Everything physicians need to know about Bitcoin [PODCAST]

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“It is still extremely early in the Bitcoin story. This is due to the same network effect that Facebook, Amazon, and Apple have had as adoption of new technologies rapidly expand and are adopted by society. Bitcoin has passed its ‘tipping point.’ Converting some of your money to Bitcoin now is like taking an ownership stake in the Internet itself back in 1995.  Ultimately, Bitcoin will either have a massive price appreciation or go to zero – meaning it is a hugely asymmetric investment.  A mere 1% allocation could potentially 2x the value of your portfolio; a 10% investment could 11x the value of your portfolio. Losing 1% of your portfolio is an extremely small risk given the upside to bitcoin. Finding the right allocation is up to you, but having 0% allocated to Bitcoin is a massive risk since risk in bitcoin is asymmetric to the upside.”

Noah Kaufman is an emergency physician and financial planner. He is founder and CEO, Kaufman Medical Group, and can be reached on Twitter @noahkaufmanmd. He is also founder of the Facebook group, Physician Options Traders.

He shares his story and discusses his KevinMD article, “How physicians should invest in Bitcoin.”

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Hosted by Kevin Pho, MD, The Podcast by KevinMD shares the stories of the many who intersect with our health care system but are rarely heard from.

Transcript

Kevin Pho: Hi, and welcome to the show, where we share the stories of the many who intersect with our health care system but are rarely heard from. My name is Kevin Pho, founder and editor of KevinMD. Today on the show, we have Noah Kaufman. He’s an emergency physician and a financial consultant and educator. He wrote the KevinMD article “How physicians should invest in Bitcoin.” Noah, welcome to the show.

Noah Kaufman: Kevin, so good to be here. I enjoy your work, and you’ve been wonderful for the community. Thanks for doing what you do.

Kevin Pho: So we’ll get into the hot topic of Bitcoin in a little bit, but first off, can you just share your story and your journey to where you are today?

Noah Kaufman: Yeah, absolutely. I mean, I kind of fit the stereotypical ER doc. I’ve always been a little bit of an adrenaline junkie. I’ve been a rock climber for 30 years now. I did my med school at Tulane, and residency was Akron General Medical Center in Ohio, and I’ve always kind of taken my own path. Climbing has always been very important to me. I love medicine. I love taking care of my patients, but the system is obviously tough to work in, and a lot of us suffer from, I hate to call it burnout, obviously there are better terms, but I wanted to take my own financial health into my own hands. I did get my Series 65 and started managing money and advising doctors about 10 years ago, and that’s been wonderful. I love educating.

And then I took a turn for the interesting in my career when I actually applied to the show American Ninja Warrior, and I did that for seven seasons, which was kind of crazy and kind of fun. And yeah, that’s been my story. I live in northern Colorado, and I’m still practicing a little bit, a few shifts a month. I don’t really need to at this point, which is very nice financially, but I love educating physicians, and it’s kind of my dream and goal to really help my colleagues attain financial freedom as quickly as possible, so they can practice for the love of it and not beat themselves up the way I did early in my career just for money.

Kevin Pho: And in all your work consulting financially with physicians, what would you say is their single biggest financial challenge?

Noah Kaufman: Yeah, that’s a great question. I think that the single biggest financial challenge for most physicians out there is that as doctors, we really have quite a bit of intelligence, quite a bit of work ethic, and we’ve got a narrow window of intelligence, and there are quite a few mistakes that get made by physicians. So the biggest challenge that we have is holding on to our money, protecting it, saving it, growing it, understanding proper portfolio construction, proper diversification, and that also means diversification in how aggressive you are in all sorts of different areas. And so I think that we are in many ways our own worst enemy when it comes to our finances. Most of us do some research and put some money to work but end up losing money, end up going down different paths. So I think the biggest challenge is getting people educated, and the best way to do that is with someone who’s looking out for you.

Kevin Pho: Excellent. So let’s transition now into Bitcoin. Everyone is talking about it. We are speaking on February the 20th, and we’re looking at the charts now. Bitcoin is currently trading at $56,000 per coin. Just yesterday, it broke $1 trillion in market cap. And we’ll get into your KevinMD article where you talk about it, and it’s titled “How physicians should invest in Bitcoin.” But before we get into that, a lot of physicians simply just don’t know what it is, so let’s give some introduction. What exactly is Bitcoin?

