purpose – which at least Ethereum is trying to provide for itself, even if no one can quite work out a genuine “killer app” for it just yet.

  Blockchain as a concept and technology is very handy – I run an insurance company and we use it quite extensively for audit of all transactions which can be provably immutable. I know some health startups that are doing something similar.

  Bitcoin however isn’t really part of that – but speculate all you like!

  PS quite like the idea of doing it in the desert, though then you’ve got the problem of generating enough energy to cool things as well as run them. Geothermal in Iceland could work – though not to the many gigawatts required..!
• 61 Anonymous coward February 15, 2021, 6:10 pm

  I went to buy some after coming across a Bitcoin in the national history museam (of all places!) but was put off that you were encouraged to download TOR and buy it via the ‘dark web’. It was £500 at the time.

  I eventually got some when it was circa £1,500 investing circa £5k in a basket of different ones, I rode it to £20k (2017) and then all the way back to £1.5k (2019?) At the point it rose back up to £6k (2019/2020) I tried to go long at leverage and got liquidated down to £1k! At the same time the FCA decided to ban it from SIPP’s, since I’d recently put in 6k I ended up buying 6k outside of my SIPP and another 5k on top.

  I rode that all the way to £110k (2021), selling 95k at the weekend and leaving 15k in, I’ll likely sell half of that in May time. One in particular went up 1200%!!

  Phew what a ride! It was intoxicating watching it go up, one day it made north of 13k – that’s over a years worth of savings for me! Wild! I just didn’t want to get caught with my pants down again. SO sold the majority. My investments prior was about 80k of which I am about to drop 65k on a house deposit, so my cash will be replenished essentially allowing me to buy the house for “free”.
• 62 The Investor February 15, 2021, 10:43 pm

  There’s a lot of confidence on this thread about the uselessness/folly of Bitcoin.

  Some extremely smart people with proven track records in futurism think Bitcoin is here to stay and going higher, even outside the Bitcoin-o-sphere (e.g. Chamath Palihapitiya, Elon Musk, Jack Dorsey, the Ruffer Investment company (the latter are hardly reckless spivs…) )

  Are they idiots for not seeing a Ponzi scheme? Have they somehow missed the newspaper articles written by personal finance journalists who once read someone else’s review of Extraordinary Popular Delusions and the Madness of Crowds?

  Then you have the likes of Dalio who is broadly ambivalent to negative, but not before he’s written 10,000 words on the subject full of the pros and cons.

  That doesn’t mean they are right, of course. Bitcoin could indeed be long-term or even short-term going to zero. But personally it would (and did) give me pause that a lot of bright people think it (potentially) has value. You might conceivably be missing something, no? Enough to at least warrant a more nuanced “not for me”?

  I could quite easily switch to a negative posture, and certainly back to ambivalent. I’ve done a few more hours reading on the energy issue alone in light of this discussion, for example. 🙂

  But if I do I doubt I’ll feel that I suddenly woke up with insights that eluded everyone else because I can see that an asset that doesn’t produce any income and is worth what people will pay for it might conceivably be prey to more speculation than value.

  Everyone knows all that and has known it for years.

  Some degree of humility is a valuable trait in investing.

  It would not surprise me if Bitcoin went to zero. It would not surprise me if it doubled by Christmas. On balance, as I see things right now, I own some.
• 63 Matthew February 15, 2021, 11:01 pm

  @TI – well billionaires arent passive investors because you cannot become a billionaire in the first place unless youre willing to put eggs into limited baskets and time the markets – or use other people’s money somehow

  I think people like musk are ego driven, or at least they are expected to be – they have to make whacky bets to look fresh – and mistakes get forgiven or woven into an explanation, the only bad news for them is no news – like with fund managers
  So it may indeed be a clever call on their part – from a personal angle at least, but I wouldn’t assume they necessarily have purely the best interests of their shareholders at heart – they have a job to keep, a reputation to preserve.

  Also in the case of Tesla it might be a reasonable assumption that the fan club will treat any musk decision with enthusiasm and that might be its own reward for the company – imagine if it grew overall because of capital raised on the back of news this even if it lost the bitcoin money
• 64 Peter February 16, 2021, 1:09 am

  @Tedious Pseudonym – You seem to be suggesting that it’s easy to change the limit of the amount of Bitcoin that can be mined (which is 21 million), and hard to change to a PoS, or the number of transactions. I think you’re wrong on both accounts.

  Changing anything to Bitcoin requires changing the software (which is the easy part) and then, getting a majority of the miners to accept the change, by having them run the modified version of Bitcoin, and this part can be anything from easy – a minor Bitcoin protocol update, happens all the time – to likely impossible – for instance, changing the 21 million hard-coded limit.

  Why is it impossible to change the 21 million limit? Because that would significantly undermine the confidence so many people have in Bitcoin, thus undermine the value proposition of Bitcoin, and endanger the entire Bitcoin ecosystem. Miners have made significant investments in the Bitcoin ecosystem, by purchasing hardware, and organizing their mining activities. Why would they accept any change to the Bitcoin protocol that might kill Bitcoin and thus, their business? I guess, they won’t.

