Thursday, 16th July 2020
Space to grow into – a key feature of my Bitcoin bet….
Earlier this week Tesla’s Price-to-Earnings (P/E) ratio stood at a mind-boggling 10919.85….
You didn’t read that wrong. Investors buying Tesla stock right now are paying that many dollars for a single dollar of earnings….
And plenty are buying. On Monday, US trading platform Robinhood reported that 10,000 traders per hour were piling into Tesla stock….
Tesla is already worth more than multiple mainstream and established car manufacturers – but hasn’t yet made a profit, is yet to produce 500,000 vehicles per annum and isn’t exactly tearing up the tarmac with sales growth….
Buying Tesla stock seems like madness to me. But I guess some people would say the same about Bitcoin….
- Betting on hardness….
You’ll find no shortage of people in the financial world who believe Bitcoin is headed for zero….
Investment guru Jim Rogers, for example. Only last month he was reiterating his view that Bitcoin is essentially worthless. Warren Buffett is another critic. There are many more….
But there just as many proponents of Bitcoin specifically and cryptocurrencies generally….
Over the past few years, I’ve stayed neutral – adopting a strict watching brief and waiting to see what happens.
But, as I reported last time, I’m ready to make a move and bet on Bitcoin….
The sheer hardness of Bitcoin as a currency is a feature that has captured my interest and attention of late….
Like gold, Bitcoin is well set and perfectly structured to be a reliable future store of value during turbulent times….
Supply is of Bitcoin is strictly limited and as demand increases for safe havens and assets that protect values in the years ahead, I’m prepared to bet that the price of Bitcoin (like the price of gold) will rise – significantly….
- Back in the day….
Back in 2017 when Bitcoin hit an all-time high of almost $20,000, most people – including most of those doing the trading – had no real clue what Bitcoin was, what it was for or where it might be headed….
Few had any interest in such matters. The majority of those buying and trading the coin were doing so based on its rising price – they were terrified of missing out on certain profits….
Bitcoin’s price was rising so fast in the summer of 2017 that new Bitcoin millionaires were being minted worldwide every single day of the week….
Tens of thousands of players – from pros to rank amateurs with only credit card balances to play with – lined up to ride this elevator to the heavens….
Then, at the end of 2017, it all went sour. Bitcoin dropped off a cliff. What had been worth $20,000 was now worth half of that. At one point in 2018, its value dropped below $4,000….
So many fingers weren’t burnt, it wasn’t possible to count them all. Fortunes were lost. One-time supporters of Bitcoin were instantly transformed into critics. Those who had always been in opposition now had reason to dig their heels in deeper….
- A speculative bet….
The price of Bitcoin certainly hasn’t recovered to anything near its 2017 zenith. Some people believe it never will….
And the price of Bitcoin remains volatile. This year alone prices have fluctuated between just over $10,000 and just under $5,000….
Bitcoin is clearly not a play for the faint-hearted. And it certainly isn’t a bet to make with money you can’t afford to lose….
I see Bitcoin as a speculative play – to small stakes. I’m not remortgaging the house or maxing out the credit card to get involved. I’m simply using a bit of put-aside money to fund my stake….
I want to minimize the obvious, clear, and present downside (which I am not underplaying) whilst getting exposure to what I believe is great upside potential in the future. I’m not talking next week, next month or next year, by the way. I’m talking long-term – years, a decade or more….
The hardness of Bitcoin is one big plus – particularly in the current turbulent financial climate. That hardness can serve to increase values….
But my speculative bet on Bitcoin is also partly informed by how the Bitcoin environment continues to grow and develop over time….
- Consider this….
When Bitcoin first appeared back in 2009 it had no market value whatsoever. Just over a decade later Bitcoin has a market cap of $169.72 billion….
That’s a lot of Bitcoin. It’s a lot of value. $169 billion is a big number. But it’s nothing compared to the market cap of gold, for example. The market cap of gold is something like $10,000 billion….
And the market cap of Bitcoin is nothing like the market cap of all fiat money in circulation – every unit of national currencies such as the dollar, the pound, the euro, the yuan, etc. The market cap of all that fiat currency amounts to something like $40,000 billion….
Now it may well be that the likes of Jim Rogers and Warren Buffett are correct, and that Bitcoin eventually hits zero or something close to it and is effectively dead in the water….
If that happens, I lose my speculative stake. I won’t be happy – but I won’t be leaping off the 86th floor of any skyscrapers either. I’ll simply dust myself down, move on and learn what I can from the experience – that’s the benefit of betting only what you can afford to lose o speculative assets….
But there’s another side to the argument. Rogers and Buffett can be wrong too. Bitcoin can continue to grow its market cap (just as it has for the last decade) along with its credibility as an eventual rival to gold and a potential replacement for fiat currency….
Here are some figures to digest….
If Bitcoin were to achieve the market cap of gold – an individual Bitcoin would be worth more than $400,000….
If Bitcoin were to achieve the same market cap as all global fiat currency in circulation – an individual Bitcoin would be worth almost $2 million….
- Space to grow into….
Now, I’m not saying that Bitcoin will achieve either feat – the same market cap as gold or global fiat currency….
I’m not saying that a single Bitcoin will ever be worth $400,000 or almost $2 million….
All I’m saying is that Bitcoin continues to grow and has a lot of space to grow into. And my bet is that it will do at least some of that growing….
Remember, Bitcoin is only 10-years old. We’re right at the very start of this cryptocurrency story….
The future has a long way to run. Well beyond the point where Rogers and Buffet check out. Yesterday’s men are probably not the best guide to tomorrow’s direction of travel….
There are no signs that Bitcoin is going away. In fact, the signs almost all point in the opposite direction. And we’ll get onto those telltale signs next time….
Bitcoin is here to stay. That being the case it is my bet that at some point in the future an individual Bitcoin is going to be worth a lot more that it is today. It has an awful lot of space to grow into and no shortage of time in which to do it….
That’s how it looks from here….
All the best,