The Bitcoin hype is back and bigger than ever. If you have ever considered joining the craze, now is about as good a time as ever.
However, new Bitcoin derivatives have hit the market in the form of Bitcoin Exchange Traded Funds (ETFs). We must evaluate these new products and see how they align with our investment philosophy.
What are alternative assets? Alternative assets don’t necessarily correlate with what is happening in the commodities, options, stocks, bonds, and real estate markets.
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Some alternative assets are collectibles (wine, cards, art), gold, silver, Bitcoin, and cryptocurrencies. Why do we need alternative holdings in our portfolio?
Investing a small portion (5-10%) of your portfolio in alternative assets is a good idea because they can produce out-sized returns.
For the most part, assets like stocks, bonds, and real estate give solid, predictable returns over a 20 to 30-year period. Alternative investments can outperform these assets, but you incur much more risk.
Why Bitcoin? Two of the most popular alternative assets are Bitcoin and gold. Bitcoin is popular since no single entity controls it, and there is a limited amount.
More governments, corporations, and businesses are accepting Bitcoin as a serious asset class, meaning its price will continue to rise as more people seek access to it.
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What are Bitcoin ETFs? In January 2024, the U.S. government, through the Securities and Exchange Commission, allowed corporations to list Bitcoin ETFs on the stock market.
Bitcoin ETFs allow consumers to purchase shares of funds that hold Bitcoin directly. Essentially, you are telling someone to buy and hold Bitcoin for you.
These ETFs are a significant breakthrough for Bitcoin investing because people don’t have to create separate accounts on centralized or decentralized crypto exchanges.
For example, I purchased $2,200 worth of Wisdom Tree Bitcoin ETF (BTCW) through my Wells Fargo Brokerage account. Now, I have access to the volatility of the Bitcoin price without going through a third-party exchange.
Many large corporations, pension funds, and investment banks can only purchase securities that the SEC approves. Therefore, Bitcoin ETFs open up a new door for them to gain access to alternative assets.
Retirement vs. Financial Freedom
Bitcoin vs. Bitcoin ETFs? Now for the meat of the article. Which type of Bitcoin is better? Should you purchase and hold real Bitcoin or allow someone else to do it through an ETF?
Of course, there are infinite answers, so let’s start small. How much Bitcoin should you hold?
Personally, I like to hold roughly 1% of my portfolio in Bitcoin and alternative assets because I am a more traditional investor.
If you are a younger or riskier investor, holding 5-10% of your portfolio in Bitcoin and alternative assets would be ideal. It may be tempting to have more, but remember, these are uncorrelated assets.
This means that the price of Bitcoin can go to zero without any provocation. Stocks and bonds correlate to physical businesses and assets—they are valuable in real life.
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However, digital worlds and assets will become more tangible and valuable as we move into the Metaverse. Digital currencies will begin to overtake physical ones; however, this is a long way off.
Can you trust cryptocurrency exchanges? The best place to invest in Bitcoin and other altcoins is on a centralized exchange like Kraken and Coinbase.
I would love to invest only in these platforms, but I was burned before. Voyager was my favorite platform of them all—even more than my stock market platforms.
However, Voyager became defunct in July 2022. It was a sad day because it was a great company. To make matters worse, I lost $10,000 in the process.
Voyager had tied its fate to other crypto banks, firms, and exchanges. As it turns out, these different entities were highly leveraged on the extreme crypto prices in 2021. Once one fell, they all crumpled like dominoes.
Suffice it to say that I have some trust issues with centralized exchanges. I still have some money invested through Kraken, but I am wary.
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In this sense, I love being able to purchase Bitcoin ETFs because at least the SEC has my back. They will scrutinize these Bitcoin ETFs to ensure compliance.
The elephant in the room. The main issue with Bitcoin ETFs is that we will soon run out of available Bitcoin. As consumers purchase more shares, the ETF will purchase more Bitcoin.
However, there will only be 21 million Bitcoins. Eventually, the price of the shares will continue to rise, although the ETF will not be purchasing more Bitcoin.
It will be the same as purchasing Bitcoin directly; the price will continue to rise. If you have the resources, purchasing one Bitcoin (at the current price of $70,455 on April 11, 2024) will prove to be an excellent investment.
Exposure to both digital and paper Bitcoin will be a good way to mitigate risk. Purchasing assets on crypto exchanges carries an inherent risk.
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For example, when you purchase a stock through a brokerage, it is tied to your social security number. If the brokerage closes, they simply transfer your assets to another brokerage.
As I learned from Voyager, I don’t know what happens when I purchase Bitcoin through a crypto exchange. Do they transfer Bitcoin to my own wallet? Who knows?
Of course, you can create a decentralized wallet and purchase Bitcoin through a decentralized exchange. But how far are you willing to go to procure this asset?
Exposure to Bitcoin is a must in 2024 and beyond. If you fear going to the crypto exchanges, Bitcoin ETFs are a great resource.
Conclusion. I prefer to leverage both types of ways to invest in Bitcoin. They both offer strong pluses and some misuses.
America Will Never Let You Rest
In 30 years, those with Bitcoin will be in a power position for the rest of their lives. They will be able to travel the world using Bitcoin as a single currency for all transactions.
In this scenario, owning digital Bitcoin is the way to go. However, if you simply seek to juice your returns through your brokerage, then Bitcoin ETFs are your ticket to doing just that.
You have to decide whether you believe in Bitcoin’s digital future or want to speculate from the sidelines.
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I like both scenarios. I believe in the Metaverse and digital worlds and think digital currencies will overtake physical ones.
Governments want to control their own digital currencies, so they view Bitcoin as a threat to their agenda.
Bitcoin could bring wealth to many impoverished nations. However, now that Wall Street is buying up tons of Bitcoin, it will quickly become scarce for the average person.
Now is the time to purchase even a few dollars of Bitcoin—we may not have the chance in ten years. Wall Street is serious about owning all of the world’s Bitcoin; you best believe that. Good Luck!
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Disclosure: I am not a financial advisor or money manager, and any knowledge is given as guidance and not direct actionable investment advice. I am an Amazon Affiliate. Please research any investment vehicles that are being considered. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article. All Right Reserved Military Family Investing
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