As Bitcoin touches all-time highs, interest in the crypto currency is also reaching a fever pitch. Since we have been getting many questions about Bitcoin from our members, we thought it would be an opportune time to provide you our thoughts.

First and foremost, the thoughts expressed here are my (Mat Litalien) own. I believe it is very important to state that, at Stocktrades we are not crypto experts. I have been dabbling in Bitcoin for several years over which time I have made mistakes, learnt from said mistakes and have come out better for it. As is in my nature, I have also done a fair amount of research on Bitcoin over the years.

The mistakes

First, let’s talk about some of the mistakes I’ve made. When I first started looking into crypto (2015), I mistakenly thought Blockchain and Bitcoin were essentially the same thing. I could not have been more wrong.

Blockchain is simply put, the disruptive technology on which Bitcoin was born. Blockchain is so much more than a platform for crypto, and the potential use cases are quite disruptive to many industries.

It is why many major companies are beginning to put serious research and development behind Blockchain technology. It is a discussion for another time.

The second mistake I made was dabbling in altcoins. Altcoins (alternative coins) are used to describe all other cryptocurrencies that came after Bitcoin.

Full of promise and fancy use cases, they lure investors in with Bitcoin-like promises. While I have no doubt some will be successful, there are more than 5,000 altcoins in the market today. Trying to filter through the garbage is a very difficult task for the casual investor. Think of them like penny stocks – in comparison Bitcoin is a Blue-Chip stock.

The third mistake I made, was the one that hurt the most.

Ever hear of QuadrigaCX?

I hope not, because if you did, it likely means you fell victim to the same exchange collapse that I did. At the time, QuadrigaCX was Canada’s largest and most respectable coin exchange.

Won’t go into all the details, but in short – the company ended up being a fraud, collapse and many lost all their crypto holdings – myself included.

I can’t remember exactly how much I had in holdings, but I had just about 1 BTC at the time. Which brings me to the actual mistake – not holding my crypto in a cold wallet (not connected to the internet) and not documenting my QuadrigaCX key.

You see, it was much easier to ‘trade’ Bitcoin by simply leaving my crypto on the platform. I did have a plan – once I reached 1 Bitcoin, I’d move it to my cold wallet at that time. 

Too late – today, it looks like a US$20,000 mistake. No, I did not spend that much on Bitcoin, but the value of 1BTC today is close to US$20,000.

I also have little hope of recouping the Bitcoin I had through legal proceedings because I did not document my key and was unable to provide that as part of the legal verification process. It was a painful lesson to learn, and one that I openly share so as to save others from the same fate.

Of note, there are multiple ways to hold Bitcoin – but that will be an update for another time. 

The Bull Case

You would think that after being burned like that, I would swear off Bitcoin and be a perma-bear. Warn investors to stay away and go back to my old ways of investing. It’s a fraud, a scam!

Not so. I still think that Bitcoin has a place in a portfolio. Besides, those mistakes were my own and despite knowing the risks associated with keeping my crypto on an exchange, I made a conscious decision to do so.

After taking my lumps, I have since got back on the Bitcoin horse and am once again building my position – Yes, I am holding in a cold wallet. Thanks for asking!

Bitcoin is an asset class like stocks, bonds, gold, etc. In my opinion, having exposure to Bitcoin is a means to increase portfolio diversification.

With that in mind, here are a few reasons to own Bitcoin. There are more than these, but to me these are the most relevant today.

Reason 1 – Decentralized currency

Bitcoin is a decentralized currency. One that it is not controlled by any one person, entity or government.

It is governed by itself, and by the market and cannot be manipulated. Its “monetary policy” is clear and its predictability is like no other asset. The most attractive aspect of Bitcoin is the fact it has a finite supply. Much like there is a finite amount of gold in the ground, there is a finite number of Bitcoins – 21 million to be exact.

In my opinion, this is the main reason to be bullish on Bitcoin.

Since fiat currency is centrally controlled, governments can do so as they please – and they are. Thanks to the pandemic, Central banks around the world are printing money at an unprecedented pace.

This devalues fiat currency (USD, CAD, etc).  The more money that is printed and pumped into the markets, the less fiat currency is worth as inflation inevitably follows. In this environment, a dollar today will buy less goods tomorrow.

