Before I found Bitcoin, I was pretty obsessed with the early retirement / financial independence sphere. If you have no idea what I’m talking about I recommend you check out MMM (even though the last time I checked he has zero understanding about Bitcoin).
The idea is basically this: You save as much from your salary as possible. With it you buy index fund ETFs (because we assume they will forever go up on average ~7% per year, historically has been the case). You repeat this many years and two things will happen. One, you will become frugal and your monthly expenses will be low. Two, the ~7% your ETF ‘stack’ will produce in perpetuity will be enough for you to live on. Now you can retire. Simple as that!
Sounds very familiar doesn’t it? These boys are stacking stocks.
There’s however a slight difference in thinking in my opinion. They don’t understand money, should I say, at all. They think they are building a money machine that will never run out of steam. And when the machine is ready, they can sit on their asses for the rest of their lives and the money will never run out. I’m not sure they understand that they are cheering for money printing and aim to be the beneficiaries of the Cantillon effect on ‘everybody’ else’s expense. Compare the situation with Bitcoin stackers. Sure, we also aim to build a stack that will last ‘forever’. But every time you sell Bitcoin, you will have less Bitcoin. Even if your fiat net worth increases forever. On a thought level, we understand that living off of a stack you’ve built is not a long lasting solution.
There are no parasites in Bitcoin.
Nevertheless, I’m stacking sats and they’re stacking stocks. I thought it might be a good idea to benchmark my progress to the standard method of buying S&P500 each month. Because, even if I made +200% on Bitcoin I shouldn’t be too happy about it *IF* I would’ve been able to get +300% by simply buying the S&P500. Let’s look at the chart below.
The orange line is my Bitcoin stack in euros. The blue line is what would have been my S&P500 stack had I bought it instead. The total amount of fiat put in is the same, roughly 20k€ (divided in monthly purchases). Bitcoin has given me nearly +70% while the S&P would’ve given below +20%.
This is where you see the power of volatility. At first glance, it might seem like a bad idea to start investing in Bitcoin in the middle of the bull run in 2017. And sure, I bought the top, and bought the way down and the stagnant bottom, and I was down on my investment for quite some time. Meanwhile the S&P only goes up, surely its a better bet to put your money in the S&P. Fast forward to this moment and my Bitcoin strategy has significantly outperformed the S&P, even though we were basically in a bear market majority of the time.
So, if you’re reading this and using the S&P as your main investment vehicle, it might be a good idea to tip your toes in Bitcoin. Start low and build from there. Someone recently pointed out that your BTC allocation is correlated with your Bitcoin knowledge. I agree. This is why so many still have a 0% allocation. They don’t understand Bitcoin. And if this is the case, they are completely right to keep the allocation at zero. But instead of accepting a zero level knowledge, they should start to learn about Bitcoin. They should start to question their views. They should ask: ‘Why does a billion dollar company CEO decide to buy hundreds of millions worth of BTC?‘. Is it because he is dummer than you? Or is it because he knows something you don’t?
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