This week, ending May 22nd, cryptocurrencies such as Bitcoin and Ethereum took a beating. The price of Bitcoin went down from a price close to $45,000 to start the week to a low price of $30,000, a drop of almost 33% in a week. That’s huge! I haven’t written about cryptocurrencies before. They weren’t that interesting for our retirement plan. But, that was before this year. My Cleantechnica friend, Chanan, mentioned the enormous potential of Ethereum once it moves to proof at stake. If Ethereum makes the move successfully, Ethereum will be able to handle more than 100,000 transactions per second, more than the current financial systems 16,000 transactions per second. That makes the cryptocurrency interesting.
If you don’t know what cryptocurrency is, take some time to learn before investing. Here are some solid links from Investopedia, on Proof of Stake and Proof of Work. Bitcoin is Proof of Work, and Ethereum is the same. Ethereum is looking to move to Proof of Stake, which will take far less energy to validate a transaction that Proof of Work. According to this Cleantechnica piece, Bitcoin’s energy usage is 124 TWh per year. One Terawatt hour is the equivalent of 1 billion kilowatt hours. These are enormous sums of energy. Australia’s energy usage is 241 TWh per year as an example, and Argentina’s energy usage is 145 TWh per year.
We have started buying some crypto on a weekly basis, including Ethereum, and Cardano, and we own a very tiny amount of Bitcoin and Dogecoin. The potentials for the technology to make cash distributions easier, allow those currently not in the financial system access, reduce time of payments, increase security, provide unparalleled transparency and easy to see financial history are great motivators to own some cryptocurrency. China has launched it’s own central bank backed digital currency, and the Federal Reserve will release a paper this summer on what it thinks a central bank backed digital currency should look like. But, as my libertarian leaning friend Paul tells me, the great benefit of cryptocurrencies is they are free of government interference. In a world where free markets are bandied about, but are not free, cryptocurrencies are the freest markets in the world, moving purely on supply and demand.
Dogecoin, which was created as a meme cryptocurrency to parody Bitcoin, went from a price of 1.5 cents a Dogecoin to close to 70 cents a Dogecoin earlier in the year. This piece from CNBC caught my attention: Dogecoin up 12,000% since January — here’s how much money you’d have if you invested $1,000 at the beginning of 2021. As of May 5th, the return would be close to 12,000% in less than five months. One thousand dollars at the beginning of the year would be worth $121,000! Crazy! Insane! I call Dogecoin the People’s Ponzi, because the people owe the money to themselves.
Imagine how much money it would take, how many months of investing, at low rates of return to get $121,000. Many years. The fear of missing out was huge. The yearn for freedom was even bigger, to get out of a dead end job, buy the house you wanted, retire sooner, make money with little effort. And that’s part of the reason for the huge bust. Everyone was on the same side of the trade. There was no one left to buy in sufficient quantities until prices went lower. Elon Musk said Tesla will no longer accept Bitcoin for Tesla’s, and the Chinese government is cracking down on cryptocurrencies. And the market crashed. This is not the first time, and it won’t be the last. Free markets are prone to manic moves.
What does an investor do? Buy a small bit to diversify, perhaps 1% of your assets. See where it fits in with the rest of your plan. Then increase if it makes sense. Make sure you have a plan for security first, then comfort, then being rich. Consider owning cryptocurrency as part of your rich plan. This is Robert Kiyosaki’s advice, author of Rich Dad, Poor Dad, which is to focus on your secure plan first.
When we went bust, it was a bust in a worse than the crypto crash of May. This set back our retirement and confidence in a bad way. We wasted 10 years of our life recovering from a huge bust, thinking we could skip the secure and comfortable plans, and become rich right away. For some, that may be the case, but for most of us average investors, setting aside money, every week, is a prudent course of action. You want to have enough assets set aside to generate retirement income, as we have been covering the last few weeks.
For us, crypto currency is a long term investment of more than 10 years. The asset class is new, only existing for 13 years. It’s high risk, high volatility, and a chance for high returns. We are focused on our secure plans, by owning fixed index annuities and indexed universal life policies, and paying down our debts. Our comfortable plans are putting as much as we can into our workplace retirement plans. And crypto and individuals stocks, are part of our rich plan. Focus on getting better work, doing side gigs to make more money, getting debt down, to speed up your retirement plan. After all, retiring allows you to do what you want to do, without having to worry about how to pay for it all. It’s the ultimate freedom.
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