"Bitcoin is Gambling"
Sound bites, headlines, and off the cuff quotes being passed along as financial advice is not helping anyone. Knowing your numbers will help give you confidence to ignore people who don't.
One of the biggest benefits of comprehensive financial planning is the confidence it gives you. Physicians are well known for maintaining a high income but a Career Builder survey says 4 out of 10 people making over $100,000/year consider themselves “financially unstable.”
Making sure that you know what you own and why you own it is important to feel financially stable. Bitcoin has been in the news constantly and has been a topic of conversations between us and clients who could use exposure to this asset in their investment portfolios.
"Bitcoin is a digital currency that operates outside the control of governments and banks. It is software, a program designed to allow people to exchange value directly with each other. What makes bitcoin unique is that this piece of software is run across a network of linked but independent computers. In this way, no one party has control over the network. No central bank and no government can dictate the currency’s value."1
In the last week, two advisors, each with over 20 years of industry experience have told me that our client’s allocation into Bitcoin is “gambling”. Now here are some interesting numbers that they should have spent some of their tenures reviewing before making that statement.
“Revenues from the Las Vegas Strip are up 26.7% compared with pre-pandemic levels of May 2019. This marks the second month in a row that gaming revenues on the tourist-reliant strip have boasted growth since the start of the pandemic. (In April, revenues were up a meager 0.3% from April 2019, while March revenues were down almost 10% compared with March 2019.) The brightest spot for the is slot machines, which collected $358.3 million in revenue, up 24.5% since May 2019, hitting an all-time record.”2
The odds in any casino game are less than 50% which gives credit to the adage “the house always wins”. If you keep playing in the casino, eventually the casino wins.
So how do you differentiate an investment from a casino? We just showed you the amount of money that a casino makes by keeping you inside and gambling. Over time you will lose more and more. So why not invest in the casinos?
Depending on which casino you choose, it looks like you could have made or lost money over the last 5 years. Now, what would happen if you compared the return of Bitcoin to those same 4 casino stocks listed above?
The chart is almost ruined because of the difference in total return. It’s important to disclose that all investments involve risk and it should be done in the construct of a comprehensive financial review. This should be reviewed regularly to make sure that your investments match your risk tolerance.
So instead of listening to off-the-cuff investment advice that something is gambling, it’s important to understand that asset allocation is going to be one of the largest influences on your investment returns. Anything more than 5% of your investable capital would be considered a concentrated position. That is not necessarily a bad thing. Just remember to look at what you own and ask yourself why you own it!
https://www.wsj.com/articles/bitcoin-what-to-know-before-investing-11613498045
https://www.forbes.com/sites/willyakowicz/2021/06/30/nevadas-12-billion-in-gaming-revenues-in-may-hit-all-time-state-record/?sh=ed1668578e7a
Bitcoin is considered an alternative investment that may be speculative and include a high degree of risk; these investments are suitable only for persons who are able to assume the risk of losing their entire investment.