Current Income and Bitcoin
We have reached a critical point where it is financially irresponsible to ignore Bitcoin; please refer to my previous post. Every investor must take their time to understand Bitcoin’s value and how to position it within an investment portfolio. While there are several ways to own bitcoin or at the very least have indirect exposure to it, one of the “drawbacks” we hear from the families we work with is that bitcoin does not generate income. With a long enough time horizon, bitcoin’s price appreciation could make any income needs irrelevant, but the reality is that many investors need income now rather than wait for the future appreciation.
No matter what happens to interest rates, the ever-growing amount of debt in the system and therefore the fate of the US dollar, income-focused investors need to allocate their portfolios accordingly to generate enough to meet their needs. Combining income-focused investments in traditional finance with bitcoin exposure is key to the composition of any income-focused portfolio. Although income is critical for a great number of investors, there must also be a certain exposure to bitcoin for its price appreciation potential, its revolutionary protocol that allows for a variety of financial and non-financial use cases and its natural hedge against a debt-laden system that has reached unprecedented levels with no signs of stopping.
After years of being anti-bitcoin, big Wall Street firms such as BlackRock, Goldman Sachs, JPMorgan and others have slowly started to reverse course and acknowledge that bitcoin requires attention and even an allocation within an investment portfolio. In his October 2023 investor memo, Howard Marks, a long-term distressed credit investor, emphasized the opportunity that credit investing presents given the current and future economic outlook as it relates to interest rates. What he failed to mention were the consequences of investing in credit within a heavily indebted world that is slowly heading towards a debt spiral. Adding bitcoin to the mix could bring a natural hedge against a very unhappy ending for credit, but in the meantime any investor should take advantage of higher rates, which as Marks mentioned “now approach or exceed the historical returns from equity.”
At IBEX DWM, we have identified partners that we believe have the most suitable strategies that combine credit with bitcoin. We want our families to take advantage of higher rates while simultaneously protecting that cash flow through bitcoin. Our families are used to investing in alternative investments such as private equity and credit and we are not looking to change that model, just add the forward looking component of bitcoin’s disruptive potential and natural hedge, which in the words of BlackRock’s CEO Larry Fink, “has digitized gold.”