Speaker 1: Hey, everyone, welcome back to the Mark ma Show, where
Speaker 1: we're talking about bitcoin and cryptocurrencies and the decentralized revolution
Speaker 1: that we are living through right now. It's big. It's
Speaker 1: going to be the biggest shift that we have ever seen.
Speaker 1: And I have a special guest in the studio with
Speaker 1: me today to talk about bitcoin and how you can
Speaker 1: think about it in your own portfolio and some different
Speaker 1: ways to think about it. And so I'm in the
Speaker 1: studio today with Andy Edstrom. He is a c f
Speaker 1: A and a CFP. Those are a lot of letters.
Speaker 1: He can tell us what those mean. Um. He works
Speaker 1: with a company called Swan Bitcoin as an advisor. Um,
Speaker 1: and so he is a financial advisor, financial planner. He's
Speaker 1: not yours, So go talk to your own. Uh don't,
Speaker 1: he's not yours. But anyway, Andy, thanks so much for
Speaker 1: joining me today. Yeah. Mark, thanks, it's a real pleasure
Speaker 1: being with you. And appreciate that disclaimer right there that
Speaker 1: this is financial either you're a disclaiming out for you
Speaker 1: there on that one you anticipated that you knew it
Speaker 1: was coming. Yeah yeah, yeah, Well we gotta say that
Speaker 1: all the time. So it's not financial advice, right, So
Speaker 1: um So anyway, you know, I want to talk about bitcoin.
Speaker 1: Obviously we're talking about that, but I want to talk
Speaker 1: about it from a different angle that I typically do
Speaker 1: because I'm not a financial advisor or financial planner, and
Speaker 1: so um you are, and um, you know, right off
Speaker 1: the bat, I would just like to start with that,
Speaker 1: like most financial advisors or planners, they don't talk about
Speaker 1: bitcoin as a matter of fact, is I understand it.
Speaker 1: I have my sister in law and she's hopefully not listening.
Speaker 1: She works for Charles Schwab, and she told me that
Speaker 1: even if her clients ask her about it, she's not
Speaker 1: even allowed to talk about it, even if they ask
Speaker 1: her about it. And so I know that there's a
Speaker 1: lot of that in the industry. Um, where's the industry
Speaker 1: ad And how is it that you're different than everybody else? Yeah,
Speaker 1: that's a great question, and it is sort of mind
Speaker 1: boggling that we're still at that place where the people
Speaker 1: who work for Schwab can't talk about it. So, you know,
Speaker 1: I get into bitcoin in and it was when I
Speaker 1: published my book Why Buy Bitcoin? And at the at
Speaker 1: that time and I think still today, it's the only
Speaker 1: bitcoin investment thesis in the form of a book published
Speaker 1: by a financial advisor. So I'm an outlier in that regard. Now,
Speaker 1: when I put the book out in nobody in the
Speaker 1: regular way financial advice space I want to talk about bitcoin.
Speaker 1: Almost nobody. I mean, I'm sure there were exceptions, but
Speaker 1: I couldn't find him. Where we sit a few years
Speaker 1: later here a couple of years later, is the independent
Speaker 1: investment advisors are starting to take action. Um, you mentioned,
Speaker 1: you know, my involvement with Swan bitcoin. I'm watching a
Speaker 1: swant an advisor services product at the moment, and the
Speaker 1: reason I'm doing it now is I think we're at
Speaker 1: an inflection point in acceptance and adoption among financial advisors. However,
Speaker 1: it's not like everybody's on board all of a sudden,
Speaker 1: as you pointed out, folks, especially financial advisors that work
Speaker 1: for major custodians, major companies that provide services to financial
Speaker 1: advisors and by extension, their clients, the big ones are
Speaker 1: still lagging right there, not there yet. It's the small
Speaker 1: independence that are more flexible, that don't have to go
Speaker 1: through large bureaucracies basically to get something approved. Those are
Speaker 1: the guys who are taking action for the most part.
Speaker 1: But still, as you imply, the larger organizations are taking
Speaker 1: their time. My expectations that will change in the next
Speaker 1: couple of years. But that's where we are today as
Speaker 1: I see it. Do you think some of that's because
Speaker 1: they're incentivized not to talk about it because like they
Speaker 1: want to sell their company's products, or is it Is
Speaker 1: it because of legal reasons or regulatory reasons that they
Speaker 1: can't talk about it? Yeah? I think that here you
Speaker 1: have to parse bitcoin a little bit from the rest
Speaker 1: of crypto. So definitely there's legal risk with respect to
Speaker 1: classification as a security for a large portion of the
Speaker 1: cryptocurrency or crypto assets space, or the digital asset space,
Speaker 1: let's call it. Bitcoin does not have that same risk.
Speaker 1: Bitcoin is one of the very few digital assets that
Speaker 1: is unambiguously not a security under US law. So then
Speaker 1: if you say, well, okay, but why haven't they acted
Speaker 1: on bitcoin? I think some is still reputational. Let's be honest,
Speaker 1: the mainstream media had done done a very poor job, um,
Speaker 1: in covering bitcoin. I mean honestly, I I read factual
Speaker 1: errors all the time in articles in the Wall Street Journal,
Speaker 1: New York Times, Washington Post. Um, you know, outlets like yours,
Speaker 1: and you specifically had done a much better job basically
Speaker 1: telling it how it really is with bitcoin. So, um,
Speaker 1: my hats off to you there, and yeah, so so
Speaker 1: I think some of it is reputational and then some
Speaker 1: of it is on boarding and the effort and time.
