Bitcoin represents an asymmetric bet. It is one of the few assets that has the potential to 50x.
I think it’s smart to invest 1% of your net worth into bitcoin. If you have $100k in investable assets in your 401k or bank account, you could consider buying $1,000 worth of Bitcoin. With Bitcoin costing $29,749.64 for 1 bitcoin as I’m writing this $1,000 would get you 0.03302561. If bitcoin was to hit $100k that’d be worth $3,302. If Bitcoin goes to $1 million/coin you’d have $33,025.
Once you accumulate a higher net worth you can actually bet a larger amount to bitcoin, say 2%-5%. The reason is you have the safety of your core position of assets in case your asymmetric bet goes poorly. If your core position is $500k and you invest $5k or even $10k, in the chance your asymmetric bet goes to $0 you still have $490k in your core position, which is still a strong position to be in.
Nassim Nicholas Taleb shares the concept of asymmetric bets. Safe/low risk positions in your investments act as an anchor while as well as big/high risk investments give you the opportunity to “hit it big”. Bitcoin would fall into this big payoff/high risk category.
But as noted, if you have a very safe base of index funds as your safe/low risk position, it might make sense to take some risk, but only with what you are willing to lose! Most people think they are willing to take more risk than they actually are. Once a position drops 50% people often sell. You need to consider what you will do if your asymmetric bet drops 50% BEFORE it happens. If your answer is “sell” the asymmetric bet probably wasn’t something you should have done in the first place!. If the answer is buy, and you are sure you will do that, perhaps you should consider the asymmetric bet. Personally this is the position I was in all of 2022. I was buying bitcoin all the way from $60k down to $15k. It is now at $29k and I am just a little in the green, but at the start of 2023 I was 50% in the negative on my bitcoin holdings!
The majority of my personal portfolio is invested in safe index funds. But I do have 2 potential asymmetric bets with a smaller portion of my portfolio, Tesla and Bitcoin.
If you’d like to learn more about bitcoin you can read plenty of my posts.
Nobody Wants to Buy Bitcoin… Yet
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