The "Nakamoto Portfolio"
How Bitcoin Fits in Investment Portfolios
At the gym last week, I tuned in to a podcast from one of the great Bitcoin analysts and podcast hosts, Stephan Livera. (I need to update my recommendations, below, to include his pod, “Stephan Livera Podcast,” as one of my favorites.) His guest was the CIO of Swan Bitcoin, Rapha Zagury. Rapha has been a trader, investment analyst, and open source developer. His research on including Bitcoin in an investment portfolio is truly eye-opening.
The podcast focused, first, on the shortcomings of traditional portfolio structuring, noting that most active managers do not outpace the S & P 500 index. Zagury also pointed out that most stock pickers agreed with their colleagues and competitors, in that no one wants to step out and make a bold prediction. Even if they’re wrong, at least they’re all wrong.
Rapha goes on to point out that including an allocation of say, one percent to five percent, to Bitcoin will give a possible upside of several percentage points, while exposing the portfolio to only a very minor potential loss. (Please excuse the long sentence.)
Rapha told an unbelievable story, whereby he presented a portfolio to a friend, showing yearly and long-term returns on a particular, unnamed, asset. The portfolio showed a few yearly losses, but in the long run achieved great performance. He called it it the “Nakamoto Portfolio,” telling his friend that Mr. Nakamoto was a Japanese investment advisor, and that he wasn’t sure he could get new investors into his fund.
Of course, Mr. Nakamoto’s portfolio was a chart of the Bitcoin performance over a long range of time. When Rapha disclosed this to his his friend, the friend was convinced. “Let’s allocate a portion of my portfolio to Bitcoin.”
That’s where this analysis always ends up. A small allocation to Bitcoin, in an otherwise diversified portfolio, provides great potential upside, with minimal downside, over the long run.
The Lazy Portfolio
Here’s a great example of how a simple portfolio has performed, using just broad-market ETFs and aa small allocation to Bitcoin. No altcoins or cRyPtO.
Allocations as follows:
Vanguard Total Stock Market 59.0%
Vanguard Total Bond Market 39.0%
Bitcoin 2.0%
(It’s basically your grandfather’s 60-40 portfolio with a smidge of Bitcoin thrown in to juice the returns.)
How does the addition of the orange pill affect the returns? Take a look:
As of April 23, 2023, the portfolio had returned an average annual return of 16.92%.
Compared to: 11.62% for the stock market ETF, and 1.26% for the bond ETF.
Bitcoin, over the ten-year period, returned 73.32% per year.
And there you have it. Very low risk, only a 2% portfolio allocation, with the potential for much greater returns.
Thanks to the site:
https://www.lazyportfolioetf.com/allocation/stocks-bonds-60-40-with-bitcoin/
This is not investment advice, and these past returns do not guarantee future results. Do your own research, and only invest in Bitcoin what you can afford to lose. And please, invest for the long-term.
It’s amazing that mainstream, fiat if you will, portfolio managers will not recommend any allocation to Bitcoin. Many are not even allowed by their firms to mention Bitcoin. Of course they are concerned with liability when recommending a “volatile” asset such as Bitcoin.
Maybe someday, they will be liable for not suggesting Bitcoin? We’ll see.
Thanks for reading, and many thanks to all of last week’s new subscribers. I’ll be reporting from next week’s Bitcoin Conference ‘23 in Miami Beach. Stay tuned!
Bitcoin Tools, Platforms, Podcasts:
Twitter - Follow The Bitcoin Files on Twitter at @BitcoinNewslet1 for all of my articles, commentary and links to my contributions to Bitcoin Magazine.
Medium - Check out my writings on Medium, including articles not featured in the newsletter. Join my 600 other followers who read and write about crypto. medium.com/@rickmulvey
Podcasts - To hear the top names in Bitcoin, and learn more than you could imagine, check out The Pomp Podcast with Anthony Pompliano, What Bitcoin Did with Peter McCormack, and The Wolf of All Streets Podcast with Scott Melker.
Issue No. 108, May 12, 2023
Rick Mulvey is a CPA, crypto consultant, and frequent contributor to Bitcoin Magazine. He writes about all things Bitcoin, and yells at the Yankees and Giants. He also runs marathons and makes wine, neither professionally.