BITCOIN INVESTMENT STRATEGY

Designed for the Bitcoin cycles

A dual-pronged, defense + offense, Bitcoin investment approach. 100% retirement account compatible.

CONTEXT

Spikes are key

How your investment strategy handles unexpected spikes (positive and negative) is what distinguishes a great investment strategy from a good one.

This strategy speaks to both the hopes and fears of Bitcoin investors. Leveraging options to try and hedge against crashes while not missing out on extreme run-ups.

STRATEGY breakdown

Defense + Offense

DEFENSE
Diversified indirect exposure

To hedge against potential Bitcoin crashes, investors can hold a diverse portfolio of public, Bitcoin-adjacent companies, with varying levels of Bitcoin correlation (e.g. Bitcoin miners, holders, supporters).

This creates the potential to achieve some level of Bitcoin correlation while also introducing value independent from Bitcoin.

OFFENSE
Call option overlay

To complement an otherwise defensive strategy, investors can overlay call options on the most Bitcoin-correlated companies, creating the potential to keep up, and even outperform, if they skyrocket.

Thanks to the asymmetric nature of calls, investors can tap into outsized upside potential for limited additional risk.

the power of CALLS
Reading the Cycles

Adjusting Allocations

Bitcoin is unique from traditional financial assets in that its supply distribution is pre-programmed and all buyers/sellers and transactions between them are recorded to a public ledger (blockchain). Investors can arm themselves with unprecedented levels of granular information that can potentially help in managing the level of Bitcoin-focused allocation in their investment portfolio.
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Bitcoin HODL Waves
Source:  Glassnode (as of 12/20/2021). The results are NOT an indicator of future results.  See source for additional information regarding the construction of these results.  PLEASE SEE FULL DISCLOSURES BELOW.

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DEEP DIVE

FAQs

I still don't understand Bitcoin's value, can you explain it simply?

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Check out our Bitcoin simplified infographic that explains Bitcoin in a visual way.

In a nutshell: to understand the promise of Bitcoin, think about the US Dollar. Why does a piece of paper have value? The paper and ink itself is not inherently valuable from a materials perspective. Ultimately, it has value because there is social consensus that it can act as 1.) a store of value and 2.) a medium of exchange for goods/services. Bitcoin has the potential to become this, while being better than the USD in significant ways (decentralized, digital, and deflationary).

Isn't the Bitcoin bull run over?

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The more conservative Bitcoin bull position is that Bitcoin will be useful just as a store of value (like digital gold), not necessarily a currency (like a digital USD). Gold's market cap is roughly $11 trillion. Bitcoin's market cap is currently less than $1 trillion (Sep 2021). Even if Bitcoin reached only half of gold's market cap, that's more than a 5x increase to go.

How does diversified, indirect exposure hedge against a Bitcoin crash?

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Holding a basket of companies focusing on different things brings value that's not tied to Bitcoin. That non-Bitcoin value won't be as affected for Bitcoin-related crashes.

For example, though Tesla is a big holder of Bitcoin, their major value comes from things like autonomous car development, energy, etc. So if Bitcoin crashed tomorrow because of some Bitcoin-related issues, Tesla's share price is unlikely to be as severely affected.

How could indirect exposure keep up with Bitcoin in a bull run?

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Though not investing in Bitcoin directly, some of the companies being held should have higher levels of Bitcoin correlation (MicroStrategy is one example). That said, the less-correlated companies could indeed drag the performance of the portfolio in a bull run.

That's where options come in. Layering on the amplifying power of call options on high-correlation companies has the potential to offset the drag.

This sounds too good to be true. Are options voodoo magic?

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Call options can definitely be powerful, but they're not magic ;) If you're not familiar with options, we recommend at least learning the basics.

Options come with some additional speculation (e.g. you have to try and choose a good strike & expiry) and risk (e.g. if they reach their expiration worthless, you lose the premium and there's not an opportunity to rebound like you might have if you kept holding with stocks).

But the risk you take on is asymmetric - there's a limit to how much you can lose but no limit to how much you can gain. Having a good system with a constrained portion of your portfolio dedicated to calls can help take advantage of that asymmetric bet.

Why wouldn't I just invest in Bitcoin directly?

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We're fans of that too :) There's a lot of value in holding Bitcoin directly — you own the coin, you directly participate in the movement, your returns are directly tied to Bitcoin rather than being a step or two removed.

But this strategy has some unique value as well:
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1. Easier to invest in from a typical retirement account. A typical retirement account won't currently allow investors to invest in Bitcoin directly.  It's a different type of asset that requires different infrastructure (e.g. digital wallets). However, investing from your retirement fund can be appealing because of the tax-advantages. Roth accounts are particularly intriguing because gains from investments are tax-free. Investors should do their own research to see if this approach would make sense for them.

2. Hedged against Bitcoin crashes. See the "defense" section of our strategy above.

3. In extreme run-ups, potential to outperform Bitcoin. If your options cards are played right, this strategy could potentially outperform Bitcoin in extreme run-ups.

4. Indirectly supporting the Bitcoin movement. You are basically supporting the supporters of Bitcoin, encouraging a healthy and robust Bitcoin ecosystem.

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Past performance is no guarantee of future returns.

Investing involves risk and possible loss of principal capital. Unless otherwise noted, any performance returns presented in these materials reflect hypothetical performance. Hypothetical strategies and indices presented are unmanaged, do not reflect any fees, expenses, transaction costs, commissions or taxes, and one cannot invest directly in any of these. The results presented should not be viewed as indicative of the adviser’ skill and do not reflect the performance results that were achieved by any particular client. During this period, the adviser was not providing advice using any models mentioned and clients’ results may have been materially different. Hypothetical model results have many inherent limitations, some of which, but not all, are described herein. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading.

While an option overlay is intended to improve performance, there is no guarantee that it will do so. Utilizing an option overlay strategy involves the risk that as the buyer of a put or call option, the buyer risks losing the entire premium invested in the option if the buyer does not exercise the option. Also, securities and options traded in over-the-counter markets may trade less frequently and in limited volumes and thus exhibit more volatility and liquidity risk.

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