TRANSCRIPT: Can you retire on cryptocurrency?

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Hey guys, welcome back to Compare Return! This is not to be taken as financial advice – please seek a financial professional. This is simply me talking about this from the perspective of a financial planner.

Even though this could be a very controversial topic, I’m probably going to be pretty boring about it to be honest with you. Back in 2016-17-18, there was only two kinds of people discussing Bitcoin on the television. Either the  Warren Buffett type who said, “Bitcoin is a scam and it’s going nowhere and it doesn’t really exist and it’s crazy”. or you had the Winklevoss twins who were saying “Bitcoin is everything. It’s going to revolutionise the world and change absolutely everything.” Well, given the recent boom we’ve seen in cryptocurrency again it seems like we’re kind of erring more on the Winklevoss side rather than Warren Buffett’s side. Sorry, Wazza, you might have got this one wrong.

Today we’re going to be talking about more investment strategies and theories – rather than too many numbers. If you want numbers about crypto, the numbers are traditionally around projections – we think crypto is going to do this or do that. For me personally I think it’s all just a bunch of smoke. Analysts get paid to have an opinion and none more so than every single person out there on YouTube telling you what they think crypto is going to be worth.  Personally, I don’t think anyone’s got a bloody clue. This could end up anywhere.

Knowing that – that you don’t know that –  let’s get stuck into how it might work for you. What is Bitcoin and why do we have it? What does it all mean (and cryptos more generally)? Traditionally, when you wanted to make a transaction with money you would have a centralised position or centralised company or institution. In this regard it was the bank, so if you wanted to make a bank transfer you would send money from your bank to somebody else’s bank, or to your own bank and then they would send that money to someone else. The bank was the centralised unit.

Nowadays, we’ve got decentralised networks (or smart contracts – or the blockchain). What this means is now you’ve got a series of computers or people and every single one has a ledger. Every single one has a book and they’re writing down a number in that book. With a bank it’s like a classroom of people asking the teacher what’s five plus five equal? Hopefully if it’s a good teacher they’ll come back saying it’s ten. The decentralised network is like somebody saying “Hi, I want five, and then also I want five” and everyone on the network knows that should equal ten so they all go away in the notepads and they say, “okay everyone come back what did you come up with?”, and sure as tomorrow the sun will rise, everyone will come back with 10. Because that’s what the answer is. However, if one computer came back with nine everyone else on the network is going to know that person is wrong or that computer is wrong and there’s something going on. That’s why it’s such a good system. The smart contract structure is super-stable, humans can’t make mistakes on it, and it’s super transparent. There are a lot of benefits to this.

What is this crypto chain thing? Well, it’s really like a combination of ingredients. It’s a little bit of cryptography, it’s a little bit of proof of work and it’s also using these decentralised networks. Now if these can be used to make smart contracts and you can have something which is sure enough to be foolproof and super transparent, what might we also see that being used for in the future?

This is where cryptocurrencies and the blockchain and smart contracts start to get a little bit exciting. They’re impossible to shut down or manipulate and they all verify each other. In the future, this could be handy for a lot of things and the traditional banking network can probably benefit. Another example which is springing to mind, is voting. Can you imagine if we had a foolproof voting system? One where every single computer or voter in the whole world (or whole country) had to come together and come up with the same number exactly  – and it could be done immediately. We might have seen a very different election cycle than we’ve just seen happen in America. So, there are some genuine real-world applications starting to come through. It’s been around for about five or six years now and to be honest with you we haven’t seen much in the way of real things come through the blockchain or smart contracts, but now we certainly are.

The next thing for me that I think is going to be revolutionised is the legal system. Can you imagine if every one of your parking tickets was on the block chain? And if you wanted to pay that, you had to take a selfie with the ticket, then that goes on the blockchain and you pay for it with your Bitcoin or with US dollars, whatever it happens to be. That then gets put away and you can’t get dragged back to court two years later claiming you didn’t pay for it, because it’s on the ledger and everyone knows that it happened. This can be used for tons of things. – just think about business. Every time something needs to be verified in business; this can be used. We’re starting to see that with products like Docusign. There is some fantastic stuff that could come out, and that could be the key to you retiring on cryptocurrency. 

