So, how much Bitcoin should we hold anyways? What's the proper allocation? My view is it's no longer about if you own Bitcoin; it's how much of it you have.
Because I think by today, many people have small amounts of Bitcoin here and there. And you know, if the price were to double or even go up 10x, well, if you only have, say, a 1% allocation, maybe now you have a 2% allocation or 10% allocation, and it's not going to really change your life by much. So, it's not sufficient to just be right; you have to have the conviction to double down when you have a winning hand in a generational play.
You may not get such a winning hand again. For example, in blackjack, if you get a winning hand, you got to double down, or you lose your edge. The fact is, at the end of the day, when all of this crypto stuff is done, and the wild frontier is long gone in the past, and you have had all these crazy stories about what it was like to have lived through this era, the one question your grandkids will ask you is: Did you get the Bitcoin?
Did you get it? How much Bitcoin did you actually get? How much of it do you have?
And you're going to say, "Well, I got Cardano, I got Ethereum or Solana. Ethereum is kind of like Bitcoin, isn't it? I got some Apple stock, I realized some gains into an Airbnb for passive income," and that your true allocation to Bitcoin was just like 1% or half a percent at the time when there was a generational birth of a new asset class that you lived through.
And what you did was get yourself confused and bought everything except for Bitcoin. Or maybe you bought a bit and thought that would be enough. But the fact is, nobody has enough.
Now, if we take a look at what BlackRock says in the traditional portfolio, 60/40 stocks and bonds, they say maybe a 1% to 2% allocation to Bitcoin seems a reasonable range for Bitcoin exposure. Now, this is interesting because just two years ago, there was another report from BlackRock which stated the optimal BTC allocation is about 84. 9%.
So, anywhere from 2% to 85% of your portfolio. And of course, the Bitcoin maximalist will say 100%. And you know, there are also some people who will say: "Well, maybe Ethereum, right?
50/50 ETH/BTC. " The problem with that, though, is like let's say Ethereum goes to zero and Bitcoin doubles in price. Well, then you would have just broken even and made nothing.
And if you had diversified even more into a random basket of stocks like Solana, Cardano, or Ripple, you could even find yourself losing money, all the while Bitcoin could still be going up in price. So, let's get down to the bottom of this. Today, I will give you my thoughts on the proper allocation of Bitcoin and the state of crypto in 2025.
Now, in order to understand proper Bitcoin allocation, it begins with understanding why your current investments and holdings are so risky. If you don't believe in Bitcoin, you're probably storing your wealth in something else, right? Like tech stocks or U.
S. equities. In my last video, "The State of Tech 2025," I addressed why you should sell all of your tech stocks and the S&P 500.
The fact is, a lot of these tech stocks have just run up too much that they're having difficulty justifying the valuations and are now reaching into ridiculous fantasies like AGI, quantum computing, and nuclear reactors. And the bill for all of this is coming in, and you're going to be on the hook for all of this stuff if you're holding on to any of these tech stocks. Didn't Warren Buffett even sell a bunch of his stocks in 2024?
He sold $130 billion worth of stocks and is a net seller of equities. So, Warren Buffett is even getting out. He's stockpiling cash.
He cut his stake in Apple by over 50%. So, stocks aren't really safe at all. Well, what about real estate?
A lot of people historically in the baby boomer generation stored their wealth in houses, except today, the game has changed. Now we have fires in LA, California; we have the Lahaina fires in Hawaii; there are hurricanes in Florida. And the thing is, a lot of these homes aren't insured.
Home insurance costs and HOAs are skyrocketing nowadays throughout the country, as homeowners are being tapped as the last source of wealth for a broke country. If you're a homeowner, you are the buyer of last resort; you absorb all of the inflation and debt of a nation by forcible payments of maintenance, HOAs, contractors, insurance, supplies, materials, taxes, and eventually, you lose the very house itself. When other people need money, they come to you, the homeowner, because you're their piggy bank.
