(?) To Be or Not To Be

Bitcoiin.jpgAt the core of the crypto- controversy “scam or new asset class?”, is a personal belief from which all else flows.  If you think that Bitcoin is a Ponzi scheme, everything which is generated from that essential belief only serves to confirm a negative opinion of cryptocurrencies. No amount of ‘evidence’ is going to dissuade one of these thinkers from believing bad things will ultimately updo Bitcoin.  The only problem for them is how to prove that the value of bitcoin will go to zero, even though Bitcoin hovers around the $10,000 mark.  If they wanted to profit by the misfortune of others, they might even purchase a Bitcoin short position.

On the other hand, if you believe Bitcoin is only the beginning of a new asset class, that hundreds, if not thousands of other cryptocurrencies will follow, that many of them will be widely traded and prove to be a very lucrative investment for those who bought in early, your problem is two-fold.  First, you have to prove that the value of bitcoin will go as high as one million dollars per coin, even though bitcoin presently hovers around the $10,000 mark.  Second, to take advantage of this glorious insight you have to choose in which cryptocurrencies to invest.

Ultimately, a sufficient number of use cases will prove the value of cryptocurrencies, or not. Be on the lookout for those.  Uses cases are the best argument you can make about in which cryptocurrencies to invest or if to invest in Bitcoin at all.

Bitcoin: Going from Speculative Investment to Currency Equivalent

Screen Shot 2017-12-03 at 1.05.02 PMAs markets wake up to the fact that bitcoin is a legitimate currency, there will be a mad dash to acquire some.  However, when bitcoin is rising at the rate of 750%  per year it is seen as a strong speculative investment, not just as a currency. The amount of dollars held in investments is something close to $25 trillion depending on what you want to call an investment and what asset classes you include in the evaluation. Let’s just consider the cash equivalents.

People will want to hold what they need in bitcoin as cash, and, what they want to hold in bitcoin as an investment.  Later on, when it reaches its natural value and behaves more like a currency in relation to other currencies, people will be comfortable holding just enough cash to satisfy their liquidity needs.  We’re not there yet.  Instead, you can expect the amount of bitcoin people hold will be equal to the amount of cash they currently have in fiat currency PLUS an investment amount.

If you had a very, very good investment idea, one so good that there was barely any risk at all, and the reward was phenomenal, would you invest between 25% and 40% of your portfolio?  Let’s be conservative and call bitcoin a good investment but not phenomenal.  Then, you might expect a 10% – 20% investment.  If bitcoin rises to that level of speculation and that amount is invested then a bitcoin would reach $225,903. = ($25T x 20%)/ 16,600,000 bitcoins. There would be some overlap between the money you considered an investment and the money you considered cash.

Bitcoin will run up in value to $225,903. as an investment.  It will then transition to cash from speculative investment.  At that point, bitcoin values will go to $301,204.  We are witnessing the run up to $225,903 as people speculate on a good thing and bitcoin becomes fully invested.  As more and more people have more and more bitcoin and the value stops going higher, it will slow.  Before it stops altogether, however, it will transition to being just another currency which that we won’t pay attention to.  Bitcoin will go up to $301,204 as people throughout the world hold an average somewhere between $666 (cash equivalent) and $961 (gold equivalent) in bitcoin.