{"id":24490,"date":"2024-03-14T17:07:22","date_gmt":"2024-03-14T17:07:22","guid":{"rendered":"https:\/\/bitcoins-101.com\/2024\/03\/14\/your-financial-plan-may-be-riskier-without-bitcoin\/"},"modified":"2024-03-14T17:07:22","modified_gmt":"2024-03-14T17:07:22","slug":"your-financial-plan-may-be-riskier-without-bitcoin","status":"publish","type":"post","link":"https:\/\/bitcoins-101.com\/2024\/03\/14\/your-financial-plan-may-be-riskier-without-bitcoin\/","title":{"rendered":"Your financial plan may be riskier without bitcoin"},"content":{"rendered":"

This article originally appeared in the Sound Advisory blog<\/a>. Sound Advisory provide financial advisory services and are specialize in educating and guiding clients to thrive financially in a bitcoin-powered world. Click here<\/a> to learn more.<\/strong><\/p>\n

\u201cBelief is a wise wager. Granted that faith cannot be proved, what harm will come to you if you gamble on its truth and it proves false? If you gain, you gain all; if you lose, you lose nothing. Wager, then, without hesitation, that He exists.\u201d<\/em><\/p>\n

– Blaise Pascal<\/em><\/p>\n

Blaise Pascal only lived to age 39 but became world-famous for many contributions in the fields of mathematics, physics, and theology. The above quote encapsulates Pascal\u2019s wager\u2014a philosophical argument for the Christian belief in the existence of God. <\/p>\n

The argument’s conclusion states that a rational person should live as though God exists. Even if the probability is low, the reward is worth the risk. <\/p>\n

Pascal\u2019s wager as a justification for bitcoin? Yes, I\u2019m aware of the fallacies: false dichotomy, appeal to emotion, begging the question, etc. That is not the point. The point is that binary outcomes instigate extreme results<\/strong>, and the game theory of money suggests that it\u2019s a winner-take-all game.<\/p>\n

The Pascalian investor: A rational approach to bitcoin<\/h2>\n

Humanity\u2019s adoption of \u201cthe best money over time\u201d mimics a series of binary outcomes\u2014A\/B tests<\/a>. <\/em><\/p>\n

Throughout history, inferior forms of money have faded as better alternatives emerged (see India\u2019s failed transition to a gold standard<\/a>). And if bitcoin is trying to be the premier money of the future, it will either succeed or it won\u2019t.<\/p>\n

\u201cIf you ain\u2019t first, you\u2019re last.\u201d -Ricky Bobby, Talladega Nights, on which monies succeed over time.<\/em> <\/p>\n

So, we can look at bitcoin success similarly to Pascal\u2019s wager\u2014let\u2019s call it Satoshi\u2019s wager. The translated points would go something like this:<\/p>\n

If you own bitcoin early and it becomes a globally valuable money, you gain immensely. \ud83d\ude00If you own bitcoin and it fails, you\u2019ve lost that value. \ud83d\ude22If you don\u2019t own bitcoin and it goes to zero, no pain and no gain. \ud83d\ude10 If you don\u2019t own bitcoin and it succeeds, you will have missed out on the significant financial revolution of our lifetimes and fall comparatively behind. \ud83d\ude21<\/p>\n

If bitcoin is successful, it will be worth far more than it is today and have a massive impact on your financial future. If it fails, the losses are only limited to your exposure. The most that you could lose is the money that you invested. <\/p>\n

It is hypothetically possible that bitcoin could be worth 100x more than it is today, but it can only possibly lose 1x its value as it goes to zero. The concept we\u2019re discussing here is asymmetric upside<\/strong> – significant gains with relatively limited downside. In other words, the potential rewards of the investment outweigh the potential risks. <\/p>\n

Bitcoin offers an asymmetric upside that makes it a wise investment for most portfolios. Even a small allocation provides potential protection against extreme currency debasement.<\/p>\n

Salt, gasoline, and insurance<\/h2>\n

\u201cDon\u2019t over salt your steak, pour too much gas on the fire, or buy too much insurance.\u201d <\/em><\/p>\n

A little bit goes a long way, and you can easily overdo it. The same applies when looking at bitcoin in the context of a financial plan.<\/p>\n

Bitcoin\u2019s asymmetric upside gives it \u201cinsurance-like\u201d qualities, and that insurance pays off very well in times of money printing. This was exemplified in 2020 when bitcoin’s value increased over 300% in response to pandemic money printing, far outpacing stocks, gold, and bonds. <\/p>\n

Bitcoin offers a similar asymmetric upside today. Bitcoin’s supply is capped at 21 million coins, making it resistant to inflationary debasement. In contrast, the dollar’s purchasing power consistently declines through unrestrained money printing. History has shown that societies prefer money that is hard to inflate. <\/p>\n

If recent rampant inflation is uncontainable and the dollar system falters, bitcoin is well-positioned as a successor. This global monetary A\/B test is still early, but given their respective sizes, a little bitcoin can go a long way. If it succeeds, early adopters will benefit enormously compared to latecomers. Of course, there are no guarantees, but the potential reward justifies reasonable exposure despite the risks. <\/p>\n