And you have to pay for maintenance, service, taxes, repairs. You've got embezzlement, extortion, kickbacks — it's everywhere. Soaring insurance costs are hurting sales, and every time you need a repair, something breaks, and you need a contractor.
They come by, and the first thing they do is they take a look at your house and say, "Hey, that seems like a pretty nice house; seems kind of expensive," and they'll quote you some crazy price they pick out of the air that’s 10 times the price of the next quote. Home ownership is scam city. If you take a look at the return on investment of many of these homes, a lot of prices don't move much; they go up 1% or 2% a year, but after maintenance and property taxes, you're just breaking even, and your return on investment is basically zero.
The truth about these homeowners is they're all actually sidelined. On Bitcoin, in an illiquid housing market, ever since interest rates shot up, the housing market froze. Actually, anyone who had capital is now locked in; they're sidelined, waiting, and they cannot free up the liquidity.
Everyone is sidelined, and the fact is these homeowners could not buy Bitcoin even if they wanted to. They're waiting for the housing market to thaw before they can actually get in. As we see the birth of this new digital assets industry, the overarching narrative is going to be a flow from the tradfi world into the digital world over the next decade.
Just on the macro level, there's $900 trillion of wealth in the economy, and Bitcoin is just at $1 trillion. This begins with understanding that the stores of wealth you currently hold are not all that great. Now, looking at crypto, a lot of people just buy a basket of cryptocurrencies like Ethereum, and the problem is this may dilute your exposure to Bitcoin.
The problem with Ethereum is it may actually go to zero, as all activity and liquidity could drain out to the L2s like Base or Arbitrum. Layer 2s are now handling five times the transaction volume of Ethereum, with 10 million active addresses compared to just 2 million on mainnet. See, because on an L2, we always have lower gas fees; it will always have higher transactions, higher volume, and therefore higher yield.
It doesn't make sense to provide liquidity on Ethereum mainnet, and it's only a matter of time before the TVL, total value locked, on mainnet goes to zero. The end state of Ethereum may be that it will be nothing more than a barebone shell for L2s to write data back onto. In addition, making matters worse for Ethereum, wallets are also now completely eliminating gas fees.
For example, Coinbase's smart wallet does not require gas fees anymore for you to send or receive USDC stablecoins; they're just sponsoring that stuff, deeming Ethereum and gas fees too complicated for the mainstream masses. In other cases, with wallets like Rabby, you have automatic conversion to pay for gas fees with stablecoins now. So eventually, Ethereum will be completely abstracted away, probably even by the end of this year, and nobody will know what Ethereum even is anymore.
Well, what about Solana, you may be asking? Let me give you my thoughts on that. Solana has been mostly sustained by meme coins and pump funds, which have all been hilarious over the past year.
But it's clear that, at least for now, the industry has chosen EVM (Ethereum Virtual Machine) as the standard, and I believe this is going to be the main narrative of 2025 where it is going to be built on the Optimism Superchain. On-chain is the new internet, and the wallet is the new browser. So building on the Optimism Superchain, we have Coinbase, Kraken, Uniswap, and SONY all building on-chain ecosystems for 2025.
If successful, this could become the internet of global finance, digital assets, gaming, art, identity, and ownership. These are L2 blockchains, interoperable yet independent, and it's expected there will be hundreds or even thousands of these L2 blockchains. Coinbase is building Base, which is seeing rapid growth, growing to be their own internet and ecosystem.
We're talking commerce, gaming, art, and assets on a global level—it's essentially a second internet and arguably the most important layer of finance and digital ownership. Kraken is also now doing the same, building the INK blockchain on the Optimism Superchain, and then you have Uniswap and SONY also carving out their piece of the pie. Uniswap may be taking all of their liquidity with them onto the Uni Chain, and so that's why I think all of the liquidity and activity will drain out of Ethereum mainnet into these side chains, which are forming the new Global On-chain Internet.