Speaker 1: It takes basically two run through the legal and the
Speaker 1: compliance and the accounting and the custody issues associated with
Speaker 1: providing services to clients. And you know, Michael Sailor sort
Speaker 1: of laid out a playbook for corporations to do that.
Speaker 1: Even if you have a high incentive or really motivated
Speaker 1: to get it done as an organization, it can take
Speaker 1: you months and months, potentially years basically to UH to
Speaker 1: check all the boxes within your legal department, your compliance department, etcetera, etcetera.
Speaker 1: So I think they also face that headwind and it's
Speaker 1: a mixed bag. I mean, you had players like Fidelity, right,
Speaker 1: Fidelity was mining bitcoin, I don't know, five or six
Speaker 1: years ago, maybe even longer. Um even they even they
Speaker 1: have been treading pretty carefully in terms of the actual
Speaker 1: products that they're providing to UH to clients, and so yeah,
Speaker 1: it just takes time I think for these UH, for
Speaker 1: these large organizations to act on it. And just to
Speaker 1: your question about, oh, you know, are these guys dragging
Speaker 1: their feet because they stand to lose fees or they
Speaker 1: stand a loose economics on it. I used to think that,
Speaker 1: and I'm not sure that's the case anymore, because the
Speaker 1: reality is, you can package bitcoin as a financial product
Speaker 1: if you're a if you're an investment organization, and you
Speaker 1: can charge a fee just like any other product. Now,
Speaker 1: someday years in the future that might not be as true,
Speaker 1: but these guys can make money on it. And so
Speaker 1: I think that it has more to do with those
Speaker 1: legal and compliance and just running the traps, you know,
Speaker 1: doing the work over time, you know, sort of inertia
Speaker 1: of the large organizations. I think it has more to
Speaker 1: do with that and less to do with the you know,
Speaker 1: the the worry about, oh, this is going to eat
Speaker 1: our business. Okay, that's a good perspective. I just heard
Speaker 1: a lot of times it's like they financial advisors will
Speaker 1: sell the products that their firm offers. So a lot
Speaker 1: of times you hear that they're they're they're more sales
Speaker 1: reps than they are advisors. And that's probably true for something,
Speaker 1: but maybe not for everybody. Yeah, well, no, Look, you
Speaker 1: make a good point in that as a financial advisor,
Speaker 1: like wind back the clock a couple of years, what
Speaker 1: were your options for getting your clients into bitcoin. Well,
Speaker 1: you could have bought the Bitcoin Trust right ticker GBTC,
Speaker 1: and until relatively recently, that was a little problematic because
Speaker 1: it traded at a premium to the net asset value, right,
Speaker 1: so you were you were buying a dollar's worth a
Speaker 1: bitcoin by paying a dollar twenty five, which was not
Speaker 1: great because you had to figure out, well, there's a
Speaker 1: good chance that that premium goes away in the long term.
Speaker 1: So I think that was a barrier for sure, even
Speaker 1: though that product was carried by major custodians like Schwab
Speaker 1: and like TD Merri Trade. Um. So that's a fair point.
Speaker 1: And if the alternative was, oh, you know, tell the
Speaker 1: client I don't know, opened an account at one of
Speaker 1: the major exchanges, well then yeah, that's assets that leaves
Speaker 1: the pool that you charge fees on, and so that
Speaker 1: was that was problematic. Now the good news is most
Speaker 1: of those problems are solved. We don't yet have the
Speaker 1: true spot e t F where or you can buy
Speaker 1: a dollars worth a bitcoin for a dollar and pay
Speaker 1: a reasonable management fee UM and be subject to all
Speaker 1: the protections that the the SEC and the u S
Speaker 1: jurisdiction affords. Were not quite there yet, but there are
Speaker 1: now better usable services available to financial advisors, some of
Speaker 1: which have just popped up in the last year that
Speaker 1: actually are credible alternatives and the financial advisors can take
Speaker 1: advantage of And of course they have to do their diligence,
Speaker 1: you know, they have to look at their options. It
Speaker 1: takes potentially months of work to to get up to speed,
Speaker 1: and that's kind of where we are today. Yeah, okay, well,
Speaker 1: I'm glad you were able to cut through and UH
Speaker 1: and be one of the guys leading this UM. Now
Speaker 1: that we've kind of established that base, there's a lot
Speaker 1: of stuff that I want to jump into. UH. Specifically,
Speaker 1: I'd like to dig into UM portfolio management. So maybe
Speaker 1: you could kind of give us a background or a
Speaker 1: way to think through how the average person might want
Speaker 1: to think about UM bringing bitcoin into their portfolio, how
Speaker 1: much they should buy, and just kind of a thought process.
Speaker 1: I know that the difference or the answer is it depends,
Speaker 1: but maybe there's some framework that we'll get through. By
Speaker 1: the way, you're listening to the Mark mass Show. You
Speaker 1: we're talking about bitcoin. We're talking about the decentralized revolution.
Speaker 1: I'm in the studio with Andy Extreme. We're talking about
Speaker 1: portfolio management with bitcoin. He's gonna tell us how to
Speaker 1: think through that, how much bitcoin you should buy. We'll
Speaker 1: be right back. Don't go away, all right, Welcome back.
Speaker 1: You're listening to the Mark Moa Show. We're talking about bitcoin.
