The Blockchain Portfolio That’s Outperforming the Market
A few months ago, we introduced our Blockchain Believers Portfolio, an easy-to-use investment strategy that combines the security of the stock market with the bullishness of blockchain. I’m happy to announce that in just eight months, our blockchain portfolio is outperforming the stock market.
Big returns are easy if you started our portfolio five years ago, when bitcoin wasn’t even on the radar for most investors. But we started the Blockchain Believers Portfolio in September 2018, during the coldest months of “Crypto Winter.”
In the spirit of blockchain, these portfolios are open-source and free to use. We assume a starting investment of $10,000, with a monthly contribution of $100. This is what we mean by “active investing”: slowly and steadily building wealth by putting aside money each month.
TL;DR: The chart above shows the nine-month returns for our “Big Blockchain Believer” active investing portfolio, which has increased by 2.2%. The “Non Believer” active investing portfolio, comprised of stocks and bonds only, has decreased by 1.7%. Blockchain has outperformed the stock market.
Let’s unpack these results.
We started with a plain vanilla investment portfolio: 2/3 stocks and 1/3 bonds. This is an extremely diversified, well-hedged portfolio that your grandparents might use.
We use the Vanguard Total Stock Market Index Fund (VTSMX), which essentially buys the entire U.S. stock market, and the Vanguard Total Bond Market Index Fund (VBMFX), which buys the entire U.S. bond market. Both have incredibly low fees.
The philosophy is that bonds and stocks tend to move in opposite directions (when stocks move up, bonds tend to move down, and vice versa), but both move up over time (since 2000, VTSMX has roughly doubled in value, and VBMFX has increased about 10%). So you get growth while minimizing risk.
Performance: Non Believers lost 1.7%. We use the “Non Believers Portfolio” as a baseline, so we can see how our blockchain portfolio would do against a conservative investor. The answer: blockchain has performed better.
A Baby Believer is someone who says, “I see the promise of blockchain, and I want to invest, but I don’t want to bet the farm.” (For the record, we never recommend betting the farm. Think of the cows.)
This portfolio is still primarily invested in stocks and bonds, but we reduce the bond percentage to 35%, and we add a small amount of bitcoin (2.5%). Think about this slice of the pie as your “alternative investments” — or your “mad money.” Even if the price of bitcoin plummets, you lose only a tiny slice.
As Crypto Winter thaws into Crypto Spring, however, the price of bitcoin has taken off. So the soaring price of bitcoin has offset the losses of the stock market, making this portfolio perform better. This shows how bitcoin can further diversify a traditional portfolio, by giving exposure to another asset class.
Performance: Baby Believers lost .66%. We use this as a portfolio that’s “in between” the Non Believers and the Big Believers. The results are neither as bad as the stock market, nor as good as the blockchain believers — they share in the upside, while hedging against the downside, of bitcoin.
The Big Believer Portfolio
A Big Blockchain Believer is someone who understands the world-changing potential of this new asset class, but still wants to invest sensibly.
During the Crypto Mania of 2017, we saw many investors put everything into bitcoin and blockchain, only to lose most of their money when the blockchain market crashed. It was a real “all or nothing” mentality, a black-and-white view of the world. We thought, “There’s got to be a better way.”
The Big Believers Portfolio still stays invested primarily in stocks (65%) and bonds (25%), with 10% allocated toward the top 3 altcoins (5% bitcoin, 2.5% Ethereum, 2.5% Ripple). This means only 1/10th of your portfolio is exposed to blockchain — and even within that, you have a little diversification.
Performance: Big Believers gained 2.24%. This was the only portfolio to make money over the last nine months, with the price of bitcoin and Ripple leading the way. (Worth noting: Ethereum’s price went down 12.5%, but Ripple shot up a whopping 23.5%, more than offsetting those losses.)
Build a Fortune Without Betting the Farm
We’re out to help investors build long-term wealth by making sensible decisions about this new asset class. We want to help you enjoy the rewards of blockchain investing, while mitigating the risks: to build a fortune without betting the farm.
Our belief is that we can automate these portfolios, allowing investors to set up a simple auto-withdrawal from their bank account that buys one of these portfolios for them each month. They can “set it and forget it,” while their money is hard at work, building value for the world.
That belief is coming true.
John Hargrave is author of the forthcoming bestseller BLOCKCHAIN FOR EVERYONE. Sign up for his free weekly blockchain newsletter. Many thanks to Bitcoin Market Journal analyst Kevin Kelly for his help in building out these investment models.