The Capitalist Investor - Episode 53

Bitcoin has been all the buzz as it has regained its prior high from 2017 ($19,500). It has been bumping right up against $20,000 and is coming back to the forefront of investor’s minds. People are even starting to refer to it as digital gold. But does it deserve that designation? Where do we think it’s going? Should you buy it? How much should you buy? We cover all the bases in this episode of The Capitalist Investor!

Outline of This Episode

  • [1:59] The Bitcoin Bonanza
  • [4:43] Is Bitcoin still a speculative play?
  • [8:35] How much should you invest in Bitcoin?
  • [13:09] The #1 catalyst for explosive growth
  • [15:42] Why you should play with the house’s money
  • [17:53] Is Bitcoin the equivalent of digital gold?
  • [21:34] Swag available: Nike hoodies and sweatshirts

Why Bitcoin is still a speculative investment

More and more companies are adopting and embracing Bitcoin. PayPal and Square announced they will now allow users to buy and sell Bitcoin on their platforms. In October, Bitcoin was trading at $12,000 a coin. After PayPal made that announcement, it went from $12,000 to $19,000 in 30 days. At the time of recording this episode, it’s trading around $18,809. By the date of publishing, it could very well hit $20,000.

I believe that played a huge role in the recent surge in pricing. But it has to continue to be embraced as a legitimate currency to be useful. If and when that happens, the higher its value will go. I still see it as a risk-on play. If we enter a risk-off mode, I don’t see Bitcoin booming while stocks are down 20–30%. It doesn’t seem natural or intuitive. It’s still a speculative investment because people don’t fully understand it.

How much should you invest in Bitcoin?

You need to figure out how much you’re willing to invest in Bitcoin. You can’t invest 100% of your net worth—that would be crazy. I own an amount of Bitcoin where if it went to zero, it wouldn’t change my life. But if it was 10X’d over the next 3–5 years, I would cry myself to sleep if I didn’t own any. We don’t ever see it going to zero. But if that is the worst-case scenario, you have to consider it.

Could you put 1–2% of your overall portfolio in Bitcoin? It’s less likely that it will track downward at this point and we believe the volatility is behind us. Hardcore Bitcoin investors say that they will never sell. It’s become more of a Tesla or Apple with a serious cult following of people that believe in it and will hold it. I’m telling people to keep it under 5%. 5% of a million-dollar portfolio is $50,000 in Bitcoin, which is completely reasonable.

One of the key points is that there is a limited supply. Only 1,800 new coins are produced every day and there will only ever be 21 million Bitcoins. Supply and demand will drive the price which puts the investor in a strong position. Demand far exceeds supply at this time.

The #1 catalyst for explosive growth

If Tesla can go up 600% in a year, what’s to prevent Bitcoin from going from $20,000 to $100,000 by the end of 2021? It could happen. A jump from $20,000 to $40,000 is more realistic, but if Tesla can do it, Bitcoin can do it too. All it would take is for Amazon to allow you to pay in Bitcoin. If that happened, Bitcoin might go to $500,000 within a year. I think there’s a 50/50 chance that happens in the next two years. Bitcoin’s value will go through the freaking roof. That would be the #1 catalyst.

Is Bitcoin the equivalent of digital gold?

We don’t believe that Bitcoin has earned that status—yet. It’s a bit premature to call it digital gold or a safe haven play. If you are interested in Bitcoin, you need to watch who’s adopting it and embracing it. As you see those things start to happen, your conviction in Bitcoin should start to go up.

Bitcoin is traditionally a volatile trade. Chainalysis has found that fewer people are trading Bitcoin and more people are buying it and holding it. They’re accumulating Bitcoin for the long run. Bitcoin eliminates the need for a middleman (banks). You don’t need a middleman because every transaction is recorded on a ledger that’s always there. Because you are eliminating the middleman, blockchain technology transactions should be easier and more cost-effective.

What do you think? Will Amazon allow Bitcoin as a currency? Will it skyrocket? Let us know your thoughts!

Resources & People Mentioned

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Show Notes by

Keep Listening to The Capitalist Investor:
Episode 15:
Spending Strategies in a Bear Market, Ep #15
Episode 31:
Handicapping the 2020 Election, Ep #31
Episode 47:
11 Investments in Your Home That Pay Off, Ep #47
Episode 63:
Jeff Bezos and Amazon: Past, Present, and Future Ep #63
Episode 79:
7 Ways Biden Plans to Tax American Families (Part II), Ep #79
Episode 95:
5 Beaten Down Stocks to Buy on the Dip, Ep #95
Episode 111:
Special Episode – Talking Energy with Daniel Turner, Ep. #111
Episode 127:
Retail Earnings Tank & What The Heck is Greenflation? Ep. #127