In contrast, since Bitcoin has a finite supply – the opposite happens. Bitcoin doesn’t lose value in an inflationary environment, it gains value (much like gold).

In this environment of fiat printing and inflation, 1 Bitcoin will buy more goods tomorrow. This is the main factor that is driving Bitcoin to new all-time highs. You simply can’t print more Bitcoin. 

I should also add, it is also what sets itself apart from many other altcoins which aren’t decentralized. 

Reason 2 – Mainstream is taking notice

I’ve heard it from bears many times – “You can’t buy a car with Bitcoin so it has no value” or some variation of said statement.

While this is true to some extent, it is rapidly changing.

First, it is becoming much easier to buy and sell Bitcoin. When I first started, it was a very difficult process and it took a while to get set up. Today, it is a much more streamlined process and exchanges are even going as far as insuring holdings.

In fact, recently I set up an account with Canadian-based crypto exchange Bitbuy. I was verified, able to e-transfer from my bank account and buy Bitcoin – all within the same day.

Back in 2015 when I first started, it was a nightmare for Canadians to get set up.  

Furthermore, big names are entering the space. Take PayPal for example. One of the world’s largest payment processors is now allowing U.S. investors to buy and sell Bitcoin. It is only a matter of time before it gets extended worldwide. The easier it becomes to transact; the more likely companies will accept Bitcoin as a form of payment.

As of the end of 2019, there were just over 15,000 companies (2,300 in the U.S.) that accepted Bitcoin. That list is rapidly growing and if you look at this graph, there are some major companies that have warmed up to the cryptocurrency.

Although you can’t buy a car today, you’d be foolish to think it is not a possibility down the road. The more mainstream it becomes; the more companies will jump on board and the more value it has as a currency.

Reason 3 – Viable Alternative to Gold

We’ve talked many times about why gold makes an excellent hedge as part of a diversification strategy.

The same reasons apply to Bitcoin. Since late 2017, Bitcoin has acted as a hedge against uncertainty. In fact, it has similar characteristics as gold and has often been referred to as “digital gold”.

There is however, two major differences between Gold and Bitcoin.

First – portability. Bitcoin is much easier to hold and transport. Ever tried lugging around a bar of gold? Furthermore, it can be transferred over the internet, email and yes, even a piece of paper. Gold – no such luck.

Second – despite beliefs to the contrary and as discussed above, you can buy goods and services with Bitcoin. Take that same list of companies that is accepting Bitcoin as payment and drop a few gold coins or a gold bar on the counter and see how far you get. Ironically, the same folks who look down on Bitcoin because they can’t buy a car, have no problems holding gold.

I am not saying Bitcoin will replace gold – I believe there is a place for both in a portfolio. There is however, no denying that the cryptocurrency is galvanizing a new generation of investors who prefer Bitcoin over gold.

Should you buy Bitcoin? 

As always, this is very much a personal decision. Bitcoin is likely to come with additional risk as it is prone to considerable volatility. We are still in Bitcoin’s infancy and there will be many tailwinds (and headwinds) in its future.

It’s not for everyone. Some will find value, others not. The purpose today was to provide members my thoughts on the cryptocurrency and why I see value in holding Bitcoin.

My thoughts in terms of value aside, there is one thing I can say with relative certainty. It is unlikely Bitcoin (and cryptos in general) are going to disappear – they are here to stay.

Which is why I personally like the risk-to-reward proposition. Even holding a small amount of Bitcoin (1-3% of a portfolio) can have a monumental impact if it reaches lofty expectations (numbers from US $100K to $1M have been estimated). If it doesn’t, then so long as investors keep it as a small portion of one’s holdings, it won’t be the end of one’s portfolio. 

It is also why, if an investor chooses to opt for the 3IQ ETF instead, it is best held inside a TFSA. With the potential for those types of gains, investors will want to take full advantage of those gains being tax free. 

To close, I stress that this is my own opinion and recognize that Bitcoin carries a high degree of risk.

This is not a recommendation to run out and load up on Bitcoin, it is simply my approach and thoughts on holding the cryptocurrency.