How much of your portfolio should be allocated to Bitcoin? Michael Saylor thinks it should be 100%.
To say that Michael Saylor, founder and executive chairman of MicroStrategy Inc. (MSTR 14.90%), has been on a Bitcoin (BTC 1.60%) buying spree would be an understatement. Since August 2020, MicroStrategy has acquired 279,420 Bitcoins, worth approximately $25 billion at current prices. To put that number into perspective, that’s nearly 1.5% of all Bitcoin currently in circulation.
And Saylor is showing no signs of letting up. In fact, if anything, he is now taking even more aggressive steps to buy as much Bitcoin as he can, as quickly as he can. That includes a new plan to buy $42 billion worth of Bitcoin over the next three years. So if this billionaire is buying Bitcoin hand over fist, should you be too?
“I’m going to be buying the top forever”
As Saylor has pointed out numerous times, Bitcoin continues to be the premier asset class in the world, and there’s nothing else that he’d rather be buying right now — not gold, not real estate, and certainly not the S&P 500. He’s going all-in on Bitcoin, both for his personal holdings and for his company.
Even if you’re a crypto skeptic, you must agree that Bitcoin’s past decade of performance has been nothing short of awe-inspiring. For many years, it has been the best-performing asset class in the world, and it hasn’t even been close. Bitcoin is up another 115% this year after turning in 150% gains last year. And, if you exclude a down year in 2022, then Bitcoin delivered annualized returns of 230% in the decade from 2011 to 2021.
While some crypto skeptics warn that Bitcoin might be overvalued right now, Saylor has a simple reply: “I’m going to be buying the top forever.” In other words, he’s not waiting around for a Bitcoin pullback so that he can buy the dip. As Saylor sees it, Bitcoin has just entered a new decade-long “Gold Rush” period, and the time to buy is now.
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Bitcoin’s future upside potential could be absolutely epic. Saylor has already predicted that Bitcoin could be on a trajectory to hit $13 million by the year 2045. And that’s the base case. The ultimate bull case, says Saylor, is for Bitcoin to hit $49 million a coin.
New ways to get exposure to Bitcoin
In an attempt to get as much exposure as he can to Bitcoin, Saylor has consistently been looking for new strategies that MicroStrategy can utilize. This year, for example, he has championed the idea of using convertible debt offerings to raise capital to buy Bitcoin. It’s a way to work around the fact that his company simply does not have as much cash as it needs to buy massive amounts of Bitcoin.
MicroStrategy also recently unveiled a new three-year strategy for the period from 2025 to 2027. It’s called the “21/21 Plan,” and it calls for raising $42 billion in new capital over the next three years. That $42 billion can then be used to buy as much Bitcoin as possible. That’s a staggering amount to buy, given that the company already holds $25 billion worth of Bitcoin.
And, looking even more long term, Saylor envisions a day when MicroStrategy — currently an enterprise software company — evolves into a “Bitcoin bank” that deals only in Bitcoin and Bitcoin-denominated assets. That way, says Saylor, he can be sure that his only exposure is to Bitcoin and not to fiat currencies, such as the U.S. dollar.
Is diversification really a myth?
As you might have guessed by now, such an aggressive plan to go all-in on Bitcoin is not without a few risks. Chief among them is diversification risk. A fundamental rule of investing is that you should attempt to diversify as much as possible, so as to limit the downside risk to your portfolio. You don’t want to have all your eggs in one basket.
And that’s especially the case with Bitcoin, which is known for its volatility. Throughout its history, Bitcoin has undergone at least five different periods in which it has lost 77% or more of its value. And that doesn’t even include less dramatic declines of 20%, 30%, or even 40%. Right now, for example, some analysts are warning that Bitcoin could see a retracement that takes it all the way back to $60,000 per coin.
While there are some crypto bulls who claim to have 100% of their wealth tied up in Bitcoin, that is the exception rather than the rule. As a general rule of thumb, you should probably have less than 5% of your portfolio allocated to Bitcoin. In fact, many prudent financial advisors will tell you that even having 1% of your wealth allocated to Bitcoin is aggressive.
How much Bitcoin is too much Bitcoin?
So, if you are thinking about investing in Bitcoin, you will need to determine how much Bitcoin is too much Bitcoin. You need to find the right balance of upside potential and portfolio diversification. And just keep this in mind: While Bitcoin’s long-term trajectory appears to be heading up, it probably won’t be without a lot of volatility along the way.
