Transcription:

Episode 28 – Digital Currency
11:46

Jim:      I want to welcome everyone back to the Blue Money Podcast. This is your host, Jim Donnelly. I’m here with my co-host, Kevin McGarry.

Kevin:   What’s up Jimmy?

Jim:      Not much Kevin.

Kevin:   You just feel that earthquake a little while ago.

Jim:      I felt it. Apparently you’re the only one that didn’t feel it in here, brother.

Kevin:   Too many concussions my man.

Jim:      It was soft. Always saw man. Ain’t nothing new. Alright Kev so I thought with this episode, obviously digital currency is through the roof again, like Bitcoin we’re seeing all over again.

Kevin:   It’s all over the news.

Jim:      You know, hit upon it like on March 14th this year it reached its inner day high. It was over 73,000 at one point. Before that the max 69,000 in November of 2021. But then it went crashing down and like November of 2022, it was a little over 15,000. So for me personally, when it hit the 15,000 mark, I said, oh man, there goes the Bitcoin, there it goes all the hype, it’s gone. But then it shot back up. Now we knew there was a lot of reasons why.

Kevin:   Yeah, I mean it’s very speculative asset or currency, whatever you want to call it. But at the end of the day, I mean I think since ‘09 it’s had four drawdowns greater than 70%. So pretty volatile.

Jim:      Yeah. And when we were doing this podcast, I looked up to see how many digital currencies were out there and of March this year there was over 13,000 digital currencies.

Kevin:   It’s a lot.

Jim:      It’s just a ton of them. And I think that’s where people get confused. They get scared of it and we don’t know which one’s going to make it or not make it. But we do know that Bitcoin is the one that’s leading the charge that everyone knows. So, I thought it’d be a good opportunity for this episode to show the audience a little bit about what it is because a lot of these police officers, a lot of these blue collar guys, they heard of Bitcoin, they don’t know what it is. So, I know Kevin, it’s going to be the cliff notes for you, but if you could just give a little bit about what Bitcoin is, how it works, and then we can dive in why we think it just really went back up, so high again. So Kev, first start off man. What’s Bitcoin?

Kevin:   Let’s break this down. So, Bitcoin was created in 2009 and really what it is, is it’s a network. You’ll see that it’s Bitcoin with a big B. That’s the network, that’s the block chain. And there’s Bitcoin with a little B. That’s the asset. Basically it was created to have a decentralized asset or currency where you and I could take all the big boys out, the government, the banks, and I could exchange with you Jimmy, you to me. And I think what’s interesting about block chain, the network, it does a few things. You have these miners right out there…

Jim:      That’s big. Kevin, I want you to hit upon it because we always hear about miner.

Kevin:   Miners essentially to me are engineers and they’re global. They don’t work for an institution or anyone. They’re globally and they’re sitting down there coding. They’re valuating these bitcoins, which is pretty impressive in the sense of it increase the transparency of these bitcoins, number one. Number two, it gives accurate tracking. And the reason why is they’re creating a permanent ledger, a digital ledger. Like you can’t change anything. You know exactly what’s happened. It’s not like a paper ledger where I could go and erase like this footprint doesn’t change, which is really attractive. And also the other thing that the block chain, the network would say, it helps reduce costs because I’m not going through a bank, I’m not going through a government, I’m not going through a company. I’m going straight to you, Jim.

Jim:      Getting on to piggyback off you a little bit there, Kev, like with the miners, that’s how they’re getting paid and that’s how this whole system’s been working. And what that means is like, so when there’s a new blocks, say every 210,000, there’s a new blocks and that means that it’s half. So right now, if you’re a miner right now you’re getting 6.25 bitcoins for every chain that you validate. Now it’s getting cut, it’s going to be one of those half and you keep hearing that news out, Bitcoin’s going to get half April 19th, 2024 is going to get half. So then it’s going to nail down to 3.125 bitcoins for everything. They’re validate that all the transactions that they’re giving to green light to. So, people are saying the supply and demand are running out. What’s that mean? Means there’s 21 million Bitcoins at first, that’s what the number was. It’s a hard cap like you talked about. Now right now in circulation it’s 19,000,064 out there. So, right now still there’s about 1.36 million that still need to be mined. They’re not going to be mined all the way till 2024 is when at that date, all the bitcoins will be in circulation at that point.

Kevin:   I mean there’s limited shares. Like you said, there’s a hard market cap where you hit that 21 million Bitcoins. That’s it. And that’s could be really good for the value of Bitcoin depending on do people demand it? Do they want to utilize it? Do they want to own it? So, that’s really attractive for the asset.

Jim:      And I think that’s the number one reason right now, Kev, we’re seeing this spike. It’s getting a lot of news, a lot of attraction that you’re seeing that they’re getting half that the bitcoins are almost the supply and demand. So number one right now, I think that’s driving the price.

Kevin:   That’s driving it.

Jim:      The biggest one. And the biggest thing that is, I want you to hit upon it and go deep in this Kev, is the ETFs. Kev, the ETFs were driving. So hit upon the ETFs how that happens.

Kevin:   In the beginning of this year the SEC gave the right to financial institutions to start selling spot Bitcoin ETFs. And there’s all different styles and flavors, but really, to me that solidified Wall Street backing and the SEC giving the rights. So, it’s being regulated somewhat there. And because you have companies like Fidelity and BlackRock putting it out to retail investors, the investors trust these companies are going to invest in it. But also it gets the investor the ability to get the digital asset at a fair price rather than buying one Bitcoin for $66,000.