Speaker 1: We're talking about this decentralized revolution. And we're specifically talking
Speaker 1: about today. UM, looking at bitcoin as a through the
Speaker 1: lens of a financial advisor, and how you can think
Speaker 1: about putting bitcoin into your own portfolio. Um, if you
Speaker 1: should put int your portfolio, how much you should think
Speaker 1: about putting your portfolio, et cetera. I'm in the studio
Speaker 1: with Andy Edstrom. He's the c f A CFP. He's
Speaker 1: an advisor with Swan Bitcoin and he helps people think
Speaker 1: through these exact type of questions. He gets paid for this,
Speaker 1: and I've got him here to talk to you. Now.
Speaker 1: He's not your financial advisor, but he can help you
Speaker 1: talk through this. So Andy, UM, we were you kind
Speaker 1: of filled this in on maybe why I find acial
Speaker 1: advisors haven't been talking about bitcoin and how they're kind
Speaker 1: of coming around to it, but now moving forward, So
Speaker 1: walk us through some brain exercises of people who either
Speaker 1: are thinking about adding some bitcoin to their portfolio or
Speaker 1: maybe maybe we start with why people should add some
Speaker 1: bitcoin to their portfolio and then we'll go onto how Yeah,
Speaker 1: that's a great question mark. And here I'm just gonna
Speaker 1: apply the lens of pure investment. Right, there's other reasons
Speaker 1: to own bitcoin, and we can talk about those, but
Speaker 1: I'll lead those aside. So let's just look at it
Speaker 1: as an investment. So the first characteristic is Bitcoin is
Speaker 1: the best performing major assets of all time as far
Speaker 1: as I know right the last ten years plus of performance.
Speaker 1: It's basically on from zero to call it a trillion
Speaker 1: dollars um. It's also probably the fastest asset to reach
Speaker 1: a trillion dollars ever in history. Okay, so that's what um, Yeah,
Speaker 1: very very impressive. Um. The second thing to consider is
Speaker 1: in the context of an overall portfolio, and that's how
Speaker 1: I think is a financial advisor on behalf of my
Speaker 1: clients is doesn't have characteristics that play well with the
Speaker 1: other assets, And as it turns out, it does, and
Speaker 1: the reason is it's returns have low correlation to the
Speaker 1: returns of other assets, and it's low correlation to the
Speaker 1: returns of most other major assets. So I'm talking about
Speaker 1: US stocks, foreign developed market stocks, emerging market stocks, bonds, gold. Okay,
Speaker 1: in all cases, bitcoin sort of moves to the beat
Speaker 1: of its own drum. Now all caveat and say that, yes,
Speaker 1: Bitcoin has correlated more closely with stocks and especially tech
Speaker 1: stocks in the last couple of years. Nevertheless, the correlation
Speaker 1: is still relatively low. So what do you have. You
Speaker 1: have a You have an asset that goes up in
Speaker 1: value at a rapid clip right historically well over a year,
Speaker 1: um two. It moves at a different pace than the
Speaker 1: rest of the portfolio, so it has great characteristics in
Speaker 1: terms of making money even when other assets are not
Speaker 1: making money for the investor. And then three is the
Speaker 1: potential value is still much much higher than where we
Speaker 1: are today. So when I look at the valuation to bitcoin,
Speaker 1: I see at least tens of trillions of dollars of
Speaker 1: value over the long term, potentially even more. I can
Speaker 1: talk about, you know, how I get to those numbers,
Speaker 1: but suffice to say that if bitcoin is worth roughly
Speaker 1: a trillion dollars, today in terms of the total value
Speaker 1: of the network or of the total asset, there's still
Speaker 1: multiples of potential upside. So I say, Wow, amazing performance
Speaker 1: so far, likely amazing performance in the future. Of course,
Speaker 1: we don't know what the future holds, but that's my expectation.
Speaker 1: And it adds diversification benefit to the portfolio because it
Speaker 1: has low correlation. It's returns up low correlation with the
Speaker 1: rest of the assets in the portfolio. Um, it's really
Speaker 1: a star performer in the context of an overall portfolio.
Speaker 1: And then the last thing I'll say is for you know,
Speaker 1: leave aside the past and look to the future. What
Speaker 1: is this? This is something that I've heard you talk
Speaker 1: about and I'm glad you're talking about it, um with
Speaker 1: folks on your show, Which is, you know, is the
Speaker 1: world of financial assets going to look in the next
Speaker 1: decade like it has in the past couple of decades.
Speaker 1: And my expectation, I think, like you is is No,
Speaker 1: it's not. And uh. And the biggest risk that I
Speaker 1: worry about personally is durable inflation. And I categorize bitcoin
Speaker 1: as a hard money asset from from investment perspective. And
Speaker 1: so when I look at my clients portfolio, as I say, Okay,
Speaker 1: if there's a significant risk of durable, sustained higher inflation
Speaker 1: now and in the future, boy, I really want to
Speaker 1: own those hard money assets. And the hard money asset
Speaker 1: of the past with gold, But the hard money asset
Speaker 1: of the future appears to me to be bitcoin. Now,
Speaker 1: when you say hard money asset, are you saying hard
Speaker 1: money in a sense where people can't inflate it or
Speaker 1: create more of it? That's exactly right, Mark, exactly right,
Speaker 1: hard to make more of Okay. So um uh, there's
Speaker 1: the whole correlation to the portfolio, and we could probably
Speaker 1: spend an hour just talking about that specifically. Um. But
Speaker 1: if we look at bitcoin and say, okay, it has
Speaker 1: a I think it's got an easy five act. I
Speaker 1: think it's got an easy ten X in front of it, right,
Speaker 1: I mean Cathy Wood says it has a ten X.