Noah Kaufman: Yeah, great question. I think a lot of people glance over that. So Bitcoin, at its most basic, is a revolutionary, disruptive technology that is really going to change everything, and it’s built off of the blockchain, which is basically a piece of software that lives on the internet. It’s a way to track money, track value, in a software component where you can’t double spend, which was always the problem, and you can’t have this value hacked. So Bitcoin is amazing. It’s basically a treasury reserve asset, much like gold. There are only 21 million bitcoin that are ever going to be made. We’ve already made, and when I say made, we mine these things through basically putting computers to work to solve these complex problems.

And basically, what we’ve made with Bitcoin is something like gold, which was always a reserve asset that people turn to in times of worry or concern over currency problems, much like we’re having these days. And it’s improved on gold in just about every way, in terms of portability, in terms of divisibility. Each bitcoin is divided up into 100 million units, much like pennies to a dollar, 100 million sats. They’re called sats. So Bitcoin improves on gold. Its basic tenet is to save your purchasing power, to save your money, but what it’s slowly doing is slowly eating all these different capital structures that are out there, such as the bond market, the equity market, the gold market. Gold is a $10 trillion market cap right now. Bitcoin just passed $1 trillion, and Bitcoin should go to gold’s market cap at least, because it’s 10 times better. It’s a disruptive technology, like I said, and at that point, each bitcoin will be about $500,000 per coin.

Kevin Pho: So I’m looking at the chart. Over the past year, it’s gone up 483 percent. What are some of the reasons driving that rise?

Noah Kaufman: Yeah, absolutely. So Bitcoin is the best-performing asset of all time. It started about 12 years ago, and since then, it has an annualized return of about 230 percent. Everybody, obviously myself included, was initially skeptical and was like, “OK, well, this is obviously a bubble. It’s fake internet money.” And it took me quite a bit of time to really understand what was happening. What’s happening is this is not like a stock or an equity, where the company does well, it goes up in value, it does poorly, it goes down in value. You can’t measure value that way. What this is, is the adoption of a new network. So much like Facebook was a new network and grew in size, and Amazon was a new network that grew in size, well, Bitcoin is the predominant monetary network that is growing, and the way the network grows is people put money into it. That’s happening more and more at the institutional level, and what we’re seeing drive this next phase of adoption is the institutional involvement. We haven’t even seen retail FOMO into this. You can buy fractions of a bitcoin, like 0.005 bitcoin. You can buy just about any level of bitcoin.

And so what we’re seeing is this network adopted, and this basically follows Metcalfe’s law. There’s been quite a bit of study, obviously, about how these networks develop, and the fascinating thing about Bitcoin is it’s past this tipping point. It’s past this point of no return. And of course there are risks, and I advise everyone to do due diligence, and I advised in my article, put between 1 and 5 percent of your net worth into Bitcoin. And I think that, because if you lose it all and Bitcoin goes to zero, fine, so be it, it’s not going to break you. But I think we’re still there. I think Bitcoin is still going 10x. It has the potential to go much higher than 10x because it’s the adoption of a monetary system, and a lot of people are losing faith in the fiat currency system. So this is a way to hedge yourself and create some insurance on your portfolio.

We always advised as financial advisors, have 5 to 10 percent, well, that’s a lot, but 3 to 5 percent of your portfolio in precious metals. The average exposure to precious metals these days has been 1 percent or less, and now Bitcoin is starting to take over that 1 percent of portfolio allocation, and it’s actually taking from gold and silver. There are numerous data that support that. But what I think people are seeing is that we are actually in one of the most worrisome times for currency that we’ve ever seen, with 75 percent of U.S. dollars being created out of thin air in the last 12 years. Our purchasing power is plummeting, and I don’t want to be a doom-and-gloom guy. I think the dollar is going to be fine. I don’t think we’re going to get hyperinflation or anything like that, but look, having a little bit of exposure to Bitcoin is just smart. It’s just diversification. It’s just insurance.