Let’s get stuck into which coins you should own for retirement, or which ones you shouldn’t and why. I’m going to preface this by giving you the answer to this topic already which was “Can you retire on cryptocurrencies?” Well, my answer is no. You can’t really retire on cryptocurrencies. But I’d be saying the same thing to you about retiring exclusively on gold, or retiring exclusively on stocks and shares, or exclusively in property.

If you can’t get what I’m getting at, I’m talking about diversification. Cryptocurrency should play a part in everyone’s portfolios to varying degrees, but you should definitely have some, even if for no other reason other than diversification. Being genuinely diversified means holding some crypto. 

My top picks personally are three coins for three different reasons. The first one is Bitcoin. Obviously the original and potentially still the best. I like Bitcoin for one reason and one reason only. It’s finite. There’s only a certain number of Bitcoins out there to be mined and once they’re all mined – that’s it. Bitcoin is kind of like the gold or the reserve currency of cryptocurrencies – it’s the standard. So far there’s been 18.6 million coins that have been mined to date and there’s only 3.1 million coins left out there in the wild to be uncovered. That’s not that many when you consider that four million of them have already been accidentally lost and there’s only three million left. This means that Bitcoin could be used as kind of like a reserve currency. One to hold just like you’d hold cash or gold. Less than four percent of millionaires in the world own Bitcoin, that means they could come along tomorrow and snap them all up.

The next one which I’d recommend you hold a little bit of, is Ethereum. Why? If Bitcoin is like gold and is like something tangible and physical, Ethereum is like oil. It’s something you can use to trade and can actually be used for real-world practices. Ethereum is a dominant coin for the fact that the token of Ether and the Ethereum network is able to create smart contracts. Remember we were talking about them earlier on. Ethereum are the world leaders in having a code which allows you to create these contracts. That means that in the future, if a bank wants to digitalise or decentralise their banking systems, they might use Ethereum for that. If countries reserve currencies want to come up with a digital currency, they might use the Ethereum network to come up with that currency. All these things kind of give Ethereum a really good tailwind for having a practical ability to create and do stuff with. Ethereum is the leader in that – so hold a little bit of Ethereum as well.

The third one is Binance coin. The Binance coin is mainly an exchange. If you can think of Bitcoin as being like a piece of gold you might keep under your bed or in a safe, or Ethereum as something (like oil) that gets used to fuel your car and do stuff with, then Binance coin is kind of like the shopping centre for cryptocurrency. It’s an exchange where you can buy and trade stuff. You can exchange your Binance coin for a PlayStation, or things like that. It can’t be mined so it’s another one of those coins where you can’t get any more. They’ve already mined all the Binance coins before they started, so mining and inflation is not really as much of a thing with Binance coin. It’s really captivating thing is its partnerships and the retail capabilities of Binance coin. You’re more than likely in the future to be having a Binance exchange or have a Binance card in your wallet. Can you imagine if, just around the corner, Binance coin finally cracks Wall Street? You could go onto your Binance exchange, put your US dollars or your pound sterling or your dollarydoos into your Binance exchange, exchange it into Binance coin and use that to purchase stocks or shares or ETF’s, or anything like that. If that kind of adoption comes along then Binance coin could have a really big win as being the practical and   executable solution for buying your pizzas and all that sort of stuff that we’ve been talking about for years and years.

So those are three coins and the three reasons why I think you should hold a little bit of each one of them. The other thing we’ve been seeing which could change the long-term outlook, is the major partners, banks! Banks are finally starting to adopt crypto. We’ve got BBVA, the CME group, Intel, ING, JP Morgan, Microsoft, UBS, there’s so many massive companies that have jumped on board with crypto now. Even just by economies of scale, the chance of it disappearing overnight seem to be getting less and less as it’s being able to be adopted more and more.