Speaker 1: I think if it got five of SMP reserves, it
Speaker 1: could be a ten x. Right. So it has a
Speaker 1: ten X. It maybe has a hundred X in front
Speaker 1: of whatever whatever number you assigned to that um and
Speaker 1: then you go, okay, well, what's the probability of it
Speaker 1: achieving that five X or that ten x. UM. So
Speaker 1: I think there's a one percent chance that that happens,
Speaker 1: or there's a fifty percent chance that happens. Um. So
Speaker 1: if people are very bullish or there's somewhat skeptical on that,
Speaker 1: but you know, it's better than a zero percent chance
Speaker 1: that to do that. Um, how would they think about now, um,
Speaker 1: applying that to their portfolio. Yeah, that's like a risk
Speaker 1: adjusted basis. And I think that's part of this whole
Speaker 1: correlation and so forth right. Yeah, that's a great framing. Mark.
Speaker 1: I like your framing there by the way, I agree
Speaker 1: with you that to me, the upside is more than
Speaker 1: ten x, and could be x, could even be higher.
Speaker 1: But that's you know, that's kind of the brackets that
Speaker 1: I that I put around it these days, at least
Speaker 1: for the foreseeable future, let's say, for this decade. Um.
Speaker 1: And as you point out, reasonable people can disagree about
Speaker 1: the probability of success or the probability of failure for bitcoin.
Speaker 1: I personally happened to think that the probability that bitcoin
Speaker 1: reaches its potential, which is much higher than much higher
Speaker 1: in price than where it is today, is actually greater. Um.
Speaker 1: I've I've become more bullish. Let's say, since I think
Speaker 1: I put thirty or a third probability UM on paper
Speaker 1: in my book a couple of years ago. But facts
Speaker 1: and circumstances and events that have transpired since then, not
Speaker 1: least the pandemic, you know, have caused me to get
Speaker 1: more bullish. So if we if we talk about if
Speaker 1: we talk about that just for a second, like I
Speaker 1: started buying in and uh, if I would have just
Speaker 1: put the amount of money in UM that I've done
Speaker 1: this year, that I would have put that back in,
Speaker 1: I probably wouldn't be on the radio right now, right
Speaker 1: or whatever. I don't know, but I didn't because it
Speaker 1: was too risky right at who knew right in seen
Speaker 1: it had become more developed, we launched the futures like that,
Speaker 1: a lot of the risk was removed, but it was
Speaker 1: still risky. Today I almost feel like we're at this
Speaker 1: place where like almost all the risk has been removed
Speaker 1: at this point, but we still have this ten X,
Speaker 1: which makes it maybe the best risk adjusted trade we've
Speaker 1: ever seen, maybe UM. But to to your point, no
Speaker 1: reasonable person and so unfortunately there's a lot of unreasonable people.
Speaker 1: I get over five thousand comments a week across all
Speaker 1: my platforms, and people say it's never gonna work, um,
Speaker 1: you know, or it's going to zero, and it's like, well,
Speaker 1: that may be close to true, but you can't say
Speaker 1: a percent, right, there's maybe a one percent chance that
Speaker 1: succeeds or and so you have to figure out like
Speaker 1: where your conviction is based off of that. I think
Speaker 1: it's kind of what you're saying. Um, they're listening to
Speaker 1: the Mark Yeah, you're listening to the Markmah Show. We're
Speaker 1: talking about bitcoin. Um, we're talking with Andy Edstrom. He's
Speaker 1: a c F a c FP, and he is talking
Speaker 1: about how to incorporate bitcoin into our portfolio and specifically, uh,
Speaker 1: we're about to We talked about where it could go,
Speaker 1: so we think it can be worth a lot more
Speaker 1: in the future. UM, we need once you figure out
Speaker 1: what that probability is, what your conviction is, then you
Speaker 1: can figure out how much you should bring indyr portfolio.
Speaker 1: And he's gonna answer that question when we come back. Um,
Speaker 1: you can find him on Twitter, um and look him up,
Speaker 1: give him say you say you heard him on the radio.
Speaker 1: You can find him at at Edstrom E D S
Speaker 1: t R O M Andrew at Edstrom Andrew Um say, Hi,
Speaker 1: of course I am one Mark Moss on Twitter. Shoot
Speaker 1: me a message as well. We're gonna be right back
Speaker 1: talking with Andy, and we are going to find out
Speaker 1: what's your conviction level is and how to figure out
Speaker 1: how much to put into bitcoin. We'll be right back.
Speaker 1: Don't go away, all right, Welcome back. You're listening to
Speaker 1: the Markma Show. We're talking about bitcoin, and we're talking
Speaker 1: about this decentralized revolution, and specifically I'm in the studio
Speaker 1: with Andy Edstrom. He is UH an advisor financial advisor
Speaker 1: works with Swan bitcoin and he is talking through right now.
Speaker 1: He kind of gave us where he thinks bitcoin could go.
