I normally write my blogs a few weeks ahead of time. That way I’ve always got posts ready to go. The original first sentence of this post was “Bitcoin is surging.” Oops, it’s plummeted the past few weeks so I have to scratch that sentence! But that doesn’t change the message I’m trying to relay.
From September 2014 through April 2016, Bitcoin hovered in the low hundreds. It spiked to over $13,000 in December 2017, dropped down, went back up, and then kind of went up and down until 2020. Then it really spiked. In September of 2020, Bitcoin was just under $11,000. On May 9th, 2021 it was $58,788. As of May 23rd of the same year it’s 39,756. Source: Statista.com
That surge made millionaires out of some and got the imaginations of countless others dreaming of quick riches. That surge certainly got the attention of a lot of investors who swore to never invest in Bitcoin or any other type of cryptocurrency. Of course, a 5x return in six months on any investment is likely to get anyone’s attention.
So should you start investing in Bitcoin? I think it depends on your level of understanding of Bitcoin, blockchain technology, and other cryptocurrencies.
One of the most common pieces of investment advice comes from Warren Buffett. He says: “Never invest in a business you cannot understand.” If you don’t understand blockchain technology, Bitcoin, or other cryptocurrencies, and still choose to invest in it, you’re going against the advice from one of the most successful investors of all time.
Of course Buffett isn’t correct 100 percent of the time, but he’s right a whole heck of a lot. I tend to listen when he speaks.
But what if you could invest in Bitcoin (and other cryptocurrencies) without actually buying Bitcoin? And what if you were able to do this by investing in something you do understand?
Buy Assets
For anyone who has read Robert Kiyosaki’s book Rich Dad Poor Dad, you know one of the main takeaways from the book is to buy assets. Kiyosaki repeatedly states in the book that the rich buy assets, while the poor and middle class buy liabilities.
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If you know a particular type of asset class really well such as real estate or stocks, can you leverage that knowledge and still profit from Bitcoin, or other types of cryptocurrency? I think it’s possible to invest in Bitcoin without actually buying Bitcoin.
Let’s use the example of Teresa to illustrate the point. Teresa has been investing in buy and hold real estate for the last seven years. She started with a three-bedroom condo that she lived in and rented out two of the bedrooms.
Having roommates covered almost all of her house payment, taxes, insurance, and repairs. This is a strategy known as house hacking. There’s even a whole book written by Craig Curelop specifically about house hacking called The House Hacking Strategy: How to Use Your Home to Achieve Financial Freedom.
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A year later Teresa added another tenant to the condo and moved in to a four- bedroom house that she got a great deal on. This time she got three roommates and lived in the fourth bedroom. Even better than her first property, she was actually making money to live in this house because the rent from the three tenants covered principal and interest, taxes, and money set aside for vacancies, repairs, and capital expenditures.
Teresa continued this pattern of buying a new house every year and living in it with roommates. She also added a couple other rentals she never lived in to her portfolio. In just seven years she had nine properties, several of which she lived in with roommates at one point.
Teresa is a real estate investor. She understands it and is really good at it. It’s made her a lot of money in just seven years’ time. You could say real estate is her sweet spot, or area of expertise. She’s investing in what she knows and understands, and it’s put her on the fast track to financial independence.
Here’s where Bitcoin comes back into play. Suppose Bitcoin becomes a second currency widely accepted, or even replaces some currencies. Teresa is still benefiting because she can accept rent payments in Bitcoin or even sell a property for Bitcoin.
Investing in an asset like real estate gives Teresa the opportunity to collect rent or sell in whatever currency she wants. If Bitcoin becomes the preferred currency, she’ll collect in Bitcoin. If it’s the dollar, she’ll use that. Or if she got a wild idea to trade one of her properties for a car and a boat, she could do that too. Teresa has options because she purchases assets.
Invest in Bitcoin Without Buying Bitcoin: An Indirect Method
While purchasing assets is not a direct way to invest in Bitcoin or other cryptocurrencies, it is an indirect method. If someone like Teresa doesn’t want to divert from her area of expertise—real estate in her case, she doesn’t have to because she’s purchasing assets. Which gives her the option to convert that asset into something else in the years to come.
Many people, myself included, consider Bitcoin too speculative and aren’t ready to purchase it yet as an investment. And that’s ok as long as we are purchasing other assets like stocks and real estate. Down the line if I decide I want to purchase Bitcoin, I can sell a property or start accepting rent in Bitcoin. Or sell stock and buy Bitcoin with the proceeds.
This is an indirect method to investing in Bitcoin, but it’s a viable strategy. Sure, I’m not going to get the benefits of the rapid increases of Bitcoin, but I’m also avoiding some of the risks of the rapid fluctuations Bitcoin has seen. And that is something I want to avoid. It may not be the most optimal thing I can do, but it’s part of my personal investing strategy.
As a side note, I’ve talked with several very intelligent people who are bullish on Bitcoin and other cryptocurrencies. They make compelling cases as to why I should purchase cryptocurrency. I may down the line but I wouldn’t put it in my investment bucket, I’d consider it speculation.
You Can Always Change Your Mind When You Invest in Assets
There’s nothing wrong with changing your mind or strategy. If Bitcoin isn’t for you right now, maybe it will be next year, or in a few years. As long as you’re currently investing in assets, you’ll have the ability to change your mind.
The same principle applies to other assets. If real estate isn’t currently for you, as long as you’re investing in other assets, you can always purchase real estate down the line. Same with stocks and other asset classes.
Investing (and speculating), like almost anything in life, is rarely all or nothing. Someone can purchase Bitcoin, move to another asset class, then move back to Bitcoin. Or start in another asset class then move to Bitcoin. Or start with Bitcoin and remain there exclusively. It very rarely has to be all or nothing.
In Closing
Even if you don’t want to buy Bitcoin now, you can purchase it later with the assets you are currently investing in. Maybe you’ll accept future rent payments in Bitcoin or have your dividends paid out in another type of cryptocurrency–a backdoor way to invest in bitcoin without buying bitcoin. The important thing is to invest in assets, and give yourself options in an ever changing world.
Do you agree with the concept that you can invest in Bitcoin without actually buying bitcoin?
