On March 7, President Donald Trump was in attendance at the White House cryptocurrency summit, where he announced the formation of a Strategic Bitcoin Reserve. That repository, should it actually be formed, will contain Bitcoin (CRYPTO: BTC), and the similar Digital Asset Stockpile will contain other cryptocurrencies.
And in the course of reading his prepared remarks, the president had four choice words to say that every investor holding or thinking about buying Bitcoin will want to hear. Most already know the nugget of wisdom he offered, but if you don’t, let’s take a look at what Trump said.
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Longtime Bitcoin investors can probably hardly believe that the day where the president of the United States could say something like “Never sell your Bitcoin” could come and go without much in the way of fanfare or bullish price action.
Yet those are the exact four words the president said at the culmination of the White House crypto summit, where the new Strategic Bitcoin Reserve was announced. Despite the market’s lukewarm response to the new policy, other major proponents of buying and holding Bitcoin tend to agree that it’s almost never a good idea to sell your coins, except perhaps to rebalance your portfolio or adjust your risk profile. But there’s an important additional wrinkle here.
The president said, “From this day on, America will follow the rule that every Bitcoin [sic] knows very well: Never sell your Bitcoin.” And that malapropism speaks to what the new digital asset stockpile policy should accomplish over time. He stumbled over the idea of “Bitcoin investors” and followed the bullish quote with some hedging, but it was still a strong pro-Bitcoin statement.
Bitcoin holders, especially the more dedicated ones, tend to be a sturdy bunch as far as weathering market volatility goes, in part because they have to be.
Over the long term, the coin’s inherently limited supply will, in theory, make it more profitable to retain coins than to sell them, as there will be the same amount of demand chasing a smaller and smaller quantity of freshly mined coins. So long as everyone with a big vested financial interest in the coin going up refuses to sell, the odds are very much in favor of the asset’s price rising. The price action of today or next week simply is not something to bother looking at when the plan calls for years and years of doing mostly nothing.
So far in the currency’s history, as the president explicitly mused later in the same speech, the above theory of its growth has held up. Don’t believe it? Look at this chart:
Bitcoin Price data by YCharts
As you can see, there were many periods in the past 10 years when you would have been very tempted to sell. But if you simply held — or better yet, if you’d bought the deepest dips — you’d likely have a lot more money than you started with.
Plus, now that the U.S. government is obliged to hold on to its coins rather than sell them, the scarcity mechanic that supports Bitcoin’s value is going to be more relevant than ever, as a major holder is signaling that its coins will never be back on the market. Note that the U.S. hasn’t necessarily committed to buying coins it doesn’t already own, just to not selling. The supply available for purchase is going to be more constrained either way.
The new policy will still be favorable for holders, assuming it’s implemented in the proposed form, but keep your expectations grounded. The Strategic Bitcoin Reserve isn’t shaping up to the game-changing Bitcoin buyer many investors had expected.
The next 10 years are likely to be favorable ones for investors who dollar-cost average (DCA) into a larger Bitcoin position than they currently have. But those investors must resolve to (almost) never sell their coins, even if sharp drawdowns shake their conviction.
It’s a lot easier to commit if you accept that Bitcoin is not an investment for the short term. And don’t be tempted to bet the farm on this coin. The best approach is to allocate between 1% and 5% of your diversified portfolio to Bitcoin and slowly buy in small increments until you reach that point.
Finally, you don’t need to take the president’s word for what to do with your investments. If the conditions change or if your investment thesis for buying Bitcoin becomes invalidated, it’s worth deciding for yourself whether to disobey the four words or not.
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Alex Carchidi has positions in Bitcoin. The Motley Fool has positions in and recommends Bitcoin. The Motley Fool has a disclosure policy.
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