Speaker 1: I said, I think it has an easy tent X
Speaker 1: in front of it. He agrees, he thinks it has
Speaker 1: even more than that. Now, as he said, any reasonable
Speaker 1: person you have to admit it has at least a
Speaker 1: better than zero percent chance of doing that. So does
Speaker 1: it have a one percent chance or chance or hundred
Speaker 1: chance depending up what your conviction is? Now, Andy, you're
Speaker 1: about to tell us based off of that, Um, how
Speaker 1: should we think through adding a tour portfolio? How much
Speaker 1: we should have in there? Yeah? So a couple of
Speaker 1: thoughts there. Mark one is how much do you have
Speaker 1: in hard money assets, which is a different way of
Speaker 1: saying how much of your portfolio is assets that you
Speaker 1: think are going to save your bacon in the event
Speaker 1: of high sustained inflation. For me, for my clients on
Speaker 1: average today, that's roughly okay. And that is basically bitcoin
Speaker 1: and monetary medals, primarily gold. And you know, I personally
Speaker 1: think that in the long run gold there's a possibility
Speaker 1: that gold gets demonetized, right, which means an investment in
Speaker 1: gold today it's probably not going to turn out well,
Speaker 1: but for the foreseeable future, you know, next few years.
Speaker 1: Basically I want my clients to own both bitcoin and gold. Now,
Speaker 1: the question of you know how much bitcoin maybe counterintuitive.
Speaker 1: I'll just tell you how I do it for my clients,
Speaker 1: which is, most of my clients have roughly a five
Speaker 1: percent position, And partly that's because I want to have
Speaker 1: a an inflation resistant asset in the portfolio, and partly
Speaker 1: it's because I expect to make a multiple on that investment.
Speaker 1: And also partly because although I think there's almost zero
Speaker 1: probability that bitcoin loses most of its value or goes
Speaker 1: to zero, I do recognize that the volatility is high,
Speaker 1: and my clients do not have infinite patients for the
Speaker 1: volatility of this asset. And it really is a you know,
Speaker 1: it's a it's an issue of human psychology because you know,
Speaker 1: and I know, and probably your listeners know that volatility
Speaker 1: doesn't really matter in the long run if you're accruing value,
Speaker 1: if you're making money over time. But you know, the
Speaker 1: lizard side of our brain, you know that those lower
Speaker 1: baser parts of the brain that probably evolved much earlier
Speaker 1: than our intelligent prefrontal cortex, those parts of the brains
Speaker 1: get triggered the fear centers, the amygdala, etcetera, when we're
Speaker 1: losing money. So for clients, it's kind of a balancing
Speaker 1: act between the logical rational portfolio optimization versus the fear
Speaker 1: that can get triggered in the event of of of
Speaker 1: loss of value. And then the second thing I'll say
Speaker 1: is I have clients at different risk levels, right, So
Speaker 1: there are clients that want to shoot the lights out
Speaker 1: and make a lot of money, high returns, and then
Speaker 1: at the other end, they're the clients that you know,
Speaker 1: barely want to even keep up with inflation. They just
Speaker 1: want to avoid a catastrophe, you know, catastrophic loss, and
Speaker 1: then there's ones in the middle. And what's interesting about
Speaker 1: bitcoin is bitcoin is a good quote unquote high risk
Speaker 1: asset because the returns have been high and are likely
Speaker 1: to be high in the future. But it's also an
Speaker 1: important low risk asset in the sense that a quote
Speaker 1: unquote low risk portfolio classically defined has lots of bonds
Speaker 1: in it, lots of fixed income and the and as
Speaker 1: you know, the one thing that's kryptonite two bonds is inflation.
Speaker 1: And so you kind of need to have I shouldn't
Speaker 1: say you kind of need, you really need to have
Speaker 1: that inflation proof asset, you know, or hard money asset hedge,
Speaker 1: even in a quote unquote overs portfolio. And so for
Speaker 1: my clients, bitcoin exists for for all those reasons in
Speaker 1: the portfolio. So could it be as simple as saying, well,
Speaker 1: I think it has a one percent chance of success,
Speaker 1: so I might put one percent of my portfolio in it.
Speaker 1: I think it has a twenty percent chance of getting there,
Speaker 1: so I'll put a percent of my portfolio there. Or
Speaker 1: is that too oversimplified. I think that's a little bit
Speaker 1: oversimplified because of what does that mean in the extremes.
Speaker 1: So even if I'm almost a hundred well, so, first
Speaker 1: of all, I'm not a hundred percent confident of anything. Yeah,
Speaker 1: I'm rather confident of of Bitcoin's success. But I have
Speaker 1: to allow that there's from you said, you went from Yeah,
Speaker 1: that's that's true. So there you go. That's that's an
Speaker 1: indication of my confidence level. Um exactly. So. Um So
Speaker 1: given that fact, though, what if you took it two extremes,
Speaker 1: What if you took it to a d percent and
Speaker 1: therefore you put a hundred percent of your portfolio in it. Um.
Speaker 1: You know, I'm sure there are people in the world.
