Bitcoin and ethereum will be with me until death do us part.
It was love at first sight. Now we’re married without a prenup. We will never get a divorce. This undying love might sound crazy or even over the top. Let me explain. My thoughts will help you rethink crypto.
This might not make sense. How do you realize crypto profits if you never sell? Sounds stupid. Hear me out.
I stole the idea from the real estate investing world. When a person buys a property and it goes up in value, they unlock the profit by using the equity in the loan to borrow more money for a second property. The biggest reason property investors do this is to avoid having to pay capital gains tax right now. Makes sense.
The same works in crypto. I can unlock my gains by using my crypto as collateral (security) to borrow money and buy whatever I want. But crypto is more sophisticated than old school analog real estate.
The power of magic internet money
Nat Eliason is a Defi expert. In his Almanack newsletter he claims he can live tax-free off crypto using Defi. While the strategy he shared is too complicated for most, including me, it shows us the potential for crypto’s future.
With traditional money like US dollars, you can save and earn interest. Crypto allows you to earn interest, too, but at a much higher rate. Nat figured out you can go a step further with decentralized finance and earn a return on your crypto assets, but also borrow against them at the same time. This isn’t possible in the traditional world of money.
To reduce risk Nat uses US dollar crypto which is backed one for one with real US dollars. He then uses a product called “Magical Internet Money” (a hilariously satirical name) to borrow against his crypto.
He calls this debt stacking and on $10,000 he’s currently earning 29.7%, without having to sell his crypto and create a taxable event (find all the steps here). This sort of clever strategy is possible with crypto and is only limited by your imagination. Now you can see why I’m never selling my crypto.
Best performing asset in history
Yahoo Finance reported that bitcoin is the best performing asset in history. The analysis was done by finance expert Charlie Bilello. Bitcoin made investors more than ten times the returns of the top 100 companies listed on the technology-focused US Nasdaq. Read that again.
No point arguing with the facts. The data makes the conclusion obvious. To deny it is moronic at this stage of the game.
The UK banking giant Standard Chartered sees bitcoin going to $175,000 per coin and ethereum reaching $35,000 per coin. That’s a 3X on bitcoin and a 10x on ethereum. Even if prices go that high I’m not selling. Here’s why.
When you sell bitcoin and ethereum it ends up in the hands of Wall Street. They will buy what is sold, now that the asset is proven.
Wall Street is getting none of my crypto. They’ve had an unfair advantage for decades. Holding onto my bitcoin and ethereum is a silent protest. Sorry suits. Hoodies for the win.
Adoption of ethereum is faster than the internet
Well-known investor Raoul Pal analyzed the network adoption of the internet versus the ethereum network. Ethereum is growing at twice the rate that the internet did through its growth spurt.
Raoul says “it will grow 200x from here. I have never seen anything like this because nothing like this has ever happened in human history in such a short space of time.”
Network effects have a lot to do with value. When a technology is being adopted at an incredibly fast speed it would be stupid to sell out. Ethereum and bitcoin are still in the early adopter phase, yet they have the traction to show what the crypto future will look like.
Call me stupid … but it seems dumb to sell bitcoin and ethereum when the network effects that made companies like Google and Facebook household names are only just getting started.
You have to be patient to unlock the value of the fastest network effects of any technology in human history. Worth the wait, I say.
The mental model that’s not worth interrupting
My mental model is don’t stop doing what works. What doesn’t work for me is a savings account that earns 0.3% interest when inflation is 5%, if you trust the official numbers.
Investing royalty Charlie Munger says, “The first rule of compounding: Never interrupt it unnecessarily.” I agree. Crypto has been around since 2008. That’s 13 years of data.
The data clearly gives us one message: don’t interrupt the compounding nature of crypto. There is no need to jump in and out of the market with bitcoin and ethereum. Buy and hold. Let the blockchain revolution do the rest of the work for you.
You have to have strong belief in what you invest in
My belief in bitcoin and ethereum is based on 8 years of daily research — not blind belief. When you have belief backed up by your own research, it’s easy to have heavy conviction and not want to sell.
I worked with one of the first-ever crypto companies. I’ve endured years of online critics telling me bitcoin and ethereum is a stupid little dream. Many of my finance colleagues publicly made me look stupid in front of senior leaders — and even customers — for believing in crypto.
I’ve given up too much to get this far. Bitcoin and ethereum will be a big part of our technological future. $2.2 trillion worth of money so far backs up how big the idea has become. I’m not selling, ever.
No ban in the US is going to happen
The threat of the largest economy in the world — America — banning crypto has been a huge problem for a long time.
The head of the US Securities and Exchange Commission, Gary Gensler, has made it clear recently, as reported by Bloomberg, that bitcoin and ethereum won’t be banned. The US has always been a hub for innovation and this decision is a clear vote to keep things that way.
What will likely be banned in the US are stable coins like Tether that act as digital US dollars. Gary Gensler and other important decision-makers have made that clear. When the decision is made I expect crypto markets to panic and go down in the short term. Obviously when that happens I’ll be buying the discounted ethereum and bitcoin like I always do.
Dips are for buyers who like discounts. That mental resilience to see huge drops in price that way comes from being part of the ups and downs of crypto over the last few years.
You could say bitcoin and ethereum make you mentally tougher.
The basics of supply and demand show the shortages in both bitcoin and ethereum. I see it as a mathematical certainty that we will see much higher prices in both investments over the next year.
There’s no way I’m selling when the crypto industry is in its infancy and digital scarcity that can be proven by public records is obvious, even to people like me who are mathematically handicapped.
I am not selling my bitcoin or ethereum to Wall Street. Ever. I will borrow against both, though, to unlock the enormous gains. You do you.
This article is for informational purposes only, it should not be considered financial, tax or legal advice. Consult a financial professional before making any major financial decisions.