Coffee Can Next (Part 1)
First Up: Doubling Down on Bitcoin
As I’ve said before, I am a fan of the Coffee Can Portfolio, an “Active Passive” approach to investing. The idea of a Coffee Can is simple: Buy a basket of the best stocks you can and let them sit for years. You incur no costs with such a portfolio, and it is simple to manage.
I haven’t shared any Coffee Cans in a while, so I thought it was time to start creating one: Enter Coffee Can Next.
Coffee Can Rules:
We will make 5-6 purchases in our coffee can.
Any purchases must be held for a minimum 3-5 years.
Our goal is to outperform the SPY during our holding period.
I’m going to try and build this coffee can by mid 2024.
First Investment: Doubling Down on Bitcoin (BTC)
As you may recall, I invested in Bitcoin in 2020:
It’s been 3+ years since our purchase. The Bitcoin Price now is ~$38,000.
Per our old Scorecard, here’s our return to date:
First Purchase 2/11/2020:
Purchase Price: $9,661.87
Current Return: ~3.9X (+290%)
Second Purchase 10/9/2020:
Purchase Price: $11,000
Current Return: ~3.5X (+250%)
Leaders tend to keep on winning. So we’re doubling down on Bitcoin.
In order to invest in Bitcoin, one must believe that
Crypto, as an asset class, is here to stay (i.e. the total Crypto market cap will continue to grow significantly), and that
Bitcoin will remain relevant in this new ecosystem.
Such leaps of faith are nothing new. When a new technology emerges, if it is significantly better, cheaper, faster and more accessible, it eventually goes mainstream. Products, companies and industries emerge to commercialize it. Its effects are felt by millions of people, and later, many wonder why its powerful promise wasn’t more obvious from the start.
So has our thesis changed?
No, I’d say it's largely the same.
(1) Is Bitcoin still a Leader in a Large Growing Market?
Yes.
Crypto is a ~$1.5 Trillion dollar asset class today, and Bitcoin is still the standout leader of the group, and represents 50% of the total Crypto Market Cap.
Bitcoin is very much alive and well. And it seems to have survived yet another ~75% plunge. How many assets can you say that about?
Although more volatile than I’d like, bitcoin transactions per day continue to grow.
(2) Does Bitcoin have a Growing Competitive Advantage?
Yes.
Bitcoin is a monopoly. It has cemented itself as the primary beneficiary of Crypto's first mainstream use-case, namely, “Store of Value”. As a result, no new cryptocurrencies will directly compete with Bitcoin.
I continue to believe Bitcoin is exhibiting Power Law dynamics. This can be difficult to grasp. Once it becomes apparent that certain companies or technologies have a massive competitive advantage, and even if everyone is aware of them, people still fail to recognize the magnitude of their future returns. Take Google for example. When it became obvious how dominant it was, even if you bought it at a $100 Billion valuation, you would still have made a 10X!
In life, winners keep winning. Betting on Bitcoin is like betting on Usain Bolt mid-race. He’s already in the lead, and is likely to win.
Price Action Giving Us Clues
Let’s take a few minutes to analyze Bitcoin’s price action over the past year, and see what it might be signaling.
What happened the week of November 6, 2022?
FTX collapsed.
The FTX collapse revealed a major scam in the crypto ecosystem. The day it collapsed was one of BTC’s biggest down-volume days ever. But just ~2 months later, notice how prices had recovered to pre-FTX collapse levels.
Unlike FTX, Bitcoin is driven by a self governing community, and this provides me comfort that the community itself will safeguard the future of the technology, unlike any particular company. This is a major feature of Bitcoin.
What happened the week of March 5 and March 12, 2023?
Silvergate and Signature Bank both shut down.
But prices appreciated almost 30%!
What happened the week of June 4, 2023?
The SEC sued both Coinbase and Binance.
Two weeks later, prices had recovered once again.
What is this price action telling us?
To me, this very clearly signals BTC’s demand and staying power.
(3) Does the company have Visionary Leadership?
Yes.
Here’s what I had to say about this earlier, and this remains true today.
(4) Could it 10X in 10 Years?
My thoughts on this topic from three years ago. We’re about ~40% of the way to 10X when I wrote that.
Could it 10X from the current price (i.e. ~7.5 Trillion)? The optimist in me wants to believe we eventually get there. But I don’t see that happening in the 3-5 year time horizon for this Coffee Can.
That said, Bitcoin doesn’t need to 10X in order for it to be a wonderful investment. To outperform SPY, Bitcoin simply needs to get to ~$76,000 in the next 7-10 years! Can it do that? I absolutely think so.
I’m not one to throw out price targets but I think we will hit $100K-$150K during this Coffee Can’s holding period. Let’s see.
Note that BTC is up over 100% since its lows, but no one’s really talking about it: Google Bitcoin on Google Trends, and you will see that it’s actually trending down!
Recent price increases may have front run the coming BTC ETF, so the granting of the ETF may actually be a “sell the news” event. Should that happen, I believe that will be short lived.
I believe the next bull run is still in its infancy.
Ok that’s a wrap for Investment 1.
Stay tuned for more additions to Coffee Can Next.
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