Speaker 1: I know, there are people in the world that have
Speaker 1: done effectively that you know, I think, Yeah, I think
Speaker 1: that in most cases, those people, if it all goes
Speaker 1: catastrophically bad, still have some back stop, you know. Maybe
Speaker 1: they have earnings potential, right they have they have a
Speaker 1: way that basically they can earn their way back into
Speaker 1: a into a portfolio. Hopefully they do. And then um yeah,
Speaker 1: So so I would say the percent of success equals
Speaker 1: percent allocation to the portfolio probably is not quite It's
Speaker 1: not the way I think about it. It is the
Speaker 1: way to think about it directionally, so that I agree. Obviously,
Speaker 1: the higher your confidence in the level of success, the
Speaker 1: more allocation you should have. But I wouldn't go as
Speaker 1: far as to say, you know, literally the math works
Speaker 1: out as a multiple that way. Yeah, okay, what about
Speaker 1: on the other side. By the way, you're listening to
Speaker 1: the Markma Show, we're in the studio with Andy Edstrom.
Speaker 1: We're talking about bitcoin, and we're talking specifically about portfolio allocation.
Speaker 1: How much a bit kind should you have bit? And
Speaker 1: if so, what are you buying it for? And and
Speaker 1: how much should you have in your portfolio? So? Um, Andy,
Speaker 1: what about the other side of that? So I work
Speaker 1: with people who, um say, uh, there's nowhere else to
Speaker 1: put bitcoin. I want to be a hunter per cent
Speaker 1: of bitcoin, Like there's it doesn't make sense to put
Speaker 1: any money anywhere else. What would you say to those people? Yeah,
Speaker 1: I think that for a small segment of the population
Speaker 1: that both believes in it as an investment and wants
Speaker 1: to hold their own keys, uh for their own personal
Speaker 1: security reasons, that can make sense. I think that's a
Speaker 1: very small subset of the population. Uh, you know who
Speaker 1: basically fully believe in it, they have investigated it, done
Speaker 1: their due diligence, they know it inside it out, and
Speaker 1: they've made the personal decision that this is really where
Speaker 1: I want to park my wealth. And in fact, I'm
Speaker 1: looking far enough ahead and to the future that I
Speaker 1: think that bitcoin becomes the base money. And so to me,
Speaker 1: this is just you know, putting my money in the
Speaker 1: savings account or the bank account of the future. And look,
Speaker 1: I get that perspective. That's not the perspective that I
Speaker 1: can apply with my clients because I have to allow
Speaker 1: for the possibility that things don't turn out that way.
Speaker 1: And I can't say that I have any clients who
Speaker 1: would be willing to live with the possibility of losing
Speaker 1: their substantial fort fortunes, you know, because whatever that low
Speaker 1: probability event that maims or kills bitcoin comes to pass.
Speaker 1: So basically say, it's not what I've what I've told
Speaker 1: people in regards to that is the reward of getting
Speaker 1: that right isn't worth the risk of getting that wrong.
Speaker 1: I like that framing a lot. I like that framing
Speaker 1: a lot. And this is this gets yeah, exactly into
Speaker 1: the risk of ruin, which is one of the most
Speaker 1: important things about investing is to stay in the game right,
Speaker 1: not get knocked out of the game and literally ruined.
Speaker 1: And so if holding of your assets in one asset
Speaker 1: could ruin you because of even a small probability of
Speaker 1: that asset basically going to zero, then you're taking a
Speaker 1: risk that you likely cannot afford. Yeah, and most people
Speaker 1: listening probably know my story, and that happened to me
Speaker 1: in two thousand eight. I was had multiple businesses. I
Speaker 1: had a fortune. I sold my other business, I want
Speaker 1: in high tech medical one, an online business. I was
Speaker 1: developing real estate I sold, I sold all my apartments,
Speaker 1: and I was all in on developing a couple of
Speaker 1: pieces of property in southern California. And it did not
Speaker 1: work out well for me at all, which is why
Speaker 1: I constantly pound the table on diversification because uh uh,
Speaker 1: the risk of me getting right was not worth the
Speaker 1: risk of me getting it wrong, which I did and
Speaker 1: it was a super painful lesson. Um. He listened to
Speaker 1: the Mark mo Show. We're talking about bitcoin. I'm here
Speaker 1: in the studio with Andy Edstrom. Um. He's a financial advisor.
Speaker 1: I Swan advisors were talking about putting a bitcoin in
Speaker 1: the portfolio. I want to talk about Um. You mentioned
Speaker 1: earlier that it has a low correlation, and so I
Speaker 1: want to talk about what that means. And specifically, UM,
Speaker 1: let's say that I decided I want to be you know,
Speaker 1: thirty percent of my portfolio bitcoin and to your point, UM,
Speaker 1: I don't want to to all go away if the
Speaker 1: market crashes, and so you talk about this non correlation,
Speaker 1: but what if it all moves together? So we're gonna
Speaker 1: talk about that when we come back. Um, you're listening
Speaker 1: to the markma Show again. I'm in the studio with
Speaker 1: Andy Edstrom. We're talking about bitcoin. You can find them
Speaker 1: on Twitter at Edstrom Andrew. Of course, I am one
Speaker 1: Mark Moss and it's a message don't go away. We'll
Speaker 1: be your back up. Hey everyone, welcome back. You are
Speaker 1: listening to the Mark mo Show. We're talking about bitcoin.
Speaker 1: We are talking about this decentralized revolution, and specifically today
Speaker 1: right now, we're talking about how to think through um
Speaker 1: your own portfolio and should you add it? If so,
Speaker 1: what should you expect and more importantly, how should you
Speaker 1: allocate towards that. I'm in the studio with Andy Edstrom um.