So I think what’s driving this wave is the institutional adoption that’s taking place, and then companies like Tesla putting $1.5 billion worth on their balance sheet. We’re seeing the price go up right now because MicroStrategy just financed another billion dollars, and they’re buying Bitcoin at $2,000 a second. They’ve got bots out there buying it. There’s just no downward pressure. I mean, Bitcoin is in the beginning of a bull market here, and we’ve got a long way to go. I mean, it’s still very early in the Bitcoin story.

Kevin Pho: So let’s talk about that volatility, because it’s not uncommon for Bitcoin to go down 20 to 30 percent sometimes in one day. And during the last bull run, back in 2018, when it reached 20,000, it subsequently dropped almost 80 percent. So what makes this current bull market different from, say, 2018?

Noah Kaufman: Well, the first thing I want to say is, look, I can’t give financial advice. I don’t have a crystal ball. Everybody needs to take responsibility for their own actions, and I don’t know what’s going to happen, OK? None of us do. I think that the bulls who are overly exuberant on Bitcoin, they see these crashes, and it worries everybody. Now, in previous cycles, we didn’t have the savvy institutional monies that were being involved in Bitcoin, and what we’re seeing is these institutions are taking the Bitcoin that they’re buying, and they’re taking it off the exchanges instantly and putting it into cold storage, where it’s going to sit for the next 20 years. So we’ve got super strong hands coming into Bitcoin, and we’ve never seen that before. We’ve never seen people coming in with billions of dollars when the Bitcoin price is $50,000. So those people aren’t going to sell. MicroStrategy’s not selling. Tesla’s not selling. They’ve put it onto their balance sheet as a hedge. MassMutual, one of the safest, most conservative companies in the world, an insurance company, put $100 million worth of Bitcoin onto their balance sheet. And so we see a much different level of savviness.

We also see investors, family offices, who understand the tax implications of FOMOing into Bitcoin, earning, and then selling. There’s a big tax burden there. So not only that, but we’re seeing DeFi also. I’m on Voyager, and I earned 6.5 percent interest on my Bitcoin. Well, I’ve got seven figures of Bitcoin. It’s like, that’s crazy. It’s like I can now just live off my Bitcoin interest, and so I have no reason to sell, even if the price crashes. So the floor keeps going up.

Bitcoin is very volatile, but the question is, we know that fiat, or the U.S. dollar, has an infinite supply. The Fed has told us that. We know that it’s inflating, and that it has a risk of inflating more in the future. We’re printing so much of it. So the real question is, would you rather have a highly volatile, appreciating asset that’s appreciating at 230 percent a year despite these big corrections and pullbacks, or would you rather have a depreciating, non-volatile asset? And so that’s the question you have to ask yourself, and I think it’s pretty much a no-brainer to just expose yourself with 1 to 2 percent or whatever of your net worth into Bitcoin, because it’s not going to hurt you. And just expect volatility. And look, it’s going to become less volatile as it’s more institutionalized, more regulated, and more brought on to balance sheets of highly sophisticated investors.

Kevin Pho: So let’s go into your article a little bit more in depth. It’s titled “How physicians should invest in Bitcoin,” and you did mention that 1 to 2 percent is not unreasonable. So let’s take it to the basics. How can a doctor buy Bitcoin? This isn’t something that you could simply buy in your Vanguard or Fidelity account, is it?

Noah Kaufman: You can get exposure to Bitcoin. This year, now that we’ve broken a trillion dollars market cap, we’ll probably be seeing ETFs, and by the way, pension fund money, mutual fund money. I mean, bonds are already eviscerated. The real return on bonds is negative at this point. That’s a massive global market, so the 60/40 portfolio is already being crushed, and people are going out the risk curve. So pension funds and mutual funds are going to get into this game through ETFs, and so we’ll be able to do that as well.