Now that we know how this kind of works, what some of the major coins are, and whether you can retire on them, we couldn’t have this video without talking about the risks. What are the main risks you might be looking at with this structure? Well, the number one risk is they all go to zero. Currencies started off being gold-backed (even though they’re not really now) – currencies are totally adopted. If we see Bitcoin disappear to zero, your money is gone because it never really existed in the physical realm or as anything tangibly exchangeable. So that is a little bit of a risk there. The other risk is that it gets confiscated. For whatever reason, it could get banned by countries. Like what we saw in India. We could have special taxes applied to it like unrecognised capital gains and you could get taxed out of the space. You could get double spend. The other thing is a quantum hack.  A lot of this stuff requires you having a key which unlocks your account. My 16-digit hexadecimal key can’t be hacked by traditional computers whereas quantum computers are coming up (if you haven’t looked into quantum computing yet it will absolutely spin your dial around  – we’re not even going to crack that today). Quantum computing is effectively a million billion trillion times more powerful than current computers and it can crack one of those 16-digit hexadecimal codes in 25 seconds, when it would have taken a traditional computer 15 years. If that comes along, we could see account hacks. However, just like you can crack something with quantum computers, you can also encrypt it with quantum computers. The other thing is theft or loss due to negligence. It can be pretty easy for networks to be hacked or for you to lose your crypto if you’ve got it in cold storage on a USB stick. The same could be said for cash or gold as well so I wouldn’t take that one as being too much of a factor.

 So, what does all this mean in conclusion? I’m going to quote one of my favourite guys, Anthony Scaramucci (the mooch). He said that “if you’re not long on Bitcoin you’re short on Bitcoin”. What does he mean by that? Effectively, if you’re not participating in it, you’re betting that it’s not going to be a big thing. So, take that one on board. That could be enough to motivate you to get onto it.

Will things like Ethereum survive? At the moment Ethereum’s not only surviving, but it’s also thriving. It’s the most popular smart contract platform and it’s got more developers working on their network than any other. There’s actually more Bitcoin held or locked up in the Ethereum network than there is on the actual Bitcoin lightning network. That’s because the Ethereum network is much more efficient than the Bitcoin network. How I see this working is Bitcoin (I believe) is going to survive off the back of all the other coins because the Ethereum network’s so great. Binance is bringing retail applications to the forefront but Bitcoin is the original and it’s in limited supply. I think it’s going to survive, and I think they’re going to coexist and be a little bit symbiotic.

I’m going to talk to the people who have already got Bitcoin now. If you’re thinking “yeah Ryan I’ve got three million dollars of Bitcoin sitting in my bank, can I retire on this?” You know what? If you’ve got three million dollars right now today, I’ll give you some super boring advice coming from the Bitcoin sector. I could say that if you put that in a simple S&P 500 tracker – tracking the biggest 500 companies in America (dating back to 1920) – you’d actually be able to make around ten percent a year. Your 3 million dollars would actually turn into $300 000 a year of income. What I tended to do with my investing was, when one of my Bitcoin positions or crypto positions (I’ve got 18 cryptocurrencies, so pretty much most of the major ones) would hit 100 percent return I would reinvest that 50 percent and the other 50 percent I put into the stock market. That was my approach to it but if you are heavy on crypto, I would absolutely divest it a little bit. For diversification’s sake if nothing else.

Going back to the start of the video, I said I wouldn’t be 100 percent in anything and crypto is exactly the same. So, if you have already gone to the moon, maybe you might want to start looking at strategies for how you come back down to earth. Maybe a little bit of property – a little bit of stocks and shares. There are even things like Bluestone –  there’s a few different funds coming out that allow you to exchange your cryptocurrencies, to put them on exchanges to lend out to other people for fixed returns. You can also convert Ethereum into fixed returns as well, so every day there’s new and exciting financial products coming out. This is absolutely an exciting space I believe you should all be in it to some degree.

That’s it guys, I hope you found this educational. As always hit the like and subscribe button if you enjoyed this. This wasn’t supposed to be taken as financial advice, it’s really me just giving you a little bit of an introduction to how I approach the topic.

Thank you very much for watching and have a great weekend!

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