Bitcoin Investing For The Rest Of Us

A mortgage broker friend once told me that, back in the good old days of mortgage lending in the 1980’s, all you needed was a Polaroid of the cash you were keeping buried in your backyard to verify your assets.  Thirty years later, banks seem to be a little less trusting of borrowers and a lot more worried about money laundering.

This week, a Reddit user known as “bitcoin-ian” reported that US mortgage lender Wells Fargo Bank, N.A. accepted his Coinbase transaction history as verification of assets for a personal mortgage loan.  This marks the first time that a major bank has allegedly accepted bitcoin as an asset worthy of consideration in connection with a loan application.  Reddit’s other Bitcoiners were skeptical.

Whether this actually happened or not, it does suggest something that you should consider when building and maintaining your investment portfolio. Eventually, you will probably need to show your treasure pile to an outsider.  Aside from the extreme market risk posed by a one asset investment strategy, one of the problems associated with a portfolio that is substantially composed of cryptocurrencies is that they are generally not viewed as a “legitimate” asset.  If you intend to use your portfolio as collateral for a loan, or proof of income or assets, the effect can be akin to having your life savings tied up in belly button lint or vintage Popsicles.  Additionally, if your assets are mostly tied up in employer sponsored 401(k) accounts or other retirement accounts, then you may find it very difficult to impossible to integrate cryptocurrencies into your investment strategy.

Here are a few ideas to get bitcoin investing into your portfolio:

First, consider integrating cryptocurrencies into your investment portfolio in the same way that you would with cash or money market accounts.  This can be done with a self created or a hosted bitcoin wallet, but you might see better results with an actively managed fund.  When/if it finally opens to the public, the Winklevoss Bitcoin Exchange Traded Fund (otherwise known as an ETF) will probably be a good way to bet on bitcoin without actually having to own bitcoin or monitor your portfolio full time.  Additionally, a bitcoin-based ETF has the advantage of being accessible through a traditional brokerage or IRA account.  On the down side, ETF investing may be very cheap, but it isn’t free.  You should consider the effect that fees will have on your returns before deciding on this option.

Next, if you want more exposure, then you might consider investing your spare ducats in a few bitcoin companies.  Equity crowdfunding under the JOBS Act  has opened up a variety of new and exciting possibilities here.  Many of these companies are tech start-ups that pay dividends regularly, generously, and in bitcoin.  However, would advise you to stay away from unregistered offerings.  Though it may be tempting to side with the underdog (read: underfunded), unregistered offerings of securities lack the SEC or state level oversight that usually filters out the riff-raff of the investing world.  Lack of registration doesn’t automatically mean that a new company is not legitimate, but it does create opportunities for unscrupulous actors to commit fraud.

Finally, if you are a gold bug or a privacy fiend, companies such as Titan Mint offer attractive precious metal coins with a redeemable bitcoin component.  These are totally anonymous physical coins that can be secured in a lockbox or safe. The bitcoin balance on each coin is electronically verifiable and can be loaded into a wallet, but this strips the coins of part of their value.  These coins also boast a thriving secondary market in places like eBay, which adds some liquidity in a pinch.