Right now, there’s the Grayscale Bitcoin Trust. The ticker is GBTC. And so I have my Roth and my traditional IRA, and I’ve got quite a bit of money in Grayscale Bitcoin Trust. It’s a 2 percent fee per year, and it’s got a premium assigned to it, so I don’t know if it’s the best way to do it, but you can get exposure that way. A lot of people use Coinbase. I don’t recommend it. There are huge fees. I use Voyager. I believe in the Voyager platform. I use BlockFi. I believe in the BlockFi platform. With Voyager, again, I get paid interest on my Bitcoin, but basically I can buy Bitcoin without any fees, and then I just transfer it to cold storage, and I leave some of it on there to earn interest. And I do consultation to help walk the doctors through this. It’s not that simple. Cold storage is obviously the safest, most sovereign way to go, but I definitely like some of these platforms that are out there, and I don’t have an association with them, for full disclosure, but I keep my Bitcoin with them. So there are a lot of ways to do it. I think that the Voyager app on the phone has the best user interface, and I believe in it.

Kevin Pho: And just for definitions, what do you mean when you talk about cold storage?

Noah Kaufman: Right. So just like you can take gold and put it in a safe. You can buy gold a hundred different ways. You can buy options on gold, you can buy stock, you can buy gold miners. You have all kinds of exposure to gold. Well, Bitcoin is the same way as an asset class, and when you want to put Bitcoin into cold storage, it’s the same as buying physical gold and putting it in your safe, OK, and locking it up. It’s theoretically safe there. So you can buy Bitcoin on an exchange. You can buy it on Coinbase, Kraken, Voyager, wherever, and then what you can do is transfer it to your cold storage, which is basically a wallet that’s on a thumb drive or another kind of device like that that has no connection to the internet. And then it can be stored there in a safe. It can be stored in a safe deposit box, which I don’t recommend. And it can basically also be hooked up to several security features.

Depending on how much Bitcoin you own, if you own in the seven-figure range, it’s probably worth spending money to get multisig security and backup on it. If you own in the six-figure range, you can store it in a safe. You always have a backup seed phrase, so even if the cold storage card failed or it burned up in a fire, as long as you have that written down somewhere or in your mind, as long as you have a backup, and a lot of times now we have these metal punch cards where you can punch in your seed phrases. As long as you have that backup seed phrase, then even if you were to lose your cold storage, which is basically a non-connected jump drive or hardware piece, you can reconstitute it on any other exchange or hard drive anywhere else in the world just by knowing your seed phrase, which is 12 to 24 words in a specific order. It sounds a little confusing at first. It’s just like trading options or something. It’s easier once you do it and have a little bit of experience.

But right now, it’s mostly the people who are really worried about doomsday scenarios, who are like, “Not your keys, not your coins. Save it on cold storage.” I get that. I actually trust some of the exchanges, just like I trust a normal bank, BBVA, with my cash money.

Kevin Pho: We’re talking to Noah Kaufman. He’s an emergency physician and a financial consultant and educator. He wrote the KevinMD article “How physicians should invest in Bitcoin.” Noah, one of the things that I see worry other Bitcoin enthusiasts is the fact that the government may step in and potentially regulate Bitcoin. They may tax unrealized gains. How feasible are those scenarios? And if those aren’t feasible, what are some other things that keep you up at night?

Noah Kaufman: Nothing keeps me up at night. So look, yeah, there’s quantum computing, there’s the carbon footprint, there’s that China controls all of it and can do a 51 percent attack. There’s so much fear, uncertainty, and doubt out there, and I can address them all. They’ve all been addressed. And look, at the end of the day, you have to make your own decision. And look, if you’re 1 to 2 percent allocated to Bitcoin, then you’re also going to sleep well at night, because if it goes to zero, or if governments come in and we get this black swan event, then dang, right?

But to address those specific concerns, we now have Cynthia Lummis, one of the senators from Wyoming, who’s on the Senate Banking Committee. She’s a huge Bitcoin bull. Politicians own Bitcoin. Everybody owns Bitcoin at this point. People with money own Bitcoin. And look, Bitcoin is a trillion-dollar market cap now. That’s massive money. So everybody who’s made all this money on Bitcoin, we spend it on things, right? And that drives GDP, because we’re a 70 percent consumer-based economy. So they’re not going to outlaw Bitcoin all of a sudden, and if they do, guess what? They outlawed it in Nigeria, and the premium on Bitcoin went to like 60, 70 percent. It’s going over spot. So we’re talking about something that’s completely decentralized, completely headless, which, by the way, separates it from all the other 8,000 cryptocurrencies. You’re talking about an asset class that is being adopted on corporate ledgers, that is adopted by family offices, by people with political pull, by lobbying parties. It’s going to be regulated, and I hope it’s more regulated. I don’t want to see Bitcoin or fiat or gold and silver used to fund terrorist activities or anything else.

