Living in the seemingly dichotomous worlds of financial planning and bitcoin maximalism, I hear a good deal of impassioned takes and see many of stones thrown from camp to camp. “Bitcoin is just tulips!” yells the trad-fi community. “Bitcoin is my financial plan!” retorts the laser-eyed maxi. Yet, here I sit, observing two groups grope at just parts of an elephant while misunderstanding the full picture, blinded by their inability to set aside their familiarity bias and see the whole for what it is.
What is financial planning?
According to the CFP® Board, “Financial planning involves looking at a client’s entire financial picture and advising them on how to achieve their short- and long-term financial goals.” At Intentional Living FP we define our primary role as “To live where our clients’ life and money intersect. To serve as their guide to help make intentional decisions that align their money with their life. In doing so, we help navigate the decisions, opportunities, and obstacles that they will face so their money is used efficiently and effectively to serve its purpose in life.” Notice that, in both definitions, the nuts and bolts of how planning is executed is not mentioned. This is not for the purpose of dodging a straight answer to what exactly it is that we as planners do, but rather to highlight that the technical execution can look like a lot of things as long as it involves taking inventory on a personal level the current state and the desired outcome, financially-speaking.
So where does bitcoin fit in? How can we reconcile the two camps to create what we at the BTC FINANCIAL ADVISORS NETWORK believe will optimize outcomes for the clients we serve? Let’s look at a handful of the areas of planning for insights for both camps.
Tax
Many bitcoiners are leaving tax optimization on the table by not taking advantage of planning opportunities with their bitcoin. Did you buy bitcoin at its all-time-high and watch the price retreat? Make some lemonade with those lemons by tax-loss harvesting. Tax-loss harvesting is a simple means of squeezing out some value through the selling of a valid security or asset at a loss to offset the amount of capital gains tax owed from selling other profitable assets. Further, an individual taxpayer can write off up to $3,000 in net losses annually against ordinary income.
Or maybe you have unrealized capital gains and it would be advantageous to realize those in a particular year? Capital gain harvesting can be wildly valuable if well-timed. For instance, I file my taxes as married/filing jointly, I have a few kids, and I decide to quit my job in December and launch something new. The wife and I agree to not take any income the following year as we grow our new endeavor. That would mean that, as a MFJ filer with 4 kids, our taxable income for the year would be at roughly a negative $35,000. To pile it on further, in 2023 the tax on long-term capital gains for a MFJ filer for income $0–$89,250 is at a tax rate of 0%. This means, essentially, that in this scenario, I could harvest $124,000 of LTCG and pay 0 taxes on it. Taking this a step further, you could then take that cash that was just acquired from the sell with a $0 tax rate and re-buy the bitcoin at a new stepped-up cost basis, reducing the tax impact to be realized down the line or setting yourself up for a tax-loss harvesting opportunity in the possible case of a future price decline.
For the bitcoin haters out there, bitcoin can be a phenomenal asset when it comes to the issues of tax drag. Bitcoin does not create phantom income nor does it issue dividends. You, the asset holder, hold the keys (pun intended) to realizing taxable events.
Estate
To pretend that your estate is in order simply because you own bitcoin is to put your head in the sand. Bitcoin will not protect my kids from going wherever the courts decide if my wife and I pass away together in a car accident. Bitcoin will not inform my physicians of my wishes if I am on the operating table and decisions must be made about resuscitation. Bitcoin will not provide instruction for my children about what they can and cannot use their inheritance for if I pass away while they are young. An estate plan needs to be well thought through and specified. It is not an asset; it is the management of one’s self and estate in the event of incapacitation or death.
While owning bitcoin alone is not an estate plan, I sure sleep better knowing that bitcoin is on my family’s balance sheet and incorporated into my children’s inheritance plan. Owning an asset that is still at an early stage of maturity will allow it to blossom as the inevitable use of my estate plan inches ever nearer.
Insurance
I have heard many people say that they do not need life insurance because they own bitcoin. Maybe that is true for some; they are self-insured through the already realized value of their assets and purchasing life insurance is completely unnecessary. That is fantastic for them! However, for many who make this claim, they are not making it out of a rational evaluation of the possible occurrence of an untimely event happening prior to bitcoin hitting a purchasing power that would allow them to be self-insured. If that is the case, it may be worth looking at an inexpensive term policy for the time being…just in case.
