A Small Change Leads to 4X Returns

As-salamu alaykum. I hope you are doing well. I hope you're enjoying your Eid. Eid Mubarak. Today we're going to talk about a simple way that could have forexed your returns in the previous period and perhaps is still relevant to forexing your returns in the upcoming period. So what could that simple change in your portfolio be? Well let's talk about that Bitwise Asset Management came out with a very good report about the state of crypto in Q1 and I'll take you through some highlights of that report. Without further ado let's get started. As always this is not financial advice so be sure to do your own due diligence before making any investing decisions. I kept this just to show you what the impact of the PPI report today and the CPI report yesterday have had on the expectations for rate cuts and how that has impacted the markets. So if you've noticed the markets have been down in the past 48 hours and this is because the expectation for a rate cut in June went from around 56 percent prior to the most recent reports to around 20 percent. Now in fairness the CPI report that came out yesterday which measures price increases for consumers that came out hotter than expected. The PPI report the producer price index that came out today which measures prices for producers actually came in line with expectations. So it was was basically you know not a surprise either upside or downside and this is good it can be a leading indicator for CPI because eventually producers pass on their costs to consumers and so if the costs for producers aren't increasing the cost for consumers will likely not increase by much as well. Now it is noteworthy though that of the things that have been increasing in price auto insurance has increased 22.2 percent in the last year which is crazy when you think about it kind of highlights the good business that auto insurance is because especially in the United States auto insurance is mandated. If you have a insurance this gives auto insurers basically a captive market that has to buy auto insurance regardless of how high they jack up their prices. So interesting there I don't think that you know monetary policy is necessarily going to affect auto insurance that much I think that's you know in large part a dynamic that is specific to auto insurance and therefore if you were to take out the contribution of auto insurance to inflation then you'd have a much smaller number. By the way pif live videos like this one have inflated in price zero percent since last year so if you do appreciate these videos make sure to leave a like I would appreciate that. The bitcoin halving is in just eight days so mark your calendars get ready. It actually might you know might you know be quite underwhelming given all the build-up that has preceded it but for those who are very into bitcoin and investing it is kind of you know a big day that you kind of have on your calendar for a long time and for those who are unfamiliar this is the time when the supply of bitcoin gets cut in half so the expectation is that price is going to increase since supply is cut in half demand remains the same or increases the price should increase and in fact if we go to history this is exactly what happened so if you look at the last halving the before the halving the price appreciated 26 percent after the halving 548 percent so we're talking about the basically 12 months after halving in 2016 the after halving appreciation was close to double the pre-halving appreciation 20 it was bonkers basically 9 000 after the halving almost an appreciation 386 before the halving so historically we do have strong precedent that suggests the appreciation that is ahead of us is more than what we have experienced and another way to look at this so if we look at the four-year cycle for bitcoin basically the only down year is the year that comes basically not before the halving not the year of the halving not the one after it but the one after that so 2026 historically that's been the case history doesn't always repeat but it often does rhyme and we can see in the first two halvings the appreciation in the year that followed the halving so in our case 2025 was much much larger than what came before it and this historical precedent is obviously obviously we look at on-chain metrics as well and that's i think more important but historical precedent does color our expectation for bitcoin and especially with bitcoin considering that the supply is algorithmic so there's no human-based input so it's more easily forecastable than in many other you know investment cases now this time around this having we have something very significant that we didn't have in previous halvings which is the bitcoin etfs and so far since they launched in the beginning of this year until the end of march they've sucked up hoovered up three times the amount of new bitcoin that have been produced so 3x the amount of bitcoin that has been mined during the last three months has been sucked in by these bitcoin etfs after the halving if we are to assume the same pace of purchasing for these bitcoin etfs then this number would be 6x so in the next three months the etfs would hoover up 6x the amount of new bitcoin mined and keep in mind most of the big banks have not yet authorized their advisors to recommend bitcoin or to suggest bitcoin for their clients so we're still early here in terms of the bitcoin etfs impact on the supply of bitcoin now i do get questions a lot since gold has been you know appreciating relative to its history it's been appreciating at a reasonable pace bitcoin or gold well if you look at the spot bitcoin etf versus the gold etfs the gold etfs have actually lost in cumulative assets under management since the beginning of the year so they lost close to two and a half billion in assets under management bitcoin etfs have gained around 12 billion and i have to think that part of the 12 billion that has flowed into bitcoin etfs has come from the gold etfs after all one of the use cases for bitcoin is digital gold additionally the bitcoin asset is proving a better and better diversifier for investors as its correlation approaches zero so there its correlation with the sp500 that is so in the period 2020 2021 we saw a really strong positive correlation now with the sp but now that correlation is going down to zero and when you're trying to diversify your investing holdings what you want to hold are uncorrelated assets things that are not dependent on one another that's what gets you maximum diversification and bitcoin provides that another positive of the bitcoin asset is the volatility which has been coming down now we did see a spike in the most recent history but if you zoom out certainly if you're comparing you know 2024 levels to 2020 2013 or 2014 levels you can see how the volatility has subsided quite substantially so less volatility you know more access from institutional investors from etfs a more attractive risk reward ratio now with the volatility lower and a more attractive correlation with the sp which is you know approaching zero all of this added to the performance of bitcoin which has outpaced all of the other major asset classes since 2011 so 2011 if you look at the highest returning asset class if you consider bitcoin asset class in and of itself and that's an i guess an asterisk next to that but 2011 12 13 bitcoin was the best performing asset u.s reets were the best in 2014 those are real estate investment trusts 15 16 17 bitcoin again was the top performing assets asset 2018 u.s bonds were 19 2021 again bitcoin 2022 you had commodities 2023 and 2024 bitcoin again is the best performing asset so you're really having an investment asset that is just hard to deny at this point which brings me to the 4x your returns formula so the traditional portfolio what advisors traditionally advise their clients is 60% equities 40% bonds that's the traditional portfolio now most people have been i think most advisors deviate from that but this is sort of the textbook traditional portfolio if you were to go with this traditional portfolio for the years that we covered you would have a cumulative return of 85 percent now if you were to add just one percent of bitcoin to your portfolio and the rest be the traditional portfolio your cumulative return would have been 103 and then it would be 132 with 2.5 bitcoin would be 189 with 5 bitcoin and it would be 333 with 10 bitcoin so basically the difference in your cumulative return is basically 4x between having 0 bitcoin in your portfolio and 10 bitcoin in your portfolio and you can see that the sharp ratio which is the risk adjusted return would have improved as well so not just the return on an absolute level but even compared to the risk that you were taking as illustrated by the sharp ratio would have improved as well so the risk adjusted return so whereas with the traditional portfolio you would have a sharp ratio of 0.4 with the traditional portfolio plus 10 percent coin you would have had a sharp ratio of 1.035 so twice as good the risk adjusted return so with this being said and the slides that i showed you showing you know where we are at least from a historical perspective in this cycle i really think that at least for myself you know having something like 10 percent in bitcoin makes a lot of sense and you know perhaps even more than that depending on your risk appetite and tolerance do become a pif member if you're interested in following our portfolios we have a community of halal conscious investors trying to do good and do well and we'd love to have you on our team walaikum salam to everyone our meme coins halal or not i believe i covered that in either the last live or the live before that so check it out and yes here is on point thank you for tuning in leave a like if you enjoyed until next time make sure to take care of yourself assalamu alaikum and peace be upon you all