Going 50% Bitcoin

What's up, Graham? It's guys here. So get this: every six months, CNBC surveys 750 millionaires to find out how and where they're investing their money. For the first time ever, they found a rather surprising trend among Millennials. Nearly half of them had at least 25 percent of their portfolio in cryptocurrency! And just wait for it—over a third of millennial millionaires held 50 percent of their investable assets in cryptocurrency, suggesting a huge shift in the way we're treating our portfolios, investing, and making money.

However, not everyone agrees. Recently, JPMorgan expressed concerns over the sustainability of a Bitcoin rally, while other analysts were predicting another decline around the corner. This includes Goldman Sachs, calling it a fail for retail investors. So let's talk about what's going on, the exact numbers behind this, how these new points could affect the price of cryptocurrency going forward, how you could make money from this, and then finally, I'll share with you what I am buying myself.

Although first, I got a quick message from our video sponsor today myself. Did you know that over 90 percent of people watching do not smash the like button for the YouTube algorithm? The low price of just one like could help a YouTuber in need by providing us with much-needed engagement to boost our rankings within the YouTube algorithm. And as a token of my appreciation, you will get to see a hand-drawn picture of Bitcoin signed by the creator who used so selflessly support. So thank you guys so much for doing that.

And with that said, let's begin the video. Alright, so all of this starts with the survey from CNBC, which dove into the analytics of how millionaires invest their money. By doing so, for the first time ever, they found a huge difference between Millennial Millionaires and, well, pretty much everybody else in terms of how they invest their money. The results are actually pretty surprising.

47% of millennials surveyed said they had 25 percent of their wealth in cryptocurrencies, while more than a third of them said they had half of their wealth in cryptocurrency. This is a huge difference from traditional investing when you consider that overall, 83 percent of American millionaires have none of their wealth in cryptocurrency. None of the Baby Boomers or older generations surveyed had more than 10 percent of their wealth in crypto. Even non-millionaire cryptocurrency holders are growing significantly among Millennials.

In fact, a study from Pipslay found that almost 50 percent of Millennials own cryptocurrency compared to 38 percent of Gen X and 13 of Gen Z. But in all fairness, the members of Gen Z are as young as six, so it makes sense why that number is not a lot higher. The expectation here is that long-term, the banking and wealth management industry is probably going to have to shift its attention over to cryptocurrency if they want to attract new Millennial clientele. This might begin to take precedence over traditional investments like stocks and bonds.

A UK survey also revealed a few main reasons why Millennials are investing so heavily in Bitcoin right now. The first one would be higher returns. So far, year over year—with the exception of 2018—Bitcoin has consistently outperformed the stock market. 7.38% annualized return even today! With the stock market up 42 percent from a year ago, Ethereum is up 1200%. And that's despite its 35 percent drop from a few weeks ago. That's prompting Millennials to take riskier positions with hopes of coming out ahead against traditional investment, and so far, if you've just held, it's worked!

The second reason they're investing so much in crypto is retirement time. As we've all seen, the entire cryptocurrency market is extremely volatile, having lost 90 percent of its value on multiple occasions before eventually rebounding and tripling its previous all-time high in a matter of a few months. But for Millennials, that does not scare them away because they know they have time to make adjustments as needed when they get older and still be able to recover from a drop in price.

And third, we have the digital world. This study says that because Millennials grew up with the internet, they prefer it. They're more likely to pay with online banking and digital wallets, so Bitcoin just seems like a natural payment method over other options. The result is that the Millennials of today could very well be the institutions of tomorrow! Over time, that could prove very well for the entire cryptocurrency market as they're more widely adopted.

But speaking of being widely embraced, that actually might come sooner than expected! A survey of 100 global hedge funds indicated that they plan to hold an average of 7 percent of their assets in cryptocurrency by 2026. Even though their current positions are not exactly known, it's said that this allocation would represent a large increase. This would also allow more people who want exposure to cryptocurrency to be able to do so on a large scale within a fund that wants to grow their wealth over time.

This also ties into a research paper conducted a year ago from Bitwise, who makes the argument that Bitcoin should soon become an essential part of any portfolio—both for investors like you and I and for large institutions like hedge funds. Their argument, like I mentioned earlier, is that Bitcoin is seen largely as an uncorrelated asset, meaning its performance is not directly tied to how well other assets perform, like stocks and real estate.

