Investing In Bitcoin Like A 401k

The guest commentary below was written by Brady Swenson of SwanBitcoin.com. This piece does not necessarily reflect the opinion of Hedgeye. 

Bitcoin is here to stay

Bitcoin is thirteen years old, yet the language we use to describe it lingers from its earliest days when some of Bitcoin’s first users lever­aged it to circum­vent the existing finan­cial system and engage in nefar­ious commerce in the darker corners of the internet.

More recently, it has been portrayed as a risky invest­ment, a gamble on question­able merits. Is it the most techno­log­i­cally innov­a­tive Ponzi scheme ever or a grassroots attempt at an internet-native currency? Either way, it is often portrayed as risky.

The language used to describe Bitcoin carries forward from these earlier eras. In society’s collec­tive conscious­ness, the word “Bitcoin” reflex­ively recalls crimi­nality, unknow­able complexity, and above all invest­ment risk.

Collo­qui­ally, we still talk about “taking a risky bet on Bitcoin” or “putting some money into Bitcoin just in case it takes off,” implying that Bitcoin is a risky invest­ment with long odds — like putting chips on one Roulette wheel number.

These are all outdated notions. Bitcoin is now a player on the global stage. The US govern­ment is embracing Bitcoin as a legit­i­mate asset. Promi­nent macro­eco­nomic investors are publicly investing in Bitcoin. Compa­nies such as Square, Visa, IBM, JP Morgan, and Fidelity are investing in Bitcoin projects.

The list goes on and on, and the message is clear: Bitcoin is here to stay. In other words, the downside risk of owning Bitcoin has never been lower. 

Investing in your future

You likely already save for your future. Every paycheck, you deter­mine how much of it to spend and how much to save.

Many people keep money in their bank account as it feels nice to have a finan­cial cushion sitting there in cash. But, because of infla­tion, money sitting in a bank account loses purchasing power over time. That’s why the gener­ally accepted finan­cial advice is to invest your savings in assets that will grow in value over time. 

There are two common ways to invest your money to build personal wealth: buying a home and investing in compa­nies. Building equity in a home by paying down a mortgage is a safe and steady way to deploy your savings into an asset that histor­i­cally gains value over time. Investing in a diver­si­fied portfolio of stocks has been the most surefire way to outpace infla­tion over the last 50 years.

Histor­i­cally, the best way to do this has been through 401k retire­ment accounts, because of their tax-advan­taged status and because you contribute to them consis­tently over time.

These two types of invest­ments have something in common: they both are designed to ensure a consis­tent invest­ment month after month. If you own a mortgage-backed home, the first thing that happens when your paycheck comes in every month is you pay your monthly mortgage.

It’s automatic so you don’t even think about it. The same is true for your 401k. When you set up a 401k, you specify how much you would like to automat­i­cally contribute to it each month. In both cases, the key to success is making a one-time decision to prior­i­tize the monthly alloca­tion of your paycheck to these assets.

By owning a mortgage or setting up a 401k, you are automating the contri­bu­tions to your investment.

The shifting landscape 

While home owner­ship and stock investing will continue to be part of the bedrock of individual finan­cial security and wealth building, struc­tural changes have compli­cated the surrounding finan­cial landscape. 

We are entering a period that legendary Wall Street investor Paul Tudor Jones has dubbed “The Great Monetary Infla­tion”, which really began in earnest when the United States ended the US Dollar’s gold standard in 1971 and began to manage money supply by decree of the US Treasury and the Federal Reserve Bank. Central banks are printing money whenever credit begins to contract in order to artifi­cially stimu­late growth. However, this solution is simply not sustainable. 

This money printing has conse­quences for building equity through a home mortgage and investing in stocks. They will likely to do well in US dollar terms. As the purchasing power of a dollar sitting in your bank account decreases, the nominal value of your home is likely to rise accord­ingly. The same is true of your stock portfolio. 

But therein lies the struc­tural change: the nominal dollars in your portfolio (in your checking account, in any certifi­cate of deposit, and any bonds you hold) are likely to see their real value eroded during the Great Monetary Inflation.

The single best hedge against the deteri­o­rating value of the dollar is Bitcoin. As a non-sover­eign, hard-capped supply currency, the more that the long-term viability of the dollar deteri­o­rates, the more the value propo­si­tion of Bitcoin has appeal. What does this mean for saving for your future now?

Approach Bitcoin investing like you approach your 401k

The answer lies in what has driven finan­cial security over the last half-century: automated, sched­uled savings.

This has meant building equity in real estate via a home mortgage and building equity in your owner­ship of the global economy via a 401k stock portfolio. Now, it can also mean building equity through accumu­lating an ever-greater % of the hard-capped supply of Bitcoin.

There are simple truths at the heart of this winning formula:

• The idea of a diver­si­fied portfolio is to stabi­lize your finan­cial security by not having all your eggs in one basket. 

• The value of home owner­ship and of stock owner­ship is that you are building your % owner­ship of the assets in the world that people value. 

• The genius of the home mortgage and the 401k is that they allow you to prior­i­tize saving for your future and enforce that prior­i­ti­za­tion through an automated system.

These truths remain. The only differ­ence is that the world is digitizing at the exact same time that the fiat-based currency system heads towards a collapse. In this shifting landscape, the key recog­ni­tion is that a healthy approach to diver­si­fi­ca­tion now must also mean hedging against the risk of the eventual failure of paper currency printed by Central Banks.

And that’s where Bitcoin investing comes in. Bitcoin is savings technology. The most effec­tive way to hedge against the risk of currency failure is to own some Bitcoin.

The most effec­tive way to start to own Bitcoin is to make a one-time decision to set up a Bitcoin savings plan that will squirrel away a little bit of your income into Bitcoin savings on a regular, consis­tent basis, just like you do with your 401k. 

To start investing in Bitcoin as you do with your 401k, you simply need to set up a savings plan and let it run, making regular contri­bu­tions. So where can you set up this kind of Bitcoin buying plan (often referred to as auto-DCA, or “automatic dollar-cost-averaging”)? 

EDITOR'S NOTE

Brady Swenson is the Head of Education at Swan Bitcoin, the best place to buy Bitcoin with easy recurring purchases straight from your bank account. Brady also hosts Citizen Bitcoin, a podcast focused on documenting his journey learning Bitcoin, featuring some of the biggest names in the Bitcoin world.