Is it too late to invest in Bitcoin?
Financial Experts Hann and Sani discuss Bitcoin’s 138% YTD gain and EPF’s investment strategy.
On Wednesday, I had the privilege of hosting a discussion featuring Hann Liew, the founder and ex-CEO of RinggitPlus, and Economist Sani Hamid.
The speakers shared insights on Bitcoin’s impressive 138% gain on a year-to-date basis and crypto as an investment class.
The second half of the discussion covered EPF’s investment strategy and its projected payout for 2023, which experts estimate should range between 5.4–5.7%.
Scroll down for a written summary of the session.
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Quick Facts:
Bitcoin’s remarkable performance this year is shocking. The asset has rallied to a 19-month high of $39,675, up 138% on a year-to-date basis.
Bitcoin’s performance has eclipsed other asset classes, such as gold (up 12.67% within a similar timeframe), the S&P (up 19.25%), and the FBMKLCI (down 2.29%).
Q1: What gives Bitcoin value, and why is it unique?
Bitcoin’s value comes from its digital nature and the ability to facilitate transactions without an intermediary. Think Visa or Mastercard — These tech companies settle transactions across the globe, which gives them enormous value.
But Bitcoin goes beyond just serving as a settlement network; it operates in a decentralized manner, free from any central authority.
Bitcoin is also scarce, with a maximum supply capped at 21 million coins. Its issuance follows a scheduled and predictable reduction every four years, a process known as “halving.”
This limited supply enhances Bitcoin’s store of value, setting it apart from traditional currencies that lack issuance limits and are susceptible to an increase in supply when central banks opt to print more money.
Q2: Why is Bitcoin so volatile?
Bitcoin’s volatility comes from its limited supply and highly varying demand. Sentiment in the market fluctuates wildly, influenced by external events like the FTX and Celsius crises in 2022.
Bitcoin has performed well this year due to the banking crisis in March and rumors of the US SEC approving a Bitcoin Spot ETF.
Another significant contributor to Bitcoin’s volatility is that it is still a new asset. Created in 2009, the cryptocurrency is mainly held by retail investors.
When the market performs badly, less-experienced investors are more susceptible to selling out of fear, potentially triggering a crash. This works in the opposite when the market rises.
Q3: How can we position ourselves in a volatile asset like Bitcoin?
Hann: You may think that adding a volatile asset increases the risk of your overall portfolio, but quite the contrary, it actually reduces the risk.
The key is to have a limited exposure so your portfolio does not take a heavy downturn when Bitcoin crashes.
For those seeking lower risk, allocating 1–3% of your portfolio to Bitcoin has been shown to reduce overall volatility while maximizing returns.
If you have a higher risk tolerance, you might consider allocating a higher percentage, even into the high single digits.
However, it’s crucial to recognize that everyone’s risk profile is unique, so be sure to evaluate your risk tolerance before investing in volatile assets.
Q4: But is it the right time to buy Bitcoin?
Stop speculating, and start allocating. There is no “right” time to enter into this asset (or any asset in particular).
Instead of trying to predict the ideal moment, consider Dollar Cost Averaging (DCA) into Bitcoin each month, regardless of price fluctuations. This can help to smoothen out price swings.
Alternatively, you can set a fixed percentage of your portfolio for Bitcoin and adjust your allocation every month. For instance:
Example 1: If your target is 5% in BTC but you currently hold 3%, it’s an indicator to increase your Bitcoin allocation.
Example 2: If your target is 5% in BTC, but your portfolio is now at 10% due to the recent crypto rally, it’s an indicator to take profits to reduce your overall exposure.
This strategy shifts the focus from speculating on the perfect entry to a more disciplined approach of consistent investment based on your predetermined targets.
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Q5: What is EPF’s investment strategy?
As of September, EPF’s investment assets stood at RM1.092 trillion, with the majority of it (local and overseas) split between fixed-income (45%) and equities (44%).
On the topic of equities, EPF held RM146.4 billion in local stocks in 2021. This allocation was almost three times larger than its cumulative position in the US stock market (Nasdaq & NYSE), at RM57 billion.
The total size of the Malaysian stock market was RM1.79 trillion in 2021, so EPF effectively commanded 8.18% of the FBMKLCI.
A large part of EPF’s local equity portfolio is invested in major banking stocks.
Maybank, Public Bank, CIMB, and RHB make up 32% of the RM146 billion allocated.
Q6: Should we follow EPF’s investment strategy?
The retirement fund is expected to pay 5.4–5.7% dividends this year, on the back of its recent 3rd quarter report, which showed a healthy increase in investment income.
While following EPF’s investment structure may seem appealing, younger individuals might benefit from increased exposure to equities for higher returns.
For those nearing retirement, directly investing in EPF is a good option, as by age 55, you can withdraw any amount at any time while still earning dividends annually.
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