BTC #39: WHAT IS THE RISK OF A BTC BUY RIGHT NOW?

Today Bitcoin is around 38,000 dollars a coin.  It recently dropped close to 50% from its All time high.  This should raise a question for you when you allocate new money to your portfolio.  

What is the real risk of Bitcoin right now?  

When you get to a place in life where you are no longer able to effect a change, you then must look within yourself and change yourself and your perspective. If that fails, move to a better currency for your health and wealth.  I tell people the same thing about there environments.  

The longer I live, the more deeply I’m convinced that the difference between the successful person and the failure, between the strong and the weak, is a decision tied to how you think. Critical thinking being the biggest issue we have.  Winners are those people who make a habit of doing things losers are uncomfortable doing. Don’t think of your goals. Think from your goals. Its all in your perspective of you see the data.

Here is something for you think about with the latest 50% drop in Bitcoins’s price.

With the current price at historic lows, wouldn't the risk be significantly lower at this time?

It is a lot lower.

Skepticism is not intellectual only process; it is moral imperative built by our character or lack there of. It can be a chronic atrophy and disease of our mind and spirit. People live by believing their precepts of something. We should not waste time by debating and arguing about many things, but instead spend our time doing the things others doubt can be done.  

People call Bitcoin the most asymetric asset on the planet.  Why do they say that?  

How is the Risk/Reward of $BTC positively asymmetric, and why is it so compelling?

Using round numbers to simplify, let’s answer that:

First, we determine the downside (Risk).

Using the recent high of ~70K and a drastic drawdown level of 80% ($BTC has done this three times before):

70K * -80% = -56K

70K - 56K = 14K

Downside Price = $14K

Risk = Current Price - Downside Price

38K - 14K = 24K

Risk = $24K

Next, we determine upside (Reward).

With $BTC, we have an initial level (Investment Use Case) and a much higher optionality level (Money Use Case).

Investment Use Case:

If you've been following the data, you know my Investment Use Case is $1M price target for BTC by 2028.

Our calculated upside (Reward):

Upside Price = $1M

1M - 38K = 962K

Reward = $962K

So our initial Risk/Reward in USD:

$24K Risk

$962K Reward

Using the current $BTC price of 38K:

Risk = 24K/38K = .63 (~60%)

Reward = 962K/38K = 25.32 (~2500%)

Today on Feb 3rd, 2022,  we have about 60% downside Risk versus 2,500% upside Reward.

Said another way,

We have a ~42X higher Reward than Risk (2500/60 = 42)

Thought of another way,

For every $1 you have at Risk, you have a potential Reward of $42 with Bitcoin

This is seen as a highly ‘positive asymmetric’ opportunity.

But what makes BTC absolutely compelling right now to me is the optionality it includes on the upside.

When buying BTC, you are also buying an embedded Call option on the Use Case for Money (because BTC acts like a Put option on Fiat currency).

How:

If BTC ultimately becomes the replacement for fiat currencies, then as fiats go lower, BTC must go higher.  We should see this happen in El Salvador first because both currencies are legal tender there.  

The upside becomes many multiples of the Investment Use Case mentioned above.  42x maybe a very low estimate of what could happen.  We could see the last triangle below in the next few years.  

SUMMARY:

Intermediate term = probably still quite volatile (decelerating economic growth due to inflation, risk off period til 10/2023)  Long term = looks good fundamentally strong (structural adoption, network utility, devs)

The Money Use Case Call option would become worth many millions of US dollars per BTC.

Add this to the highly positive asymmetric Risk/Reward, and an investment in BTC here is absolutely compelling idea, IMO.

Do your own research of course, but this is how I see it now based on the current data we know.  New data will always change things.  I think the price today is being held down by the action in the bond market and what the Fed is doing.   Hope this helps when you think about how to allocate new dollars now.