And so the government has already lost its opportunity to shut this thing down, OK? They already own it. The U.S. government owns a ton of Bitcoin. Everybody is incentivized by Bitcoin to keep it going. It’s, again, the monetary network that’s being adopted to replace a treasury reserve asset and protect us from currency debasement, which is what’s happening. So yes, is it a risk? It’s always a risk, and there are going to be bumps in the road, and maybe the next 50 percent crash in Bitcoin, from $400,000 a coin down to $200,000 a coin, is going to be because the government does something. I don’t have a crystal ball, but what I’m saying is we’re kind of past that point of no return. We’re past the tipping point on Metcalfe’s law, where this thing is being adopted. It is being adopted quickly, and I think we’re going to see $100,000, $200,000, $500,000 Bitcoin in the next couple years, quickly.

And the most amazing thing, and I’ll stop, I mean, if you want to get into it, is that Bitcoin is programmed to do this by a deflationary halving event that occurs every four years. So it doesn’t really even matter who tries to step in its way, because of game theory. There are going to be a lot of Bitcoin billionaires who are like, “OK, well, I’m renouncing my U.S. citizenship. I’m worth a billion dollars in Bitcoin. I’m going to Malta or to Portugal or to wherever, where I can live like a king.” Because certainly, with these countries, it’s not going to be like a global shutdown of Bitcoin. You’d have to shut down the internet.

Kevin Pho: So you mentioned the hard cap of Bitcoin, I think 21 million bitcoin. That’s going to be the hard cap, and some of the critics say that may be manipulated. It’s just a number. How true is that?

Noah Kaufman: Well, first off, there are 46 million millionaires, and there are 21 million bitcoin, so do the math. How many people are going to own one full bitcoin? It’s just absurd how truly scarce this asset is. It’s like a land grab. It’s a total gold rush right now. And people who don’t understand it, fine. Even if I didn’t understand Bitcoin, I would have a 1 to 2 percent allocation to it. I don’t understand a lot of these altcoins, these tokens. I’ve got $5,000 behind like 20 different tokens, because what if they go a thousand x? I don’t understand them, but it’s asymmetric, and it’s still a very small part of my portfolio.

So, I mean, to bring it back, because that’s an aside, this 21 million cap, the only way to change that or anything else with Bitcoin is by consensus of over 51 percent of programmers and people out there. I run a Bitcoin node. It’s very easy to do for 200 bucks. Every Bitcoin node makes the network stronger. And basically, if it’s seen, everybody owns Bitcoin, right? So if you were to take Bitcoin all of a sudden and change the cap to like 100 million instead of 21 million total bitcoin, well, basically what you’ve done is you’ve just ruined the value of your own Bitcoin, because you made it less scarce. So unless you had a computer network that was over 51 percent of the size of the Earth’s internet and computer network, there’s no way to hack Bitcoin, because the Bitcoin ledger is stored on every single computer, and half of them are offline. So there’s no way to double spend. There’s no way to hack the system. People talk about quantum computing. That’s still 20 to 30 years away, and by the way, if there’s quantum computing, well, there’s quantum protection for Bitcoin. So it’s just, again, more fear, uncertainty, and doubt.

Could one of these things be true? Could there be a huge attack on Bitcoin, and could something happen to Bitcoin? Sure, and that’s why all of my net worth is not in Bitcoin. That’s why I still own gold and silver and tons of equities and real estate and some bonds, which are useless. So it’s a really good question. When you go down the rabbit hole and learn more about Bitcoin, you see that the more you understand about Bitcoin, the more you want to own more Bitcoin, and you move up from 2 percent of your portfolio to 5 percent of your portfolio, or even, I know a bunch of physicians with 10 percent of their portfolio in Bitcoin, which seems crazy. I get it. It seems crazy, but argue with the numbers. Argue with the chart.