  Changing the number of transactions that Bitcoin can execute, for example, is a change that’s much easier to do. Why, you ask? Well, because it’s already been done! SegWit was activated in 2017, which enabled the Lightning Network, which allows for transactions to occur off-chain, and only the end result of those transactions to be recorded on-chain.

  @TI – “software that periodically reconciles to Bitcoin as the ultimate underlying store of value” – you are describing the Lightning Network. https://en.wikipedia.org/wiki/Lightning_Network

  @Anonymous coward – Great story! BTC has been a wild ride! Good to read you enjoyed it. Whenever there’s a big % change in BTC value, up or down, there’s stories everywhere about how many millions of dollars were lost by traders getting wiped out due to leverage and margin calls. It’s a dangerous game. Much safer to buy some, hodl, perhaps sell some to get your original money back so you have nothing to loose anymore, then enjoy the ride!
• 65 MW February 16, 2021, 9:09 am

  Should you hold bitcoin in your portfolio? I say, why not?

  If the reason is risk of loss, then limit the risk by making the allocation smaller. Bitcoin has seen 50-80% drawdowns, but so could equities, and even some bonds. A small allocation, rebalanced, has so far been consistent at increasing overall portfolio returns over time. If the allocation is enough to make a difference but not so much that it would cause any concern even if it went to zero, then the upside would seem to outweigh any risk.

  As the market for this asset matures, and institutions and companies become invested in it, the biggest risk of it going to zero, which was due to it being banned, seems more remote now than at any time since its creation.
• 66 Accidentally Retired February 20, 2021, 4:04 pm

  I think that anyone interested should hold Bitcoin. While I wish there was an easy ETF solution and they are on their way, expense wise it makes more sense to hold directly.

  I am personally targeting 2% allocation, understanding that may shrink to 1% or blow up to 10%. But we’ll know more it’s true value as a store of value/alternative asset in the next few years.

  Either way if you are holding for the long term and right reasons. I see no reason to not invest even if a more passive investor.
• 67 GreenDollarBillsGirl February 20, 2021, 4:18 pm

  Bitcoin is a bit of a touchy one for me – one night back in around 2010, me & a friend were having a discussion about cryptocurrency, and bitcoin in particular. We had had a few to drink, and were debating whether to buy some bitcoin; he was trying to convince me it was worth getting £50 worth – around 4/5 bitcoin at the time? – but being 18 and skint, but eventually we decided on Dominos Pizza. Never have let each other live it down!
• 68 Shermo March 8, 2021, 7:24 pm

  I remember buying my first Bitcoin for about £6, then I sold it for about £50 a few months later.

  I later bought a lot more and even mined some with my gaming PC.

  Along the way I have taken plenty of profit, at its peak back in 2017/2018? I think it was around 80% of my portfolio, then it tanked and I freaked out so sold most of it.

  It’s now around 5% of my portfolio, if I hadn’t sold almost all of them I would be a millionaire, but such is life. In my late 30s and about half way to my retirement goal so not unhappy overall 🙂 Good to take profits when you can as you cannot predict the future!

  To put into perspective I sold 8k worth recently to use up the rest of my CGT allowance. According to GNUCash that I use for my accounts it was all profit except for 2 pence 😮

  Outside of my luck (or smarts?) I think right now I’d take a small punt on Bitcoin as part of my portfolio if I wasn’t already in the game. Overall I’m more of a passive investor though with most of my ISA and SIPP in Vanguard’s ESG Developed World fund and Lifestrategy 100.

  Slow and steady wins the race?
• 69 Ash March 24, 2021, 1:13 pm

  @Investor – Interesting article, thanks! curious as to whether you’d still look at buying ARGO Blockchain, quite the price increase since February, cheers.
• 70 Craig April 8, 2021, 8:19 am

  It’s interesting reading through these comments from a few months ago, many predicting that the writing was on the wall and that certain prominent figures were selling off.

  Meanwhile, the price has gone up another $10k since the writing of this article and, bar a couple of dips, seems to be holding and still increasing.

  I’ve been doing some thinking over the last few weeks and watching prices with interest and decided to start buying in. I’m currently at 1.5% of my portfolio, I’ll likely cap that at 2.5%. Many will still say this is a huge bubble however my view is that it is becoming more and more of an investment for people and there is simply too much money on the table now for it to go to zero.

  BTC is at $1 trillion (ish) as I write this. Totally absurd, but if it can reach $1 trillion why can’t it reach multiples of that? I’m not a BTC advocate by any means, but I like to be well diversified and I see a small holding of BTC as part of that strategy.
• 71 Ed decimus meridius August 25, 2021, 3:32 pm

  Should the question not be “Should you own crypto in your portfolio”?

  It seems to be, that there are a lot of innovative tech companies around actually making and building stuff, some of which are already revenue generating. If you believe that such technologies have a future and will become less enviromentally impactful then holding some would surely make sense. I currently hold a little ether and polkadot which I have built up this year and plan to add small amounts each month and hold for the long term. Seems to add more diversification imo.
• 72 ROBIN May 14, 2022, 6:51 pm

  Did you write about which exchange or app you use for purchasing and holding Bitcoin? thanks for any pointers