The Major Pros of Bitcoin & Ethereum, and How I Would Invest $1,000,000

Let’s say someone were to hand you $1M to invest between two primary cryptocurrencies, Bitcoin and Ethereum. How would I recommend they allocate their capital based on a simple pro & con assessment? Exciting right?! Let’s go over the pros of Bitcoin(BTC first). 

You’ve Won The Lottery!

Pro #1: Bitcoin is a heavily adopted, scarce asset that has been heavily adopted globally to further the cause of decentralized finance. The first and largest pro is digital scarcity. Currently, in the world, there are about 47M millionaires. That’s a lot of millionaires! The thing is if each of these millionaires wanted to own 1 Bitcoin, they couldn’t. This asset has an extreme level of scarcity and if it ever becomes adopted by more countries and states, and if we see more millionaires in the future – we know that there is a lot of upside potential in the price primarily due to the scarcity. To elaborate this point even further, as the supply decreases even further crypto exchanges may have an even harder time getting ahold of it in the future. If there is a situation in which crypto exchanges can’t get supply to distribute to their customers, it will cause a bidding war to the miners, causing the prices to increase. 

Pro #2: The removal of non-value added middleman and corruption. The list goes on for too long of countries that have carried out poor monetary policy at the expense of citizens’ financial wellbeing. While there may have been a point in time where BTC was used for illicit purposes, this mostly has been flushed out of the system. All fiat currencies eventually come to an end or become reset. The beauty of having a BTC is the fact that it will be around for a very long time. It is not prone to the folly of bad actors at this point as it is SHA 256 encrypted. Many governments and those in traditional finance fear Bitcoin. These people fear the fact that since it is deflationary, and if a crisis were to come that the fixed supply will be a negative impact on citizens. I don’t see this being a negative impact whatsoever, as even owning a small amount of Bitcoin will help secure your financial future whether there is a catastrophic event, hyperinflation, or an economic collapse. 

Bad Actors, Government Regulation and Lobbying can hinder growth in Bitcoin.

Con #1: While it is true that Bitcoin does remove a lot of corruption and non-value added middlemen, it is prone to bans and restrictions by the government (in any country). We’ve seen this in Turkey, India, mining in China, and many other countries. By nature, governments tend to want control of their citizens. One form of control is that in a monetary form. The issue is, the government can’t control the BTC source code and inflate, deflate the monetary supply. They have no way to give handouts if a crisis were to come. There is tremendous lobbying by the traditional financial services world for the government to put additional regulation and restrictions on this asset class as a form of control. 

Con #2: The layer one technology isn’t the most advanced and there are more advanced blockchain protocols that offer faster transactions per second, with lower fees that are better for the environment. Furthermore, while SHA256 is encrypted, it could potentially be hacked one day and an exploit like this could cause tremendous waves in the market, if not a total collapse. Something to consider is that quantum computing could potentially pose a risk to the cryptocurrency markets in ten to twenty years. 

We discussed the major pros and cons of Bitcoin, but what about Ethereum (ETH)? 

The Ethereum Token

Pro #1: The most important thing about Ethereum to consider is that it is looking to decentralize all types of applications. It is a decentralized operating system. Just like Bitcoin was trying to decentralize finance (banks, credit unions, etc.), Ethereum is looking to decentralize Google, Facebook, Insurance, and any inefficient thing. Throughout time, we have seen countless examples of big tech silence or oppose certain lines of thought. Through decentralized apps or dAPPs this will change in the future. 

Pro #2: An ecosystem where you don’t need permission to build. There isn’t too much of a barrier to entry, and with no barrier to entry, you get so many great problems being solved (some of which we didn’t even know existed). It truly is a beautiful thing. In a world of being credentialed, caught in the system, red tape, and policy, this isn’t needed anymore. If you want to create an ERC-20 token that isn’t an issue. What is cool is that if you can vision it, you can build it out on an excellent network that will transform the way we interact with others whether that be art, gaming or insurance. 

Vitalik Buterin – Founder of Ethereum

Con #1: Just as I mentioned how there isn’t much of a barrier to entry, this also leads to many bad actors being able to create ERC-20 tokens and scam people. Countless rug pulls or scams are coming out that have been built on the Ethereum network. It is a double-edged sword, this very blade that can fight against socialism, control, and red tape can also harm people in the community. Countless influencers have come out promoting crypto rug pulls like Ethereum Max or Save the Kids. In reality they get paid out by the protocol and the influencers/ software developers line their pockets, and the crypto community/ audience is caught holding the bag. 

Con #2: The lack of a max supply is another big con. Too much circulation makes the price go down, and while I do see some valid points in inflationary mechanisms, this decreases what Ethereum should be worth. Another con I couldn’t pass up is the fact that Ethereum 2.0 is way behind schedule, and this is due to the lack of leadership amongst the developers and disorganization in the going-forward plan. 

Diversifying based on risk tolerance, research and correlation is of high importance

So if I were to win the lottery, or someone gives me $1M how would I allocate it between these two cryptos?

I would recommend putting 70% in Bitcoin (BTC) and 30% in Ethereum (ETH). Something to consider though, what are you going after? Do you believe more in digital scarcity and economic security, or do you believe more in an operating system that moves power to the edges? Can you see Ethereum disrupting big tech, which is a $10 trillion industry? Can you see Bitcoin disrupting gold which is a $10 trillion industry? I can, but as someone in the financial world, I place higher emphasis on scarcity hence why I am putting 70% into BTC and 30% into ETH.


