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Relai Bitcoin Session #9 with Jonathan Hobbs: Bitcoin’s Role in a Diversified Portfolio

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Jonathan Hobbs

Jonathan Hobbs was our guest on the Relai Bitcoin Sessions podcast. Jonathan is a former investment banker-turned-financial educator and the founder of StopSaving.com.

We jumped on a Zoom call with Jonathan to talk about how he got into Bitcoin and how bitcoin fits into a traditional portfolio.

You can watch it here:

And you can listen to it here:

Summary

Jonathan first got into cryptocurrencies after writing his first book, “Stop Saving Start Investing: Ten Simple Rules for Effectively Investing in Funds,” and launching his investment blog, StopSaving.com.

Finding Bitcoin

In June 2017, a friend of his asked him about investing in bitcoin. Jonathan was skeptical at first but when he started to look into bitcoin, his view quickly changed.

“I started investing in bitcoin in August 2017 with the strategy value averaging, which got me in at good prices and got me out at good prices, especially with $20,000 happening in December 2017.”

Jonathan documented his bitcoin investing journey on his blog and the traffic this content receives greatly outmatched any of his other content. At this point, he saw how big the demand for Bitcoin education was.

Jonathan later joined a startup hedge fund to roll out their digital asset investment strategy in 2018. Originally starting as a consultant, he later become their Chief Investment Officer. He recently took a step back from the fund to refocus on creating content and his own business ventures.

Falling Down the Bitcoin Rabbit Hole

“The more I learned about Bitcoin, the more interested I got in it. Eventually, it almost became an obsession.”

Going back to 2014, he became concerned about the global financial system and the way central banks were printing their way out of the 2008 financial crisis back then.

Also, Jonathan told us that he was always open to explore new ideas and new concepts. So when he learned about Bitcoin and started to get involved, it all fell into place for him.

What Bitcoin is Today

Jonathan goes on to explain what he considers Bitcoin to be. Right now, he doesn’t think it’s smart to use bitcoin for small transactions, like buying coffee in a coffee shop. However, there are other things that bitcoin excels in, Jonathan explains.

  1. As a payment system for sending large money transfers
  2. The digital gold narrative – an alternative to physical gold
  3. It’s a speculative venture investment in the long-term growth of blockchain
  4. It’s a digital commodity that you can trade, both long and short

He sees Bitcoin as being these four things.

Bitcoin’s Role in a Diversified Portfolio

A billion-dollar hedge fund manager once said: “Bitcoin is a lot like chlorine. You can use a small amount of it to keep your pool clean but if you drink a lot of it, you die.” That is exactly how bitcoin behaves in a diversified portfolio, Jonathan explains.

Jonathan goes on to explain that if an investor would have had put all their money in bitcoin in 2012, they would have generated a 130% average annual return. At the same time, Jonathan believes that no serious investor would have been able to “HODL” all the way until today, given the four steep 80% drops that occurred in that time period.

Conversely, another investor who would have bought the S&P500 at the same time would have made 11% average annual return but only 25% price corrections.

Now, if that investor would have held 2% in bitcoin and rebalanced his holdings so that the bitcoin position remains 2% throughout the same time period that portfolio would have made about 15.5% per annum on average. The drawdown would have only been around 23%.

That shows you the effect of increasing returns when adding bitcoin to a diversified investment portfolio.

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