Investment Q&A

Bitcoin is volatile, and can see significant drawdowns, unlike certain stocks of its same size. We feel that bitcoin is carving out its own asset class, and with the US ETFs, there is clear institutional adoption. The underpinnings of the bitcoin network and technology are inherently fascinating, and are certainly a new technology that does not otherwise exist today. This type of technology provides freedom of movement of money, similar to how the internet brought the freedom for movement of information. 

It's been in existence for over 10 years, it started as a valueless asset, with only a few/several hundred individuals that knew about it, and has since grown to a $1.5 trillion asset with large daily inflows into ETFs that hold the asset. For an asset that's been in existence for just over 10 years, and is a brand new technology, this is a pretty impressive feat, but with this, comes significant volatility. 

It has many qualities that individuals can ascribe to, such as a limited supply based on mathematics and code, decentralized infrastructure similar to the internet, the ability to transfer at relatively low costs and extremely low cost of storage relative to other stores of value like gold. There are a lot of interesting properties to bitcoin as an asset. 

There will only ever be 21 million bitcoin in existence. Today there are 19 million in circulation that have been mined over the past 15 years - the remaining 2 million coins will be mined over the next 100 years. This diminishing net issuance of coins is a result of the 'halving'. Every four years the number of bitcoin that can be mined per day gets 'halved'. Today, 900 bitcoin can be mined per day, next week (the halving takes place this Friday) it will be 450 per day, four years from now it will be 225 per day, and so on and so forth. 

There are no cash flows inherent in bitcoin. However, it is a payment/store of value technology backed by math and code, which cannot be destroyed by any government, entity, and it operates under many individual actors that do not have ties to each other, and are only incentivized through sticking to the rules of bitcoins code. These properties, alongside its diminishing and limited supply structure, cause it to have value to certain investors. 

That being said, investors should be aware of its historical volatility, and position sizing is critical. The stats are tough to ignore, it has almost been consistently the best performing asset over the past 10 years, an individual that bought bitcoin and held for at least 3 years at any point in time would have only seen 2-3 days without being in a profit, otherwise it's almost always been profitable to buy and hold for any 3 year period. However, this comes with volatility in between. The inflows to the US ETFs are running at a run-rate of around $50M to $100M per trading day, and compared to its inelastic and constrained supply, this can push its price higher. We feel position sizing and acknowledgment of volatility is critical here, but we think it can perform well with a 5+ year timeframe in mind.

EDIT: For Canadian ETFs, we like: BTCC.B and FBTC, and for US-based ETFs we like: IBIT and FBTC.