Crypto Investment Strategy

Bitcoin has increased by 300% in the last three months from $10k (Oct 3) to $33k per $BTC (Jan 3). Ethereum has also increased by 270% in the same period from $350 (Oct 3) to $950 (Jan 3) per $ETH.

I started buying Cryptocurrency in early 2013 ($BTC mainly) mainly because I thought it was an interesting concept at ~$50 a coin. I ‘lost’ most of these coins as part of the Mt Gox Bankruptcy in 2014. I’m hopeful that 10-15% of our holdings may be returned soon, after seven years of waiting.

The US government has printed more than 20% of the total USD in circulation in 2020 alone (over $USD 9 Trillion) and many people have no idea we just got a lot poorer. Given this is happening globally (across governments) I’m starting to think that I should have a more significant percentage of my savings in $BTC and cryptocurrency in general over fiat ($USD). There are also lots of other benefits/value of cryptocurrency beyond inflation protection but I won’t cover them here.

Ultimately, I’d like to allocate 10%+ in Crypto, 20% in technology companies (private), 30% in real estate and 40% in public equities (mostly in tax advantaged retirement and non liquid accounts) but this will take many years and a good amount of luck, too 🙂

Given these observations, here is how I’ll modify my strategy going forward.

Crypto Strategy

  • Focus on $BTC and $ETH: Most of my $BTC is locked up in Mt. Gox (stuck in bankruptcy proceedings), and this counts towards my overall allocation. I assume around 15% of coins returned at some point as $BTC (not fiat). My next largest position is ETH which I’ve had for years. I plan to hold BTC/ETH/All Altcoins in a 50/35/15 ratio in terms of USD fiat value.
  • Regular Purchase: I started taking 15% of my paycheck (2x per month) and purchasing $BTC and $ETC in an equal ratio (50/50) as I am over indexed in $BTC. The goal here is to remove emotion from the decision and dollar cost average over the next few years.
  • Crypto Savings Account: I moved all my extra money to BlockFi and now Celsius (referral links). I have kept some $BTC and $USDC (USD stablecoin) in BlockFi the last year and would rather make 5-8% interest vs. 0.5% interest in traditional finance alternatives. Note that BlockFi is not risk free (they are lending like banks do) but they do have strong security measures to protect your collateral.
  • (optional) DeFi: I have positions in all the stuff powering Decentralized Finance (DeFi) on the Ethereum network, which started for fun but now is more significant (which is how $BTC started for me anyway). I play around with staking, liquidity pools and lending but beware the gas fees (I got burned). My largest position outside of ETH is in this DeFi Pulse Index (https://defipulse.com/blog/defi-pulse-index/) which is a weighted index of all the tokens powering DeFi.

I also hold small amounts of other Altcoins like Stellar Lumens ($XLM), Polkadot ($DOT), Ripple ($XRP), Filecoin ($FIL bought in the 2017 SAFT), Arweave ($AR), UNI ($UNI), Sushi ($SUSHI), Cosmos ($ATOM), Solana ($SOL) as well as about a dozen others, but those are more out of interest than part of an actual strategy. I also added NFTX as an index for collectibles to the mix.

All of this is still very experimental, and I wrote this up to share more easily and get feedback. Despite dabbling for eight years, I still feel like a n00b most of the time in the crypto world.

Unbundling your Job

Why do we have jobs? Jobs provide us with a bundle of many things, which is why they’ve been around for so long:

  • Predictable cashflow: cover lifestyle costs, plan for the future.
  • Benefits: 401k retirement accounts, health and life insurance, paid time off, access to new capital such as mortgages.
  • Purpose: creative outlet, sense of accomplishment, contribution towards something bigger than yourself.
  • Identity: personal and company branding, access to opportunities and people that would not otherwise be attainable.
  • Community: friendships, human contact, collaborating with others towards a shared purpose.

A job as a bundle was an important innovation, particularly when people spent a lot of their careers working at the same place for a very long time. But this innovation could create fragility in people’s lives — if they stop working in their jobs they lose this entire bundle of important life pillars which increases the switching cost for work. For example, my father in law has been a neurologist at the same hospital for 35 years; his purpose, sense of accomplishment and community are all closely tied to his work. When he retires he will lose all these important parts of his life at the same time and it may hit him harder than if parts of his life were more diversified.

With the rise of the passion economy, I believe we will start to see more unbundling of work where people will get predictable cashflow, purpose, and community from different places and it will ultimately lead to more antifragility in people’s lives which I think will be positive for society.

I’ve been starting consider what it would look like to unbundle the predictable cashflow component from my job. A couple of areas that I’m starting to explore, beyond dividend focused public markets investing are below:

  • Franchises: One idea could be investing in / running franchises which can have quite low initial investment costs, fast payback periods and decent margins which can lead to predictable cashflow. You would need to diversify the type of franchises to invest in so you’re not over-indexed on specific sectors e.g. boutique fitness or fast-food.
  • Real estate: A diversified real estate portfolio which focuses on yield is another interesting product to generate cash flow from rental income. I’m currently investing in tools like Fundrise and potentially Cadre to learn how each of these work.
  • Decentralized Finance (2021 Update): Decentralized Finance powered by cryptocurrency allows normal people to access financial grade products in a distributed way v.s. going through centralized (traditional) financial services institutions which take most of the revenue and profits for themselves.

This is just an idea, and I plan to continue to iterate on this concept as I continue to refine my thinking on the subject.