Jim:      It’s a safer play for me I believe because like if you look at just people that had Bitcoin, individually owning Bitcoin in 2023, there’s 1.75 billion in 283 Crypto heights, that’s billions. That’s almost $2 billion, which is stored in crypto this year already. It’s starting right out of gates in 2024, there’s been 50 crypto heists and it’s already of a half a billion. So it’s already 500 million out the window. So, these ETFs to me are a little more makes sense. They’re a little bit more protected because When you’re looking at the other Bitcoin, there’s a lot of risk, obviously regulatory risk, security risk, insurance risk fraud, risk, market risk tons.

Kevin:   But I think that risk exist in any stock or company or any bank. I mean look at decentralized banks. They all have had issues and things that didn’t go in the right direction for them in the past, even governments. I think that’s the big thing here is like the block chain. I mean JP Morgan’s using block chain because it may be more secure than a company like Apple. And that’s why you’re seeing the JP Morgan using some form of block chain. But I also think if you look at the investors, if you look at outside the US, a lot of the citizens in different countries, there’s not a lot of trust in governments. I’m not saying every country or every citizen, but we’re lucky to live in the US and where I think a majority of us trust our government, but outside of that, the trust isn’t there in the banking system, in the government system. They’re trying to devalue their currencies all the time. Hence one of the reasons why the digital asset was created. So, I think that’s an attraction for the block chain and the digital asset. The other reason why is the opportunity moving forward, who’s owning it? Well, the demographic that I always look at is the millennials. There’s 96 millennials going into the age where they’re making good income and they’re about to really start investing. I mean 49% of millennials own digital assets. And unlike you and I, they grew up in a digital world, you used a payphone, right? You had a landline in your house. Your mom and dad that there were boomers and they got a big computer. The PC came in and Apple came in. There was a massive computer that came in their house. We were in high school, college, we finally got email in college. We got texting and cell phones and cell phones were massive big as our iPad right now that we use at home. Now these millennials, they grew up in a digital asset world, Uber, Facebook, Instagram, so forth. And now they don’t really use hard dollars. They use transactions are done through their phone or through their computer.

Jim:      Yeah. I mean there’s a lot of places don’t even take cash now. Like we went to the Eagles game. Everything, it’s digital. You need the credit card, you need a debit card, they don’t even take cash. There’s so many places don’t take cash.

Kevin:   Eagles gains are cashless and the bathrooms are waterless.

Jim:      It’s the truth though, man. It’s like so do I think there’s some kind of room in the world for cryptocurrency? Yes, absolutely. I mean, do I know if Bitcoin is going to be the one that’s going to solve all it? No, I personally don’t. But do I think you need some crypto exposure in your portfolio. We’ll hit upon that in a minute, Kev. But do I think like the federal government will s come in, do I think in 50 years you be having dirty money in your pocket? No, I don’t. I think it’s all going to be, you’re get paid, it goes right into like a bank account. It does. Now you’re going to be using your debit card, credit card. there’s going to be no money transaction hand in hand anymore. It’s not. So, to me that’s digital currency, but it’s going to be ruled by the government. But that’s a whole topic that we can get in there. But do I think right now that you need it, it’s helpful to have a little bit of exposure in your portfolio in an ETF because there’s money to be made there and we’re looking for like good value investments. Absolutely. So Kevin, we have a lot of clients that come in and they’ll ask, listen, I want to have some exposure to crypto. And now the ETFs is a little bit easier to get them involved. What do you recommend in a portfolio?

Kevin:   Yeah, so first of all, when we’re doing it all depends on them and their planning. If we’re looking, hey, someone asked us what percentage of a portfolio of digital asset and the argument is it an asset is a currency is a commodity within the portfolio, we think there’s somewhere between one and 5% depending upon your situation.

Jim:      I think it definitely needs to have some kind of, take a look at it. Especially if you’re an older client and you really just scared about the cryptocurrencies and you don’t know Bitcoin and you’re really scared because you don’t understand it. Just talk to your advisor, hear them out, see what they recommend. You have to trust them. If it don’t make sense, it don’t make sense. There’s plenty of other investment opportunities out there that you don’t need to have crypto in it, but it’s something you really need to take a look at.

Kevin:   But I think the big thing is diversification. The ETF spot Bitcoin ETFs allow you to be diversified within that space depending on what ETF you use. It’s just like a stock versus a mutual fund or stock versus an ETF strength in numbers. And that’s where the behavior of the client. If you put 20 to 25 to 30% into your portfolio, it’s a volatile ride. And it’s going to be emotional and are you going to stay the course. That’s why we say, hey, one to five, depending on your situation, you’re little younger, closer to five if you’re closer to retirement, if you’re into it, if your thought process is with it, 1%.

Jim:      That makes sense. Kev, is there anything before we wrap this up that you want to hit upon?

Kevin:   No, that’s it. I mean, everyone be safe out there.

Jim:      Alright guys, I want to thank everyone for listening to the Blue Money podcast. That’s going to wrap it up. If anyone has any questions about cryptocurrency or your portfolios in general or you’ll just talk about anything, hit me and Kev up. We’re always available. We’ll definitely love taking a look at portfolios, maybe do some financial reviews and try to help anyone we can. So, be safe out there. Thanks for listening.

Kevin:   Be safe.