Is It Too Late To Buy Bitcoin?

The Pomp Letter (private feed for [e-mail])

To investors,

As the price of bitcoin has risen in recent weeks, I keep getting asked whether it is a good time to purchase bitcoin. This question comes from friends, colleagues, barbers, taxi drivers, doormen, and random people I meet socially.

Everyone wants to know if they should be buying bitcoin or if it is too late.

Here is what I tell them — the decision to purchase bitcoin today comes down to three inputs: time, size, and education.

On the time aspect, the most important factor in deciding to buy bitcoin is how long you plan to hold the asset. If you want to buy bitcoin to sell at a profit next week, then I have no clue if you should buy or not. Timing markets is very hard. I don’t know how to do it. But if you want to buy bitcoin and hold it for 5 years or longer, then the odds are in your favor that bitcoin’s price will be higher in the future.

Time in the market is more important than timing the market.

On the sizing aspect, the decision to purchase bitcoin should be separate and distinct from the decision on how much capital you use to purchase bitcoin. The former is a binary decision—you either buy it or you don’t. The latter point raises the question of position sizing, which is a much more personal decision. You have to evaluate your net worth, your annual income, your future expected expenses, and your risk appetite.

I can’t tell you what the right percentage of bitcoin is for your portfolio, but I can tell you that 0% is probably the wrong answer.

Lastly, for the education aspect, the decision to purchase bitcoin is ultimately driven by whether you understand what you are buying or not. If you have put in the time and effort to learn about bitcoin, you are more likely to hold through any market volatility. But if you are merely buying bitcoin because you think you will get rich, and you haven’t spent the time and effort to learn, then you will sell at the first sign of trouble.

You get out of bitcoin what you put into it.

This brings me back to the original question—is it too late to buy bitcoin?

In my humble opinion, there is never a bad time to buy bitcoin if you have spent time learning about the asset, are going to put a small percentage of your portfolio into the asset, and you plan to hold it for at least 5 years. Does that guarantee success? No, but it drastically increases the odds. And good odds are all an investor can ask for.

A new monetary asset only comes around every few hundred years. Bitcoin promises to be the next great monetary asset. Now we must wait and see whether the promise becomes reality, but I like our odds.

Current Market Conditions

The second half of December is usually time to celebrate. Everyday Americans are preparing for Christmas and the holidays, while investors are getting ready for one of the most bullish times of the year.

Geiger Capital shared a great visual that shows how good the last two weeks of the year has been historically.

Enthusiasm is palpable right now. We also have the Federal Reserve cutting interest rates and helping to expand the money supply, so it appears that history is rhyming. I expect the next two weeks to drive asset prices higher as we close out the year.

As prices have gone higher, an interesting dynamic has developed — Fidelity’s Jurrien Timmer writes:

“We all know about the $100k milestone that Bitcoin reached last week, but gold and Bitcoin (which I view as different players on the same team) have reached a major milestone together. Combined they are now worth around $20 trillion, which is almost as much as the US money supply (M2).

The chart below shows real M2 against the inflation-adjusted market cap of Bitcoin and “above-ground” gold. During periods of excessive monetary inflation, gold’s value has tended to “catch up” to the money supply. It happened in the 1930’s, 1970’s, 2000’s, and now in the 2020’s. This is what stores of value do: they keep up with (and sometimes briefly exceed) the quantity and price of money. How much the quantity and price of money are related to each other is the subject for another WAAR.

While the $100,000 “round number” price point is understandably getting a lot of attention, that’s just the price. For me, the above chart shows that there are ways to put a value on both gold and Bitcoin, even though they don’t produce cashflows. Price and value are not the same thing: price is what you pay and value is what you get.

Bitcoin at $100k can be high or low, depending on your point of view, but a combined market value of $20 trillion is a number rooted in monetary fundamentals. Whether Bitcoin and gold will keep advancing from here will depend on many factors, but surely the growth of the money supply will be one of them.”

The story of gold is well told throughout history. The story of bitcoin is just beginning. And bitcoin is going to keep appreciating as long as the US government keeps printing money.

Hope everyone has a great start to your week. I’ll talk to you tomorrow.

-Anthony Pompliano

Founder & CEO, Professional Capital Management

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