My Ambitious Financing Plan to Buy Bitcoin before Institutional Investments Crowd Arrival
Breaking down my bitcoin investment strategy with the cons and pros of cost-average versus borrow-to-buy.
I am not new to Bitcoin, with an early introduction to the vision, — what really is a decentralised non-inflationary hard money, — back in 2015. And with dabbling here and there over the years I have taken it seriously in 2019 — the crypto winter season— to spent my Pension to buy Bitcoin for the long haul. That's a whole another story and ask me how it works out in about 20 or so years.
TL;DR is that I have been buying and topping up my Bitcoin in my pension account, with some offline small holding stake. Now I decided up the ante, and finance a purchase of a whole bitcoin ASAP. This is following the institutional investor interest of late, to both capitalise on evolution of S2F model predicted growth, as well as the medium-term hedge inflation offset.
Related: Why I eagerly spent my pension on Bitcoin last year before Institutions now follow suit
After watching the recent institutional interest in bitcoin recently, with the ever-growing list of entrants with Millions and Billions of dollars interested in acquiring the scarce, fungible Bitcoin as an asset to hedge the economy and fiat inflation in real terms.
Just a quick look around since the mere early winter of 2020, despite the pandemic, and the state of the economy ( or rather because of it )— the wealth managers scrambled to figure out novel ways to grow or at least maintain their wealth when facing the future uncertainty.
With the ironic alignment of events, the financial 2008 crisis that saw Interest base(UK/US below) rates across the globe plunge to nil or negative — decimating the Bond markets, the typical go-to save heaven for wealth store — at least aiding to off-set the monetary inflation during the turbulent times. Gold is another asset, but seeing the 2% inflation YoY, but the other one of few Hard Assets to consider for wealth store.
In the age of globalisation, the traditional hard assets, in a physical form are not fungible enough and carry their own degree of risk. (No, no one will be transacting in hard gold as a norm in any foreseeable future)
The only other and digital alternative is that Bitcoin — zero-inflation, just as a hard asset to “earn” on the bitcoin network. You can read all about the benefits and forecast from the Stock to Flow model by Plan B here.
Backing my own research, and in light of all these new developments, I had to rethink my extra-long term vision of my pension fund and capitalise on the medium-term time horizon as well the best I can.
It’s clear that the Big Institutional Finance is coming in, and inadvertently this will pump the price further yet. This is early years as far as Bitcoin lifetime is concerned with 6.26 Bitcoins being mined every 10 minutes, following recent halving. The fair bitcoin value — difficulty adjusted and energy required to create is sitting around 15k USD by end of Dec 2020 that is (cited $10k USD back in July 2020)
My Game Plan
This may be a tad unorthodox, but fortune does favour the bold, — Leverage.
Obviously there is such thing as bad debt (Options trading on high leverage) and “good debt” — as irony has it — such as sub 3% for a business (figure risk here) or a personal home mortgage. Sounds fair right?
So much for not investing more for what you can’t afford to lose
Option 1
Well, I went out on a limb, and compared the difference between
- Dollar-Cost-Averaging (DCA) and but a bitcoin every month — a fair and sensible strategy. Alas if my confident bitcoin future to play out, this means that every month i will end up buying bitcoin at a higher and higher valuation, just in time for New market entrants to pump the price ever higher, with on-ramps such as GBTC the Grayscale Bitcoin Trust and Microstrategy Stock Ticker.
That is to say, I can commence saving buying Bitcoin £300 worth, every month until the target valuation of £200k ($300k) with the sell-off goal to enable me to pay off my mortgage in full. Noble strategy.
Did I mention that Paypal and SquareSpace are to add a huge mass market on-ramps? What happens then they offer Bitcoin buying/selling on their own platforms and apps?
Back to my point.
Option 2
Without further delays, I’m cutting right to the chase;
This is my decided option.
Leverage. Why? I figured the 3.5% APR on the Loan, over 5 years just about gets counteracted with Inflation — which is a Lot higher in real terms once we’re done with Stimulus Package Money Printing. It’s a global pandemic And recession, and each and every country is printing themselves out of this.
This becomes a long term risk adjusted take, with opportunity cost met upfront. At sub-£300 per month with a steady income this makes up a small sub 20% stake of my monthly disposable income. Risk is acceptable.
I do have debt, which i’m paying off, and a mortgage. Both are being paid. My pension holds a Bitcoin amongst other diversified ETFs — managed portfolio.
But I do have little to no savings. As far as Net Worth is concerned, Im not doing all that too well. Most of it would be locked in equity I suppose, and we know how much that valuation can fluctuate by. Across the board I have invested about 230% of my actual Net Worth into Bitcoin — non-leveraged Pension and ISA portfolios. All that is long term haul investments.
This particular decision making process, with Option 2 can achieve to grow that “Net worth” exponentially, albeit with employed leverage.
This may not to taste for everyone, and that’s fine with me.
“Do not invest more than you can afford” comes to mind, time again and again. This is where I politely hold a same-but-different take on this view.
This is to say — that does not mean your savings, but exactly that, the mere affordability of risk. If you can afford the risk, then the risk-reward assessment is acceptable.
Affordable leverage is a smart choice and how the larger Investment is realised. Think about your house, your car, your holiday. When was the last time you invested your “cash savings” to buy any of these. Borrow is the norm. Institutions issue debt(borrow), corporations do the same. It’s the name of the game.
Ironically, the irresponsible target-chasing results of leveraging and over-leveraging is what GOT US into this debt spiral. There is a need for a great financial reset, but thats another post.
Where am I now?
All this talk and discussions were great but where is my OWN position on this bitcoin investment with leverage?
Well, I borrowed, I bought.
Foolish or not, time will tell now.
I can sit back, keep paying the loan with interest, which adjusted to inflation and annual salary increases — is NET £0 cost at present.
This is 0% lend effectively in real terms
Also I am locking in the multiplier factor ahead of further rises. I can certainly miss ebbs and flows to perhaps buy-in at a cheaper price. That risk is acceptable to me and I believe opportunity cost versus the inflation realisation imminent will be a riskier game to adjust to in the long run.
What about you
How do you hedge against imminent double digit cost-to-capital inflation in real terms? CPI is a narrow defined metric and far from certain or applicable to all your individual circumstances. A student living at home with parents will have a different inflation impact versus a dental professional in the suburbs or a retiree in their 60s-70s.
How do you plan to hedge that? What instruments do you use?
Keen to learn your opinion and learn
Meanwhile, hope you enjoyed reading in on my own mission statement.
See you on the other side.
