Cryptocurrency For The FIRE Minded Investor

I know cryptocurrency is a very controversial topic to discuss as it pertains to investing. It seems to have been embraced more by the millennial and younger generations and shunned by generation X and older. Some would even dare to say it has no right to be discussed in the same light with financial independence, but as I discussed in my pervious post on investment strategies, I believe that 5 – 10% of your portfolio should be in risky assets of your choosing.

I recently read an article from the motley fool which discussed why bitcoin has fallen 80% from a year ago and where it will go next. The article of course discussed the speculative nature of bitcoin and it’s recent volatility. The article ends by stating that Blockchain and not the cryptocurrency tokens/coins themselves, is where the real value lies and it’s also what makes cryptocurrency proprietary. Without the Blockchain technology there would be no cryptocurrency. So an investment in Blockchain is indirectly an investment in cryptocurrency with less speculative risk.

So what exactly is Blockchain anyway? Blockchain is the digital and decentralized ledger that records all transactions. Every second of every day, businesses exchange value with suppliers, partners, customers and others. Successful transactions need to be fast, precise and easily agreed upon by parties participating in the transaction. Blockchain can provide a way to execute these transactions in a much better way.

Blockchain is decentralized and it isn’t stored in a central location, but rather on hard drives and servers all over the world. This is important as it prevents a single individual, business, or cybercriminal from gaining control of the network. Thus, blockchain is expected to be even safer than banking systems today.

There are many ways to invest in blockchain either by buying ETF’s or individual stocks that have a vested interest in developing the blockchain technology. So you can purchase stocks using the buy and hold method through a regular brokerage or microinvesting. I am a fan of microinvesting, especially if you will be investing small sums of money at at time as it makes easier to dollar cost average into the market which is even better to do during a bear market. You can invest either through your tax advantage accounts like your IRA or a taxable account. 

For those of the conservative mindset ETF’s may be the way to go. Some of the top ETF’s are BLCN (Reality Shares Nasdaq NexGen Economy ETF), BLOCK (Amplify Transformational Data Sharing ETF and KOIN (Innovation Shares NexGen Protocol ETF). EFT stands for exchange traded funds and they are made up of multiple stocks. You can research them using seekingalpha.com , morningstar.com or whatever investing research site you like best. For example BLCN’s top holding includes 2.67% RHT, 2.27% INTC and 2.18% BABA. For example if you invested $1 in the BLCN ETF 2.67% of it or 0.027 cents would purchase RHT and 2.27% or 0.023 cents would purchase intel. There is also an expense ratio of 0.68% that goes to the fund manager yearly. So if you invested $1 then 0.0068 cents will be paid yearly to the fund manager. It’s less than a penny, but believe it or not this is considered to be on the high end for an expense ratio where a good expense ratio is considered 0.5 to 0.75% and even less for a passively managed fund that just tracks an index, AKA an index fund. So yes this is an actively managed fund and not a low cost passively managed fund like I prefer to invest in, simply because a lot of active fund managers attempt to beat the market and sometimes sell too much in bear markets and miss out on the gains when the market recovers. In order to avoid the high expense ratio fees the alternative is to buy low cost index funds if you can. In this case it’s not an option in this relatively new market sector, so buying individual stocks is the other way out.

Some of the top blockchain stocks currently available include IBM, MasterCard, NVIDIA, AMD, SQ, Intel and many more. I think IBM is the best out of the lot because of its commitment to the cloud computing industry and also pending acquisition of Red Hat which will greatly increase its prowess in the Blockchain arena. Data storage and computational analysis will be of much greater need in the future. 

You could even somewhat combine the two strategies to gain exposure to blockchain by creating your own personalized ETF or pie as M1 Finance likes to call it and you can be your own fund manager. You could buy individual stocks that make up the blockchain ETFs and set your own asset allocation. You can then set up multiple pies that mirrors any of the blockchain ETFs or pick and chooses the particular stocks that you want to use to build your pie. For instance you could have 20% of your pie in IBM and then rebalance whenever it falls 5 or more percent outside that range or just when the market changes 10 or 20 percent. It may also be best to rebalance your portfolio once a year to avoid paying too much capital gains tax, but just something to consider and is generally an insignificant amount when investing small sums of money. 

DISCLAIMER

I am not a licensed accountant or financial advisor or hold any type of professional financial certifications. This content is general information on investment strategy and does not constitute official or personalized investing advice. It is not a solicitation to buy or sell stocks or any security.  Invest at your own risk. The views of this blog are my opinion alone unless stated otherwise. Any type of historical financial success does not guarantee future returns.

One thought on “Cryptocurrency For The FIRE Minded Investor

  1. Pingback: Investment Strategies – The Fire Investor

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