So you’ve probably read that Doge and Bitcoin have made all-time-highs (ATHs) recently. I get people asking me all the time if this is a good time to go in, or if this is a a bubble.
So how much is Bitcoin really worth? To answer that we need to know what is Bitcoin really? And how do we go about valuing it?
Bitcoin is a timeshare on a network.
Created in 2008, it’s the first blockchain infrastructure ever invented. I won’t go in details of how it was created, you can read about it elsewhere. But imagine if someone paid you a dollar each time an email is sent over the Internet using TCP/IP. You’d be a gazillionaire in about 0.000487 secs.
Many say that “Bitcoin has no intrinsic value”. I agree with that statement, but I would add “Bitcoin per se, has no intrinsic value”. Because it’s the infrastructure and scale of adoption that gives that value. The more people use Bitcoin, the more valuable the network will be.
Think about Tesla vehicles without Superchargers, or the best 5G mobile phones on a deserted island without proper signal coverage. How about the national currency of Brano Namia, and who would actually want to accept or even transact in Brano dollars (totally made up country btw).
As people started building tarmac road and as gas stations started mushrooming in the 1900s, fossil fueled powered automobiles started becoming more valuable because they could now travel faster and further than horses.
WOW SUCH FAST! SO HORSE POWER! (Photo credits: explainthatstuff.com)
Right now we are still in the infancy stages of the blockchain development, and while there are more technical models out there of how to actually value it, I personally keep my eye on 2 things : Infrastructure and Adoption.
How you actually want to play this game is dependent on what Bitcoin means to you.
Tech / “Growth Stock” Play (Upside Participation)
The thing about Bitcoin is that there’s not much quality research out there that you can trust. Typically investment pieces originated from the TradFi industry, from number crunching analysts to portfolio managers and traders, who sought to make sense of the world with regressions and spreadsheets.
But Bitcoin stems from a technological POV, and its concept is just about as abstract as electricity in the 1800s or the Internet in 1990s.
So even if there was material written about it, it all stemmed from geek speak, which makes it difficult for non-binary speaking humans to get a grasp on it.
A good book which gives you an entry into base level understanding of the tech is “The Internet Of Money : A collection of talks” by Andreas M. Antonopoulos.
No going back after this (Photo Credits: johnblakey.co.uk)
Again the 2 things that are repeatedly highlighted here are Infrastructure and Adoption.
After getting a better layman’s perspective of what Bitcoin actually is (you didn’t need to know how a mobile phone transmits either), you’ll begin to see why the tech makes sense. With an foundational understanding not only will you will form a stronger view of the technology (for better or worse), but also be able to grasp advanced concepts better (duh!).
We are in an age of rapid change – industry disruptions, lifestyle habits, wealth transfer (20yo billionaires anyone?) etc. The Internet has made much of these possible in the first phase.
And now blockchain will too.
Short Term Trade (Speculative)
If you’re a mercenary and couldn’t care less what you trade, this is just the place for you. With a historical volatility ranging in the 50s and up, it’s an absolute trader’s dream.
Short term could mean anything from a couple of minutes to a few months. That being said, you are in it for a quick buck or two and couldn’t really care less about the developments in this space.
Obviously the mantra here is buy low sell high, or sell high buy low, whichever floats your boat. Liquidity is thick and price action is generous.
And nothing better than the media on your side, reminding how everyone else is getting rich but them. The article may be abit dated but it’s the same thing rinsing and repeating. So why not make hay while the sun shines?
Look at all this generous liquidity and price action! (Photo Credit: positiveprescription.com)
Inflation Hedge / Gold Alternative (Diversification/Store of Value)
Sooooo the US treasury has printed almost 20% of all US dollars ever in existence, in a single year – 2020 ðŸ¤¯. The global reserve currency, which was once a flight to safety and the backbone of financial stability, is now beginning to look increasingly like Monopoly money.
Where do you go to store your wealth? Some options include
- Hard assets like real estate
- Physical gold and certificates
- Alternatives like fine wine and art
- Bitcoin aka. Gold 2.0
The idea that Bitcoin is easily stored and transferred appeals to many. Slap on mathematically proven limited supply and a growing adoption, and you’ll begin to see why the wealthy are also gravitating towards this asset class as a store/preservation of their wealth. From funny money origins, many are now starting to take this as a serious gold contender.
We are currently at a point of inflexion in a generational shift, where money itself is changing forms. While diversification is a proven strategy for reducing volatility in a changing world, getting your feet wet is only the start.
So there you have it folks. You need to determine what Bitcoin actually means to you before deciding how much more legroom it has to run. Jumping head first into anything without even a remote understanding is probably the best way to learn, and lose your pants.
TO THE MOON!!
P.S. Nothing in this post is to be considered legal or financial advice. All of the writing here is meant for information and entertainment purposes, so DYOR and make decisions based on your own beliefs.
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