Over the past few weeks, we have seen a resurgence of interest in cryptocurrency, where we saw a phenomenal price increase in major cryptocurrencies. While the price has retraced a bit, it is still on an upwards trend.
Sharp readers who follow our portfolio might have noticed that we do have a very tiny portion of crypto under our alternative investments.
The back story of our involvement with crypto started back in 2017 when there was the first crypto hype.
Along with everyone, both Mrs Budget and myself bought some crypto in hopes of making money. I have not met Mrs Budget then, and I was investing in Bitcoin and Ethereum, while Mrs Budget was investing in XRP.
Back then, I remember clearly that the prices of Bitcoin was rallying every day, and every morning when I refreshed the price trackers, the figure just kept going up.
At one point, my profit was at 200% in just a few months.
While I have taken profit, I went back into the market again, essentially making the rookie mistake of selling high and buying higher.
And of course, everything came tumbling down in December 2017, and overall I lost more than half of my capital.
Luckily, we did not cut lost, and just kept the coins in our wallet and left it there. Fast forward 3 years later, with the resurgence of crypto, we are slowly seeing a recovery in our crypto value.
While we did not DCA our crypto portfolio as we were only looking at the Singapore and then the US market this year, we have just made a decision to increase our exposure into crypto again because of several reasons.
Crypto As A Store Of Value
First of all, we see crypto as sort of a potential multi bagger component among our portfolio. When one talks about disruptive technology, crypto currency will definitely be mentioned – and investing in disruptive technologies is something that forms our core investment thesis now.
There are many arguments about how bitcoin, being limited in quantity, can be a good replacement for gold as a store of value.
The market cap of gold is at $9 trillion now, while the current market cap of bitcoin is at $350 billion. That means bitcoin can grow another 25x to reach the market cap of gold. For more context, 25x of bitcoin’s current price of $18,000 is $450,000. It feels ridiculous even when typing that out.
However, even if we get half of that in a 5 to 10 years period, we will be happy with the gain.
Other than comparing crypto’s function as a store of value that will increase its price over time, over the past few months because of COVID, quantitative easing has seen the us government printing more money and pumping it into the economy.
What this will eventually lead to, is the erosion of the value of money, or inflation. Hopefully, or potentially, investors may be moving their assets elsewhere, and crypto may be one such assets.
Surge In Institutional Interest
And that may be what we are looking at now: recently there is a spike of institution interest in crypto currency, notably from paypal and square, both of which we are highly interested and vested (paypal) in.
For PayPal, they announced that next year they will be enabling crypto payments in their payment network.
For Square, had also purchased $50 million in bitcoin as part of their investment into crypto currencies.
As compared to 3 years ago, when Bitcoin was at its all time high, google search interest (which reflects interest from retail investors) were hitting its all time high too.
However, this time round, while bitcoin nears its second all time high, google interest is still relative low, and hence, the price action is not driven by retail investors yet.
Small Position Initiation
As such, we have initiated a small S$10,000 purchase of bitcoin for Mrs Budget and I when the price of bitcoin retraced last week to USD17,000. We may average in should the price dropped further, but it seems to be moving upwards now.
We intend to hold this for at least 2 – 5 years and will only cash it out if we need it. We wont be trading in and out of crypto like we did 3 years ago.
In view of Mr Budget’s overall portfolio, the purchase is a relatively small one: about 3.5% of the overall investment portfolio or 2% of the overall net worth. Mr Budget also has a S$10,000 worth of legacy Ethereum holdings bought 3 years ago, while Mrs Budget is holding some legacy XRP holdings.
Hopefully we can see crypto prices 5-10x in the next few years.
Also as always, this do not constitute financial advice, investment advice, trading advice. We are not financial advisors, nor do we have any official degrees in finance.
These are just our thought process. Please do your own due diligence before purchasing any financial assets. Cryptocurrency is a high risk product and has a very high price volatility.