Keep in mind that, as we see the purchasing power of the dollar erode, the real value of the death benefit erodes right along with it. This means that the policy you bought when your first kid was born 9 years ago will not take care of your family in the same capacity now, considering the hidden tax of inflation, let alone the possible increase of the number of dependents since that first baby came along. Meanwhile, bitcoin, over multi-year periods of time, has increased in purchasing power. In the non-zero chance scenario of de-dollarization and hyperbitcoinization (mass adoption of bitcoin and a drastic rise in its purchasing power), owning bitcoin in tandem with dollar-denominated life insurance would help mitigate the risks associated with the perils of inflation.
Risk
Investment risk assumes many forms, one of them being sequence of return risk. Sequence of return risk is the possibility of poor investment returns taking place at a disadvantageous time, generally referring to earlier in an investment period or coinciding with a necessary withdrawal event. Unfortunately, many bitcoiners that I have come across have not accounted for sequence of return risk with their bitcoin-to-fiat ratio. Of course, if bitcoin continues to do well over a prolonged period and a purchase with bitcoin is not necessary in the short to mid-term, things work out nicely. However, if you have overextended yourself and do not hold the proper amount of fiat, you could be undermining your bitcoin accumulation strategy and endangering your long-term wealth accumulation strategy. For instance, you are a steak-only, seed oil free, laser-eyed bitcoin maxi who has adopted a 100% standard. Unfortunately, just as you traded your last USD for bitcoin, bitcoin takes a 40% dive in purchasing power while you also need to buy a new HVAC system for your house. That $10,000 purchase just ate up what was just days prior worth over $16,000, forcing you to part ways with more sats than necessary simply because you got greedy and wanted to grow an emergency fund.
While risks are certainly important to weigh, it is also important to not conflate risk and volatility. Volatility is simply the movement in the purchasing power of an asset, while risk is the inability to reach a goal. For instance, simply saving 10% of my income annually in USD for my retirement over the next 30 years would all but certainly lead to me not being able to retire at the end of that time. Sure, it was not volatile, but it was death by a thousand (non-volatile) cuts. Similarly, the purchasing power of bitcoin moves regularly, aka is quite a volatile asset at this stage of bitcoin’s adoption. Meanwhile, when considering the current macroeconomic, fiscal, and monetary shambles that our world is in, paired with the rate and diversity of adoption of bitcoin, bitcoin is looking less and less risky all the time. Yes, the price currently moves regularly compared to the USD, but the use case and need for bitcoin has not wavered. Further, it is reasonable to expect perceived value (aka purchasing power) to be volatile as knowledge and adoption is in such adolescent years. To assume straight linear value increase would be to disregard the adoption pattern of any major decentralized technological advancement.
Conclusion
To claim that holding one piece of the financial planning puzzle means that the puzzle is complete is foolish, however important that one piece may be. Likewise, to take a piece and throw it away because you are not sure exactly how to contextualize that piece at this time will shortchange your ability to see the intended completed work. Bitcoiners, consider the whole that the bitcoin piece fits into. Trad-fi community, take a close look at the puzzle piece that bitcoin is. When informed by a clear vision and with all the pieces on the table and being worked out and connected, that is when true financial planning is taking place and the full picture is able to be realized.
Prior to starting Intentional Living FP, I worked primarily with the standard clients of most wealth management firms— financially successful families seeking guidance with the wealth they’ve accumulated over decades. While I cherish each client I’ve served, I came to find the clients I enjoy most: families that desire to achieve early financial independence for the sake of spending significant time with the people they care about, doing the things they enjoy.
I am a CERTIFIED FINANCIAL PLANNER™, and the message I tell every client I work with is that my role is to guide— to live where my clients’ lives and money intersect so they can live the life they want to live. The money is simply a tool, a resource that is there to help you live the life you want.
When I’m not engaged in a conversation with people about life, priorities, and doing what is important to them, I can be found chasing around my kids, Atticus, Asher, Arlo, & Adeleine, spending time with my wife, Kendra, or out on an adventure.