Speaker 1: He has a financial advisors financial planner with Swan Bitcoin UM. Now, Andy,
Speaker 1: before the break, you were talking about how you would
Speaker 1: you know if somebody I asked the question, if somebody said, hey,
Speaker 1: I want to put a person in, what would you
Speaker 1: tell them? And we talked about it's not you know,
Speaker 1: worth the risk of getting it wrong. Um, And so
Speaker 1: you had you you'd mentioned earlier about it has a
Speaker 1: low correlation with the rest of the market. Um. However,
Speaker 1: right now many people are saying that maybe it's become
Speaker 1: highly financialized, and maybe it is moving with the market,
Speaker 1: and so um, you know, as you reference what I
Speaker 1: say that the market we're going into is different than
Speaker 1: the market that we left behind, and we're kind of
Speaker 1: driven by this fed stimulus today and all the markets
Speaker 1: have been highly kind of correlated, I guess is the word.
Speaker 1: And so, um, what if I do make a allocation
Speaker 1: because I don't want to be wrong and lose everything
Speaker 1: or temper centers on whatever it is, But then you know,
Speaker 1: the bubble bursts and everything drops, and Bitcoin just drops
Speaker 1: with everything else. So then doesn't matter what allocation I
Speaker 1: had towards it. Yeah, if I do, I do, I do,
Speaker 1: I lose the upside but still have the same downside. Yeah,
Speaker 1: it's a really good point. Mark So, first of all,
Speaker 1: your spot on about the fact that as institutions have
Speaker 1: come to play a larger role in the ownership and
Speaker 1: trading a bitcoin, Uh, there's no doubt that the correlation
Speaker 1: to other risk assets, primarily stocks and especially tech stocks,
Speaker 1: has increased. And so what that means is, especially when
Speaker 1: you're looking at monthly data, you know, in a month
Speaker 1: when the Nasdaq is down, there's a good chance that
Speaker 1: that bitcoin is going to be down in price as well.
Speaker 1: So and then so then you talk about, well, what
Speaker 1: about scenario analysis, like you know, thinking about monthly returns
Speaker 1: or quarterly returns. That's one thing, but if you're a
Speaker 1: long term investor, you shouldn't care as much about those issues,
Speaker 1: especially if you have your portfolio segmented from your cash. Right,
Speaker 1: you have your cash to fund your household day to day,
Speaker 1: but you're taking a long term view with your investment portfolio.
Speaker 1: So do you really care about movements in price day
Speaker 1: to day, month to month, quarter to quarter. Hopefully not. However,
Speaker 1: if you get a scenario like you're implying, where maybe
Speaker 1: the FED stop stimulating or stimulates less than people expect,
Speaker 1: then yeah, most risk assets are likely to go down
Speaker 1: in price. And in fact, we saw a taste of
Speaker 1: that relatively recently when the Fed finally acknowledged that inflation
Speaker 1: might not be transitory and that they might have to
Speaker 1: withdraw their stimulus at a faster rate than they were anticipating.
Speaker 1: So that is a very significant risk to the price
Speaker 1: of bitcoin over months and even potentially years. Is basically,
Speaker 1: do banks to the central banks stop printing as much
Speaker 1: money and will therefore the price of your bitcoin go
Speaker 1: down I'm talking about the US dollar price at the
Speaker 1: same time that your stocks go down. Yeah, probably it will.
Speaker 1: So you better be in a position where you're willing
Speaker 1: to hold on for a significant period of time. And
Speaker 1: just to play a little bit off of your earlier
Speaker 1: comment about how unfortunately you got liquidated effectively with your
Speaker 1: real estate portfolio in a prior life, Um, this is
Speaker 1: why I do not lever bitcoin, right. I don't lever
Speaker 1: it from my clients. I don't love it for myself
Speaker 1: because I never want to be in a position where
Speaker 1: the price moves down farther or faster than I thought
Speaker 1: it would and I get a margin call Um, that
Speaker 1: is that is your risk of ruin right there, at
Speaker 1: least with respect to that asset, and it's something to
Speaker 1: be very careful of. Yeah, you listen to the Mark
Speaker 1: Mo show, we're talking about bitcoin. I'm in the studio
Speaker 1: with Andy Edstrom. We're talking about portfolio allocation to bitcoin
Speaker 1: right now. And so I guess back to back to
Speaker 1: the question though, UM, I don't want to go on
Speaker 1: to all in the bitcoin because I could all drop.
Speaker 1: But um, if I only do bitcoin and the rest
Speaker 1: is in across markets, but if they all drop at
Speaker 1: the same time, am I in the same boat? I
Speaker 1: guess as the question now, Um, I've looked at if
Speaker 1: we don't know right, bitcoin hasn't been round through these
Speaker 1: multiple bear markets. But if we look at what gold did,
Speaker 1: like in two thousand and eight, it dropped about half
Speaker 1: of what the stock market did, but then it rebounded
Speaker 1: and reclaimed it high and seven months. Stocks took seven years.
Speaker 1: Of course it wanted to make new highs and then
Speaker 1: we can see March of gold did the same thing
Speaker 1: and bitcoin kind of the same thing. Is that maybe
Speaker 1: what you would expect if there was a big drop,
Speaker 1: Maybe bitcoin does drop with everything, but then it rebounds
Speaker 1: much faster, or what do you think would happen? That
Speaker 1: would be my expectation, and it also depends on what
Speaker 1: is the driver of the bear market. So when you
Speaker 1: highlight the financial crisis, that was not only a bear market,
Speaker 1: as you know, but it was a liquidation of leverage,
Speaker 1: right of debt in the system. And when that happens,
Speaker 1: literally every asset other than let's say, very short term
Speaker 1: safe debt like treasuries loses value. Um. By the way,
Speaker 1: there is an inflection when central bankers get nervous, and
Speaker 1: we saw that inflection during the pandemic in March of
Speaker 1: last year, which was okay, people got freaked out about
Speaker 1: the pandemic. Stocks went down, Bitcoin was going down, then
Speaker 1: gold started going down, and then treasuries started going down.