Optimism Superchain, in their own words, is building the user-owned internet, and already 50% of all L2 transactions are on the Superchain ecosystem. This next layer of the internet is already taking shape, and Solana, being incompatible with EVM, may be too isolated on its own. We may see that standalone blockchains just will not be able to compete with the corporate-funded blockchains like those with Coinbase or Kraken behind them, funding ecosystems, performance blockchains, and sponsoring gas fees or continued wallet UI development.
I'm actually surprised more companies are still sleeping on this because they risk being left behind. You may be wondering why we need so many L2 blockchains. It's for the best user experience, the best performance, and ecosystem lock-in as every company carves out their piece of the global digital asset internet.
The way to think about this is that a complete on-chain experience requires two components: it's the blockchain and the wallet. The blockchain is the back end; it's how you guarantee uptime and performance for your users. For example, a company like Google may hesitate to build services on the Solana blockchain, where they don't control the performance or uptime, and it could be going down randomly every so often.
Users would just get frustrated. No companies want to lose control and need to guarantee minimum uptime and performance requirements. The wallet is the UI; the wallet is as important as the browser is to the internet.
It is table stakes, and I think every major company needs to consider building their own wallet if they want a piece of the on-chain pie. In the end, though, the question boils down to: did you get yourself lost, and how much Bitcoin did you actually get? You may find that what you did was just get yourself confused and bought everything except for Bitcoin.
So here's the scary thing about how Bitcoin works: the amount of Bitcoin you can buy today is probably. . .
The most you will ever have in your life, as the price keeps going up, even if the price were to double, the amount of Bitcoins that you have would not change. 1 BTC equals 1 BTC, and if you were to spend it, basically you just lose it forever generationally, as Bitcoin becomes harder and harder to acquire. The only way to truly acquire more Bitcoin would be through leverage.
The problem with leverage is due to its high volatility; you would be wiped out. But the proper allocation, if you could take out leverage, I would say would be closer to 5x, 500%. That's right, and the reasoning for this is if you view Bitcoin as real estate, as good of a store of value as real estate.
You know people take out mortgages to buy real estate, and they go on heavy leverage on that, like a 30-year mortgage to buy their homes. So, if you were to normalize a 30-year mortgage on Bitcoin, trading it as the same asset class as real estate, well, a 30-year mortgage paid at 25% of your salary, right? That's a pretty standard metric to put 25% of your income into housing.
That comes out to about 7x your salary as a proper allocation. And then in net worth terms, assuming a standard person has 6 to 12 months of emergency savings, it comes out to about 4 to 7x leverage—that is normal. So, you will come out to about 5x or 500% portfolio allocation to reasonably match the performance of a real estate mortgage with Bitcoin.
See, the real reason that real estate tends to outperform is because of leverage, not because housing prices go up a bit. That's what's created so much wealth for the Baby Boomers generation. So it's not if you own Bitcoin, but it's about how much of it you own—that's the real play.
This is a quantity game. The problem is that leverage on Bitcoin is so difficult to get because of volatility. Overall, though, I would say 1x leverage—that's a 100% portfolio allocation to Bitcoin—might be reasonable, although what you're really looking for is 5x leverage.
It's just too hard to do unless you're like MicroStrategy and you can take out unliquidatable cheap institutional margin. And so there you have it: 1x to 5x is a logical take, and you can't beat logic. The fact is Bitcoin fundamentals are actually stronger than ever before, where the world recognizes Bitcoin, and it has been this unfallible, unhackable, unchanged technology ever since its creation.
TikTok, next block! The hash rate is at all-time highs, we have ETFs, options markets, and the options actually do a lot to stabilize the price. 2025 is year one, with the first pro-Bitcoin president coming into office as the price has broken all-time highs, and it is in price discovery mode.
The fact is Bitcoin is actually one of the hardest things to buy and hold: no leverage, no day trading, no shortcuts. Don't get fancy; four-plus-year time horizon—you can't see it nor touch it yet, and it requires unwavering conviction. It's the Hall of Mirrors; the trick is to just keep going straight.
Don't get lost. See you on the other side.