Right now, when I wrote the KevinMD article, I don’t know what Bitcoin was at, but was that 20-something thousand, maybe end of November? So it was probably between 15 and 20,000. And so it’s at 57,000. I don’t care if you think it’s a bubble. This is like the third bubble and the third crash we’ve had after every halving event. This thing is programmed to bubble, because it creates a supply shock. There are 21 million. There are never going to be more. Demand is exponential and accelerating, and supply is capped. If you understand basic supply and demand, this is a one-way trade. It’s a binary trade. It could go to zero, but as long as it doesn’t go to zero, it’s going up, and it’s probably going up past a million dollars a coin, like, for sure.

Kevin Pho: Now, if a clinician wants to read more about Bitcoin, perhaps some basics, what are some resources that you recommend?

Noah Kaufman: Yeah, well, I think the article that we put out on yours is a good overview of the macroeconomic situation. If you go to hope.com, then Michael Saylor’s got a whole bunch of interviews, I think podcasts. There are some great resources. I am happy to provide information and consulting. I do that, and there’s a lot of opportunity in this space. The space is growing outside of Bitcoin, just in terms of the infrastructure needed to support a cryptocurrency and DeFi future. And so there are certainly a lot of places to go. You can get on Twitter and follow me there. I’m always posting educational articles. I’m Noah Kaufman MD, one F, one N. And anybody can reach out to me, and I’m happy to forward some of my favorite podcasts and stuff. I mean, there are links and whatnot, but hope.com is certainly a great place to start, and then of course, our article on KevinMD.

Kevin Pho: Yes, and I’ll leave links to you and your website in the show notes. My final question: What is your take-home message that you want to leave with the KevinMD audience?

Noah Kaufman: Yeah, absolutely. Look, I think it doesn’t really matter what we believe, right? We’re all capable of being right or wrong, and with Bitcoin, for myself and many other doctors, I was so late to the game because I was skeptical for so many years. And I think that being skeptical is in our nature as physicians. We’re humbled frequently. We know that we can be wrong. And we just don’t believe. We see how many shysters there are out there, and we see something like this, and it looks like a get-rich-quick scheme, and it’s hard to understand how much there is to know about Bitcoin.

So what I would say is keep an open mind. Understand that this may actually be the adoption of a new disruptive technology and a paradigm shift into a decentralized, more egalitarian money system. And if that’s true, then even if you’re a doubter, even if you think that this is a bubble, why not own 1 to 2 percent of your portfolio in it, just in case? I think that the risk is all to the upside. I think we’re extremely early. Anybody who thinks they missed out on Bitcoin, I got news for you: It’s very likely we’re doing another 10x from here, and probably quite a bit more. And yeah, there’s going to be volatility along the way, and that’s going to be suppressed as we mature as a market. This is still a pretty small market in the grand scheme of things, with over 300 trillion in global monetary value in U.S. dollars, versus 1 trillion market cap for Bitcoin and 10 trillion for gold. It’s extremely early, and this thing is going to eat just so much capital. So I would get into it whether you believe in it or not, because it’s something that you’re probably going to pass down to your children. You’re going to be very happy that you did, or you’ll be like, “Oh, remember that Bitcoin thing? Yeah, it went to zero. That was funny. Thank God I didn’t YOLO my life’s savings into it.”

Kevin Pho: Noah, tell us a little bit about your consulting. And how can people reach you?

Noah Kaufman: Yeah, thanks, Kevin. So I consult for groups. I do education for doctors’ groups. I do speaking engagements at conferences for financial education and literacy for doctors, and the risks that I see that are coming, that are on the horizon, especially with a market that we all know is overstretched. So you can reach out to me at [email protected]. Kaufman is K-A-U-F-M-A-N. I’m on Twitter. You can direct message me there, Noah Kaufman MD, at Noah Kaufman MD, again, one F, one N. I do financial consulting and education about the crypto space, and I’m a derivatives trader, so I trade options, and I teach physicians how to protect their portfolios if there were to be a big market crash, how to sell covered calls and cash-secured puts to safely earn income on their equity. And yeah, I’d love to help. I really love educating and would love to hear from people, and I just really love my colleagues and medicine in general, and I’m very optimistic about the future.

Kevin Pho: Noah, thanks again for sharing your time and insight, and thanks again for being on the show.

Noah Kaufman: Thank you, Kevin. It was a pleasure, and thank you for everything you do. Love your work.

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