Fidelity says this now represents a tremendous upside for replacing bonds, which pretty much return next to nothing right now, with an alternative asset like Bitcoin, which should help boost Bitcoin's value, along with the value of your portfolio alongside it. In fact, it was found that a 5 percent allocation to Bitcoin would have boosted the cumulative return of the traditional portfolio by 65% since 2014, even despite the recent sell-offs along the way.

Of course, there are years where the price of Bitcoin's value drops significantly. So what would have happened during those times where you invest at the peak and then slowly watch your investments drain into the abyss while you're still awake at 3 AM questioning all of your life choices? Well, this research found that by rebalancing your portfolio every quarter, buying inconsistently, and keeping your allocation the same, the cumulative three-year return on your portfolio would have been increased throughout every possible start date in Bitcoin's history.

Now, in terms of how much they recommend you add to a portfolio, you would assume that the more, the better, right? Well, actually, even though more Bitcoin would have made you more money, they found that the ideal amount for the majority of investors was, wait for it, less than 5 percent! That's because above that amount, you subject your portfolio to more volatility. If you need that money during retirement, you risk running out of money if you're drawing down during a time where Bitcoin's value also plummets.

All you need to do, according to them, is keep your allocation under 5 percent, rebalancing as needed, continue buying and holding for three years, and voila, Bitcoin would make a fantastic replacement for bonds in a 60/40 portfolio. This would also apply to institutions looking for another way to diversify their account.

This also ties into Cathie Wood's prediction that Bitcoin could one day be worth five hundred thousand dollars if institutions began allocating mid single digits to Bitcoin as a way to further diversify. However, we cannot be all sunshine and rainbows without thinking of some of the counterarguments. Because not everyone agrees—and that then brings us to Goldman Sachs. Just recently, they came out saying that Bitcoin is a fail for retail investors.

This is because Goldman Sachs noted that Bitcoin, along with other cryptocurrencies, failed to meet the criteria they believe determines whether or not an asset class is actually investable. Sure, they do admit that the digital asset ecosystem may very well revolutionize the future of everything, but it doesn't automatically make it a sound investment for them.

There's a criteria that determines whether or not something is worthy of your money. Just as though we have these 7 characteristics of life, we also have the five characteristics of a reasonable investment, and for them, this is what it is: it generates steady, reliable cash flow on a contractual basis; generates earnings through exposure to economic growth; provides consistent and reliable diversification benefits to a portfolio; dampens volatility; and provides consistent and reliable evidence of hedging inflation or deflation as a store of value.

And guess what? Goldman Sachs said that Bitcoin fell short in every criteria, with limited data that they say is sometimes of poor quality. This goes even further to say that based on Bitcoin's risk, return, and uncertain characteristics, a 1 percent allocation to the crypto in a moderate-risk portfolio would have to generate an annual return of 165 percent to make sense in a portfolio. A 2 percent allocation would require a 365% annual return, but over the last seven years, Bitcoin has delivered an annualized return of 69%.

Which, by the way, I just want to say I tried to understand through math and reasoning behind those calculations, and I just couldn't do it. So I don't get it, but I'm just throwing it out there. They also cited security concerns with very little recourse in the event your Bitcoin is stolen.

Although I'll be honest, it's really hard for me to believe that these comments were somehow not taken out of context. Just a few months ago, they were discussing ways to introduce Bitcoin exposure to their private wealth management group due to high demand. If you want to know how much money it takes to get into their private wealth management group, it's 25 million dollars!

This was also right after Morgan Stanley announced that they would be offering Bitcoin exposure to their wealthy clients, and with them, you only need five million dollars minimum. I swear, these numbers just seem absurdly ridiculous! But I digress. Either way, it's a start, and more recently, they've also announced other options involving Ethereum, again due to their own client demands. So perhaps one day soon, you could be trading Ethereum options and futures, of course, as long as you meet their minimum requirement and have a ton of money!

Although Goldman Sachs says it certainly does not impact everyday investors, nearly 90 percent of cryptocurrency investors say that they were not scared by May's brutal sell-off and are planning to buy more. Of those surveyed, almost 40 percent of the respondents predicted Bitcoin's price would move between 56 and 70 thousand dollars by the third quarter, while 28 percent believe the price will hover between 41 and 55 thousand. There's also some hope that by the end of the year, the SEC would allow for a Bitcoin ETF, which would follow the price of Bitcoin and allow investors access on any platform with the ease of a few clicks.

