You’ve probably heard of bitcoin, but odds are you don’t know much about it. Bitcoin is the first decentralized, universal, digital currency that lets you buy things without banks or credit cards. Some see bitcoin primarily as an investment of stored value, sort of like a company’s stock. Today, we get some insight from a famous, professional investor, Jeffrey Wernick, who is going big on bitcoin.
Sharyl: What got you interested in investing in bitcoins?
Jeffrey Wernick: When the founding fathers said if the government gets control of money then you now have a tyrannical government. The greatest instrument of tyranny is when the government controls the printing press, so I want to take the printing press away from the government
Sharyl: Bitcoin is not a physical coin that you can hold and carry around and pay for things with it’s all digital?
Wernick: It's all digital.
Sharyl: Can you buy increments? Do you have to buy a whole bitcoin at a time?
Wernick: You can buy small denominations, you can break up bitcoins into minute units called satoshis. You can buy a $5 worth of Bitcoin. You can buy $10 worth of a bitcoin.
Sharyl: Who invented it?
Wernick: Nobody knows who Satoshi is. If Satoshi is a person, a composite, no one knows.
Sharyl (voice-over): An anonymous inventor calling himself Satoshi Nakamoto invented bitcoin in 2008. And that’s just one of the many imponderables surrounding the cryptocurrency. Another, we discovered, is how bitcoin actually works.
Wernick: What miners do is they solve an algorithm. The ledger itself becomes more secure. All these nodes out there that are busy trying to solve the algorithm. Specifically, the bitcoin blockchain, the ecosystem that supports it, is the most powerful supercomputer in the world.
Sharyl (voice-over): Let’s back up. This popular internet video explains some bitcoin basics.
YouTube video narration: Bitcoins are digital coins you can send through the internet. Compared to other alternatives, bitcoins have a number of advantages. Bitcoins are transferred directly from person to person via the net without going through a bank or clearing house. This means that the fees are much lower, You can use them in every country. Your account cannot be frozen. And there are no prerequisites or arbitrary limits.
Sharyl: Who do you think should buy or invest in bitcoin?
Wernick: Everyone should buy bitcoin, I have more than 50% of my net worth in bitcoin. The academic studies that have been done, I think there are two or three. Their recommendation has been people should own 5% to 10% of Bitcoin. I like to encourage more caution on people because bitcoin is very volatile.
Sharyl (voice-over): In January 2017, one bitcoin was worth $800. In July 2019, a bitcoin was worth more than $12,500. On March 12, 2020, it went to $4,857.
Wernick: I think that everyone should own 2% to 5%, really more, but 2% to 5% so they don't have a heart attack on the days when they see it move a thousand points. I always tell people, when you buy bitcoin, you should buy it with the mentality that I'm not going to look at the price for five years, I'm going to buy it and forget it for five years, and five years from now, wake up and look at the price. People won't be able to do that, so then they should determine how much of a stomach they have for dealing with that type of stress. If you deal with stress pretty well, buy 10%. If you don't deal with stress pretty well, buy 2% to 5%. So far over the 11 years that we’ve had bitcoin, it's significantly outperformed any alternative asset. Even with their sell-off right now, bitcoin's up for the year. The stocks are not up for the year, but bitcoin is still up for the year. Bitcoin was up 100% last year.
Sharyl: In short, it has performed better than anything else?
Wernick: It's performed better than anything else. It's one of the few hedges against everything else.
One more interesting fact: governments can print as much regular money as they want, which decreases its value. Bitcoin’s supply is limited to 21 million coins.
More information: https://www.upfolio.com/ultimate-bitcoin-guide