Disclaimer: Nothing stated in this video is a recommendation from PieceofPaul to buy or sell a particular security or asset class. You should wisely consider your tolerance for risk, time horizon, and financial goals before making an investment. With investing, you run the risk of losing money, always read an investment prospectus and make an informed decision before allocating capital to a particular investment.


Bitcoins Breathtaking Rise

Twitter Feed, The Morning of January 2nd.

At the time of this writing, Bitcoin has taken the #5 trending spot on Twitter and is edging $33,000 in price. Everyone and their crazy uncle are talking about it, and how they have made money off of it. Why do I bring up what is trending? This shouldn’t be the foundation for discussing an asset, and the adoption thereof… Well, everyone is. The rideshare drivers are talking about how great of an investment it is, the bartenders and even friends at the holiday parties. It is the hype; it is the talk and is something that people are buying into because they want to join the party and get some of the action.  

This all feels too familiar. I want the rise to $50,000, $100,000, or better yet $1M to be straight and swift with no major pullbacks, but this isn’t likely. As a HODLER (Hold on Dear Life), Investor and strong advocate for the decentralization Bitcoin is bringing to finance, when large amounts of retail investors, hedge funds, and other institutions are purchasing for the wrong reasons this is when our ears should perk.

People are beyond calling the people who own Bitcoin crazy libertarians who know there is something better than a currency consistently being debased and manipulated. If you go to Google finance, for the longest time Bitcoin was listed forefront as the currency (now moved to its tab).

Google Finance – Backing the Legitimacy of Bitcoin

I remember all the euphoria in the fall of 2017 with Bitcoin’s meteoric rise to ~$20,000. At this time, it was purely hype-driven. Specifically, you can see Google searches at this time, and it was for everyday people trying to get in on the action.


2017 to Present Google Trends Search Graph

As it can be seen the hype and hysteria are starting to take off again. Although, in my opinion now it is different. With all this crazy stimulus and money printing, we are seeing so much worthless confetti (USD) entering into the market. With this happening, our purchasing power is decreasing while concurrently our savings are going away. Bitcoin solves this, because, in its nature, it is a deflationary asset, meaning every year less and less are being mined. Everyone who is reading this article should have at least a few Satoshi’s (1 Satoshi = 100 millionths of a bitcoin). What do you have to lose, your precious infinite confetti? 🙂 Jokes aside, we want something that finite and the USD is just the opposite.

Why do I say this? 

There are many reasons, but as humans, we should be exploring things that better humanity and adopt them into our lives. By purchasing, you are essentially supporting a cause that leads to the preservation and storage of wealth. This should be something we all aim for, as it is in our best interests to move to one globally decentralized currency, where not a few rich and powerful can get ahead, rather anybody can participate without worrying about unsound money, bad politics, and being controlled.

A lot of this is complicated to understand, what should I know if I want to dabble in it or just get started? 

Bitcoin is a lot of fun, and cryptocurrencies can be addicting to watch. Seeing yourself making 30-50% daily returns is almost unheard of in the stock market. Just as we see these massive rises, we also will face 30-50% pullbacks, and they can be devastating. When people get in for the wrong reason, they sell because they are not making a return and end up taking a massive loss (Just as we see all the time in the stock market). These spectacular gains and nasty crashes can be full of euphoria and sadness, but in the end, know this. You should not day trade unless you are experienced, and it is only a loss if you sell. Invest what you can afford to lose. Do not trade on leverage or take out a second mortgage on your home to buy Bitcoin. Most importantly, buy-in consistently over a period to minimize significant price variances.

What is next? Where are we going from here? 

MustStopMurad posted a fantastic graphic that we should all look at for some of the necessary steps for a large scale currency adoption. I know many people state, “Oh well it is already too expensive, I didn’t get in at $10,000, so I am not going to be able to get in at all.” This limited thinking couldn’t be further from the truth and in fact, we are still in the early stages of Bitcoin’s adoption.

Currency Adoption Chart – Bitcoin

To reiterate what I have said in former videos, and blogs/social media posts in the past we are in uncharted waters. In the past couple of months, we have had tremendous tailwinds helping drive up the price of Bitcoin and its altcoin counterparts, and it is uncertain how long these tailwinds will last. To name a few, from big companies (PayPal, MicroStrategy, Square, Grayscale, and more) putting this on their balance sheets, Biden’s new Treasury pick, the massive money printing from the Federal Reserve, the pandemic driving people to move towards digital currencies, and the erosion of trust in monetary policy long term this asset will perform spectacularly. There will be setbacks, and likely within the next couple of weeks/months, but as we look at the long term it will keep breaking all-time records eventually to $500K per coin. Am I too bold with this statement? Calculated risk and fortune favors the bold.


Disclaimer:
Nothing stated in this article is a recommendation from Forehand Financial to buy or sell a particular security or asset class. You should wisely consider your tolerance for risk, time horizon, and financial goals before making an investment. With investing, you run the risk of losing money, always read an investment prospectus and make an informed decision before allocating capital to a particular investment.