Speaker 1: And that's the real moment of panic, right if you're
Speaker 1: a central bankers like, oh god, the safe asset right
Speaker 1: now is losing is listening value and that's when that's
Speaker 1: when you pull out all the stops and do whatever
Speaker 1: it takes basically to to keep the system with float.
Speaker 1: So yeah, I expect, I fully expect the price of
Speaker 1: bitcoin to go down in that kind of a liquidation event.
Speaker 1: And that can happen because of some you know, outside
Speaker 1: force like a pandemic or it can be happened. It
Speaker 1: can happen just because central bankers, you know, pull away,
Speaker 1: pull away the punch bowl. So yeah, but in the
Speaker 1: long run it should pass. It has passed, right. We
Speaker 1: saw that leverage liquidation take place last year in the pandemic,
Speaker 1: and of course bitcoin soared in price. Ultimately, you know,
Speaker 1: a year later the price was up by a multiple
Speaker 1: And so yeah, I agree with your characterization there. Yeah.
Speaker 1: And I mean just like the gold crash, like I said, No.
Speaker 1: Eight in the March of twenty and bitcoin seemed to
Speaker 1: follow that pattern. It's not really something that you want
Speaker 1: to trade. I mean, it dropped in and rebounded so
Speaker 1: quick and so fast. Um, that would be hard to
Speaker 1: trade that. Um. And of course you know, the future
Speaker 1: is uncertain. Um, so we don't know. Um. One one
Speaker 1: other thing that I was thinking about as well as
Speaker 1: we already mentioned kind of this financialization of the market
Speaker 1: and maybe somehow kind of starting to move everything together. Um.
Speaker 1: What about the futures that are that we are the
Speaker 1: e t F that we have directly today. Um. And
Speaker 1: because the futures in the United States they've rejected every
Speaker 1: physical one and we only have the cash settled futures um,
Speaker 1: And it seems like all that does is artificially or
Speaker 1: create artificial demand. Right, It creates paper bitcoin in a sense,
Speaker 1: and so instead of billions of dollars going into bitcoin,
Speaker 1: now billions of dollars sitting on the sideline playing the
Speaker 1: paper bet. Um, what do you see the risk in that?
Speaker 1: Do you see that as something that has potential risk
Speaker 1: to suppress the price of bitcoin, both in artificial demand
Speaker 1: as well as even and potentially spoofing and naked shorting
Speaker 1: and things like that. Yeah, I do see a risk mark,
Speaker 1: and it depends though on the magnitude. In other words,
Speaker 1: if I look at bitcoin, I see, okay, this is
Speaker 1: a trillion dollar asset. If I see the value the
Speaker 1: notional value of the futures outstanding growing much more quickly
Speaker 1: and catching up with the value of the underlying asset,
Speaker 1: then I start to get worried about it. Um, I
Speaker 1: don't see that yet, and so I'm not especially worried
Speaker 1: about it at the moment. I would characterize it as Yeah,
Speaker 1: you're absolutely right that a paper claim against bitcoin is
Speaker 1: not the same as the outright bitcoin. Um. The good
Speaker 1: news about having futures products is, you know, for every
Speaker 1: futures contract that is created for which the price of
Speaker 1: the futures contract is higher than Spot. Right I I
Speaker 1: you were in, were in a contango situation with respect
Speaker 1: to the futures curve that does incrementally fuel demand, that
Speaker 1: demand for bitcoin because chances are that, you know, if
Speaker 1: the current Spot prices fifty k today and two months out,
Speaker 1: your futures contract is at six k, well people are
Speaker 1: gonna come in. They're gonna buy Spot basically to close
Speaker 1: that gap. But yeah, I'm on the lookout for how
Speaker 1: is this future market going to develop? Is the notional
Speaker 1: value of all those futures, you know, growing rapidly and
Speaker 1: becoming a significant portion of the overall value of the
Speaker 1: Spot market, of the of the network itself. So I'm
Speaker 1: I'm watching carefully. Mm hmm good, good point. Yeah, it's
Speaker 1: definitely something to see what happens. Um, hopefully it doesn't
Speaker 1: get ran away. I think, uh man, well, we'll see
Speaker 1: about that. Um. You listen to the Markmall Show. We're
Speaker 1: talking about bitcoin. We're talking in the studio here with
Speaker 1: Andy Edstrom. You can find them on Twitter at Edstrom
Speaker 1: and Andrew and we were talking about bitcoin and portfolio
Speaker 1: allocation towards that hopefully that sets you up for next year.
Speaker 1: We both agree that we have a we think a
Speaker 1: ten X and of us not certain, but we think
Speaker 1: there's an easy tex in front of us, and so um.
Speaker 1: If you're not already, it's time to rethink what's your
Speaker 1: portfolio allocation is for two to be ready to crush
Speaker 1: the year and make it the best year of your life.
Speaker 1: That's what I got for you today. Thanks so much
Speaker 1: for listening. To see you next time.