Understand bitcoin as a store of value: A guide for physicians
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Key takeaways:
- Bitcoin has transformed from a speculative investment to a potential store of value.
- Physicians have an opportunity to enhance portfolio diversification and potentially realize appreciation with bitcoin.
In the rapidly evolving landscape of investments, it is crucial for physicians to stay informed about alternative asset classes, such as cryptocurrency.
Bitcoin, the pioneering cryptocurrency, has garnered tremendous attention in recent years. In 2021, we first described the potential of bitcoin as being a powerful alternative asset class. In 2022, we spoke about how bitcoin mining could be a powerful ancillary revenue stream.
In this article, we will explore the tremendous transformation of bitcoin from being a speculative investment to a potential store of value. As we delve into the sophisticated functions of bitcoin, we will also review the April 2024 halving event and its historical impact on the price of bitcoin. Lastly, we will discuss practical steps physicians can take to gain exposure to bitcoin, whether through cold storage or Exchange Traded Funds (ETFs) in taxable and tax-advantaged trading accounts.
Bitcoin as a store of value
Bitcoin, often believed to be analogous to digital gold, first burst onto the scene in 2010 as a highly speculative investment. Ten years later, its usage gradually became more widespread as the cryptocurrency asset class weathered highly publicized euphoric highs and lows. Earlier this year, bitcoin became a mainstream asset class when the Securities and Exchange Commission approved the listings of various low-cost bitcoin spot ETFs to allow investors everywhere to have access to Bitcoin’s price movement.
Bitcoin has been hailed as a hedge against inflation and a store of value akin to traditional fixed supply assets like precious metals. Its decentralized nature, finite supply and highly complex cryptographic security have contributed to its appeal as a long-term investment vehicle. Below are a few specific features to bitcoin that highlight its appeal as a store of value:
Durability: Bitcoin, unlike physical assets, is not subject to wear and degradation. It will exist as long as the decentralized network supporting it continues to operate, making it quite durable.
Portability: Unlike precious metal hard assets, which can be hard to transport and store, bitcoins are easily portable as these are kept safe digitally in electronic wallets and can be sent across the globe quickly and conveniently. The safest way to store bitcoin is in cold storage, which means transferring your cryptocurrency keys to a nonconnected medium offline. The medium could be a USB drive or a commercially designed USB drive for cryptocurrency.
Scarcity: The supply of bitcoin is capped at 21 million coins, making it a scarce asset. To date, it is estimated that more than 90% of bitcoin has already been mined.
Liquidity: It is important that any asset useful for storing value be liquid enough for the owner to access funds when needed. Bitcoin is not only highly liquid on several legal exchanges, like Coinbase and Gemini, but newly formed bitcoin spot ETFs can also be quickly sold in public security markets. Moreover, bitcoin can be sold in fractional amounts, making it more versatile than real estate or other hard assets.
April 2024 halving event
The bitcoin network operates on a deflationary model, characterized by periodic events that decrease the amount of new bitcoin created. Known as halving events, the rate at which new bitcoins are created by miners is halved, reducing incoming supply.
This mechanism for creating scarcity is programmed into the protocol of bitcoin and occurs approximately every 4 years. Historically, halvings have usually led to upward price pressure after 1 year to 2 years.
Safely obtain bitcoin exposure
For physicians interested in safely gaining exposure to bitcoin, the best performing asset class 8 out of the last 11 years, several options are available:
Purchase bitcoin on a reputable exchange and then transfer to an offline, secure hardware wallet (cold storage) for long-term storage.
ETFs offer a convenient way to gain exposure to the spot price of bitcoin without directly having to hold the underlying asset. Several bitcoin ETFs are available in both taxable and tax-advantaged trading accounts, giving physicians flexibility and on demand liquidity based on investment preferences and tax considerations.
Conclusion
As physicians navigate their financial futures, understanding the potential of bitcoin as a store of value and its relationship with events like the April 2024 halving can be useful.
By being informed about bitcoin exposure, physicians have an opportunity to enhance portfolio diversification and potentially realize appreciation from the evolving landscape of digital assets.
References:
Bhatia S. Bitcoin mining as an ancillary income stream: A primer for physicians of all ages. https://www.healio.com/news/hematology-oncology/20220127/bitcoin-mining-as-an-ancillary-income-stream-a-primer-for-physicians-of-all-ages. Published Feb. 1, 2022. Accessed April 9, 2024.
Bhatia S, et al. Bitcoin may hold asset potential. https://www.healio.com/news/primary-care/20210211/bitcoin-may-hold-asset-potential. Published Feb. 11, 2021. Accessed April 9, 2024.
Three reasons advisors should consider bitcoin. https://www.vaneck.com/us/en/blogs/digital-assets/3-reasons-advisors-should-consider-bitcoin/. Published Feb. 7, 2024. Accessed April 9, 2024.
Wealth Planning for the Modern Physician and Wealth Management Made Simple are available free in print or by ebook download by texting HEALIO to 844-418-1212 or at www.ojmbookstore.com. Enter code HEALIO at checkout.
For more information:
Sanjeev Bhatia, MD, is an orthopedic sports medicine surgeon practicing at Northwestern Medicine in Warrenville, IL. He can be reached at sanjeevbhatia1@gmail.com or @DrBhatiaOrtho.
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