Let\u2019s imagine Nervous Nancy, an extremely conservative investor. She wants to invest but also take the least risk possible. She invests 100% of her money in short-term cash equivalents (short-term treasuries, money markets, CDs, maybe some cash in the coffee can). With this investment allocation, she\u2019s nearly certain to get her initial investment back and receive a modest amount of interest as a gain. However, she has no guarantees that the investment returned to her will purchase the same amount as it used to. Inflation and money printing cause each dollar to be able to purchase less and less over time. Depending on the severity of the inflation, it might not buy anything at all. In other words, she didn\u2019t lose any dollars, but the dollar lost purchasing power. <\/p>\n

Now, let\u2019s salt her portfolio with bitcoin.<\/p>\n

99% short-term treasuries. 1% bitcoin.<\/p>\n

With a 1% allocation, if bitcoin goes to zero overnight, she\u2019ll have only lost a penny on the dollar, and her treasury interest will quickly fill the gap. Not at all catastrophic to her financial future. <\/p>\n

However, if the hypothetical hyperinflationary scenario from above plays out and bitcoin grows 100x in purchasing power, she\u2019s saved everything. Metaphorically, her entire dollar house burned down, and \u201cbitcoin insurance\u201d made her whole. Powerful. A little bitcoin salt goes a long way. <\/p>\n

(When protecting against the existing system, it\u2019s important to remember that you need to get your bitcoin out of the system. Keeping bitcoin on an exchange or with a counterparty will do you no good if that entity fails. If you view bitcoin as insurance, it\u2019s essential to keep your bitcoin in cold storage and hold your keys<\/a>. Otherwise, it\u2019s someone else\u2019s insurance.)<\/p>\n

When all you have a hammer, everything looks like a\u2026<\/h2>\n

A construction joke:<\/p>\n

There are only three rules to construction: 1.) Always use the right tool for the job! 2.) A hammer is always the right tool! 3.) Anything can be a hammer! <\/em><\/p>\n

Yeah. That\u2019s what I thought, too. Slightly funny and mostly useless. <\/p>\n

But if you spend enough time swinging a hammer, you\u2019ll eventually realize it can be more than it first appears. Not everything is a nail. A hammer can tear down walls, break concrete, tap objects into place, and wiggle other things out. A hammer can create and destroy; it builds tall towers and humbles novice fingers. The use cases expand with the skill of the carpenter. <\/p>\n

Like hammers, bitcoin is a monetary tool. And a 1-5% allocator to the asset typically sees a \u201cspeculative insurance\u201d use case – valid. Bitcoin is speculative insurance, but it is not only speculative insurance. People invest and save in bitcoin for many different reasons. <\/p>\n

I\u2019ve seen people use bitcoin to pursue all of the following use cases: <\/p>\n

Hedging against a financial collapse (speculative insurance)Saving for family and future (long-term general savings and safety net)Growing a downpayment for a house (medium-term specific savings)Shooting for the moon in a manner equivalent to winning the lottery (gambling)Opting out of government-run, bank-controlled financial systems (financial optionality)Making a quick buck (short-term trading)Escaping a hostile country (wealth evacuation)Locking away wealth that can\u2019t be confiscated (wealth preservation)As a means to influence opinions and gain followers (social status)Fix the money and fix the world (mission and purpose)<\/p>\n

Keep this in mind when taking other people\u2019s financial advice. They are often playing a different game than you. They have different goals, upbringings, worldviews, family dynamics, and circumstances. Even though they might use the same hammer as you, it could be for a completely different job. <\/p>\n

Wrapping Up<\/h2>\n

A massive allocation to bitcoin may seem crazy to some people, yet perfectly reasonable to others. The same goes for having a 1% allocation. <\/p>\n

But, given today\u2019s macroeconomic environment and bitcoin\u2019s trajectory, I find very few use cases where 0% bitcoin makes sense. By not owning bitcoin, you implicitly say that you are 100% certain it will fail and go to zero. Given its 14-year history so far, I\u2019d recommend reducing your confidence. Nobody is 100% right forever. A little salt goes a long way. Your financial plan may be riskier without bitcoin. Diversify accordingly. <\/p>\n

\u201cWe must learn our limits. We are all something, but none of us are everything.\u201d – Blaise Pascal.<\/em><\/p>\n

Contact<\/h4>\n

Office: (208)-254-0142<\/a><\/p>\n

<\/a>408 South Eagle Rd.<\/p>\n

Ste. 205<\/p>\n

Eagle, ID 83616<\/p>\n

hello@thesoundadvisory.com<\/a><\/p>\n

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This article originally appeared in the Sound Advisory blog. Sound Advisory provide financial advisory services and are specialize in educating and guiding clients to thrive financially in a bitcoin-powered world. Click here to learn more. \u201cBelief is a wise wager. Granted that faith cannot be proved, what harm will come to you if you gamble […]<\/p>\n","protected":false},"author":0,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-24490","post","type-post","status-publish","format-standard","hentry","category-crypto-news"],"_links":{"self":[{"href":"https:\/\/bitcoins-101.com\/wp-json\/wp\/v2\/posts\/24490"}],"collection":[{"href":"https:\/\/bitcoins-101.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bitcoins-101.com\/wp-json\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/bitcoins-101.com\/wp-json\/wp\/v2\/comments?post=24490"}],"version-history":[{"count":0,"href":"https:\/\/bitcoins-101.com\/wp-json\/wp\/v2\/posts\/24490\/revisions"}],"wp:attachment":[{"href":"https:\/\/bitcoins-101.com\/wp-json\/wp\/v2\/media?parent=24490"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bitcoins-101.com\/wp-json\/wp\/v2\/categories?post=24490"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bitcoins-101.com\/wp-json\/wp\/v2\/tags?post=24490"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}