Are you building your wealth over time?
The stock market keeps going up and up. Many of us who have any invested in the stock market feel happy about this and maybe also feel richer. But are we really richer?
See the history of S&P500 over the last five years shown in Figure 1. The same history of S&P500 when plotted in Bitcoin is shown in Figure 2. To get the S&P500 in Bitcoin (or Satoshis where 100 Million Satoshis equals one Bitcoin), I believe the authors compute the market cap of all companies included in S&P500 in Bitcoin. So using a good currency like Bitcoin you can see that you are really not richer now unless you have Bitcoin in your portfolio.
We can similarly check the price of Apple Stock in both US Dollars (Figure 3) and in Satoshis (Figure 4). We see from here also that if we were to switch over to Bitcoin as a currency today, then the situation is different. Your wealth could have been decreasing over time when measured in Bitcoin. This is what would happen if Bitcoin were adopted as the currency tomorrow as has happened in case of El Salvador.
So how do you address this? You can address this by holding at least part of your portfolio in Bitcoin. There are several people who have majority of their assets in Bitcoin. For example Anthony Pompliano claims to have more than 80% of his assets in Bitcoin. Note though that there is a small possibility that Bitcoin goes to zero. So decide based on your risk profile.
In addition, you should also watch out for developments in the crypto world since this will impact your financial state. But then this world of Cryto is also a crazy world. Did you know that the best returns over the last 12 months were not with Bitcoin.
See the tweet below You can see that the best returns were provided by Solana although it has suffered recently. By the way, I am sure that many of these names might be new for you.
So how do we navigate this world to maximize the value of assets. To do this we need to understand the various concepts. Concepts such as Stablecoins, NFT, DAOs, Defi etc in addition to the various names we see above. And we need to do this not only from the perspective of the technical foundation behind these concepts but also from the perspective of economics, finance, game theory etc.
I plan to address this as I continue my journey in the world of crypto.
In addition, I also plan to change the format of the newsletter. This will go out every Friday so that you can catch up on this over the weekend. And the newsletter itself will have not only my views on a particular topic but will also have a set of interesting articles and tweets related to the world of crypto.
But that is all for next week. For this week enjoy my previous articles related to the gold standard as well as about the history of central banks in US.