However, the SEC currently worries about Bitcoin's volatility as well as its liquidity, meaning if there's a sudden strong interest in a Bitcoin ETF, that could skew the markets towards driving up the price of Bitcoin artificially high because there's only so much Bitcoin available for sale at any given time. Waiting until there's more daily volume in a larger market cap might make some sense. Second, they could also have some concerns over the maturity of the market and its susceptibility to market manipulation.

Now, obviously, individual stocks could be manipulated too, and we've seen a variety of tactics used by large hedge funds on momentum plays. But an entire ETF, on the other hand, should be inherently more stable—and whether or not they could actually deliver on that is yet to be seen. Third, as of now, the SEC has openly said they have no plans on regulating Bitcoin in 2021. Instead, their focus is currently on disclosures on climate risks, market structure, more transparency, short selling, and SPACs.

They've also said that many cryptocurrencies, including Bitcoin, do not fall within their jurisdiction, so they have very little say in terms of how it's going to be regulated. This could be really good news if you want Bitcoin to stay as is, but it could be bad news if you want it traded as an ETF, which, by the way, would give it a lot more exposure for people who are not yet comfortable buying it on Coinbase themselves.

So overall, here's my take on what's going on and what I'm doing myself. First, we got to talk about Millennial millionaires. To me, the fact that 50% of Millennial millionaires had 50 percent of their wealth in cryptocurrency makes me think that one, the survey might not have gotten a large enough sample size to get a truly accurate depiction of how Millennials are investing their money, because to me, that seems like an absurdly high amount.

Two, I don't think this takes into account risk tolerance. And three, if that is actually true, I have a feeling that those accounts grew to 50% over time as the price has gone up. Now I'm sure some people would say that this is how Millennial millionaires became millionaires to begin with, and I'm sure some of that is true. But I think having 50% of your portfolio in cryptocurrency is still inherently risky.

Even though it's done well so far, and I do think it should have a place in your account, 50% does not leave you with much room in the event the price goes down, and you don't have much to fall back on. For myself, I'm slowly ramping up to a 5 percent allocation to Bitcoin and Ethereum by the end of the year, and then once I hit that, I'll decide from there if I want to ramp it up a little bit more. At this point, I'm treating it the exact same as a wooden index fund. I'm buying into it consistently on a regular basis, whether the price is up or down, and from there, I'm just going to hold it long term.

And just for reference, I got to bring this up because so many people keep mentioning this video here, which goes over the benefits of tax loss harvesting Bitcoin, which is not subject to a wash sale. So my actual application to Bitcoin never went down, and I continued to buy in at a lower price. I gotta say that for anyone who just sees the title, makes assumptions, and never actually goes and watches the full video all the way through.

Second, as far as institutional investors, I can absolutely see this continuing to grow over time. I would not be surprised if they've been consistently buying in before they make an official announcement. I think as long as Bitcoin maintains its momentum, seeing institutions invest a small portion of their portfolio would be reasonable. I would expect that that would help stabilize the price of Bitcoin as larger amounts—or health the big catalyst.

However, it's probably going to be a Bitcoin ETF, which would make it accessible to anybody looking to gain exposure without having to go through all the hassles of a cryptocurrency brokerage. If that happens, there would absolutely be way more money flow going into Bitcoin, and that would absolutely drive up the price. I have a feeling it's just a matter of time, and who knows when it's going to happen, but I would say at some point, it'll probably be a reality.

So until then, I keep enough cryptocurrency in my portfolio to realize the benefits of having it there, and even if the price drops 90% or Elon Musk tweets about it again because he's changed his mind, and everybody panics, it would sting, but it's not going to be the end of the world. I have other money elsewhere to make up for it. The rest of my money is still split between 20% cash, 35% stocks, and 45% real estate. So Bitcoin makes up a portion of that, and if it grows more over time, great! If it doesn't, then well, that would suck—but so be it.

I personally would not be investing everything into cryptocurrency. I have a feeling 50% is riskier than it needs to be, and stocks in real estate still provide a great stable long-standing history of building wealth. But for me, I would rather be in it than out of it, and so far, judging by this article, people are doing a really good job at buying the dip—hopefully, they're not also forgetting to destroy the like button for the YouTube algorithm.

So with that said, you guys, thank you so much for watching. I really appreciate it. As always, make sure to destroy the like button, subscribe button, and notification bell. Also, feel free to add me on Instagram; I post it pretty much daily. So if you want to be a part of it there, feel free to add me there. Also, on my second channel, The Graham Stephan Show, I post there every single day I'm not posting here. So if you want to see a brand new video from me every single day, make sure to add yourself to that.

Thank you again so much for watching, and until next time!