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Happy return to Unhedged. If you have any thoughts (and since today’s topic is bitcoin, many of you will have), email me: [email protected].
Bitcoin is equity, not money
Years ago I was hired, with no financial experience, as a trained analyst at a hedge fund. I asked my potential boss how I should prepare. He said: “Get a financial calculator and learn to use net keys at the current amount. That’s all true.”
He is right. I’m thinking from further on in terms of future cash flow streams, terminal costs, and discount rates. Every other analytical tool I’ve gotten since has been second to none.
Which is why I’m not happy to do what I need to do now: write about bitcoin, an asset beyond the comprehension of my HP-12c (millennials may already be looking forward to what is that). The stock value of bitcoins has fallen 29 per cent at one point today, a decrease of $ 225bn. Here is the price of an individual bitcoin on Wednesday (with Tuesday’s last chick along the left) (data from Bloomberg):
In addition, bitcoin and the overall market trend seem to be included. From Refinitiv:
Something needs to be said. So the following is this archaic analyst’s best guess of what’s going on. I’m looking forward to your mail (I think?).
Bitcoin is most thought to be a company’s reasoning that the sole asset is a promising but unproven technology – it’s not strictly true, but it’s the right metaphor. A lot of people talk about it in most of these terms. HERE example Bill Miller, a very famous stock investor, told Barron a few weeks ago:
“Bitcoin is the solution to a problem that do not carry economies because there are economies, which are the government’s monopoly over money supply and banking systems, that lead to a series of defaults , confiscation of nationalization, inflation … the best way to think about it like digital gold.Gold has an analogue, bitcoin digital.It’s so much better than gold as a store with value … you can’t avoid your country with millions of dollars of gold, because it is plentiful and difficult to divide, even if you can send bitcoin anywhere in a fraction of a second at the lowest cost, and the division will almost never end. “
If bitcoin technology works, that is to say, it will be a new form of money, and a more specific function of money as a storage amount: inflation safe, transferable without chaos. and government excavation is unattainable.
Here is Marc Andreessen, a renowned technology investor, writing a few years ago, hit related points:
“The bitcoin ledger is a new class of payment system. Anyone in the world can pay anyone in the world any amount of bitcoin by simply transferring the owner to the corresponding ledger slot. the amount, transfer it, the recipient gets the amount, no authorization is required, and in many cases, no fee.”
And if bitcoin becomes money, its value will increase dramatically. Miller again:
“There is about $ 10tn of gold value in the world, some in jewelry, some in central banks, some in things like ETFs. The Bitcoin market cap is almost $ 1.1tn. I am confident that bitcoin can rise 10 times under certain reasonably considered conditions – which can be as valuable as gold. ”
Reasonable people should agree, however, that bitcoin technology is not yet working. This should be clear. Price movement today shows bitcoin can very easily become money; for now, if the bad guys get really bad, I’ll run across the Mexican border with nothing but bitcoins.
Just as importantly, bitcoin transaction costs are usually high and slow, and they are only accepted in a few areas. Bitcoin is not money, but the idea that it will one day become money is the origin of today’s value.
If the stock price of a company whose sole asset is unproven technology is changing (and they do, a lot) that doesn’t matter. That’s all with the market, unless there’s new information suggesting that the technology property will be more or less successful.
There are a lot of bitcoin mistakes that have gone wrong. They wonder if the price of bitcoin will go up, that’s all evidence that technology is closer to work, and becoming money. It’s not! Many items, from baseball cards to Château Lafite cases, will go up in value. That won’t make them money. These properties are made. Assets are good things, but the value of said bitcoin comes from the possibility that it could be a specific class of assets, which is money.
The evidence that bitcoin has become money will engage the people who transact it more, in more places and more smoothly (if there is any evidence that that’s a topic for another day).
One last point. The nominal reason for the drop in the value of bitcoin on Wednesday was that the Bank of China said it was “unnecessary and unusable as market currency”. Is that evidence that bitcoin technology won’t work, and will become money? Maybe, but keep in mind that an important part of bitcoin’s appeal is that the opinions of third parties and especially governments don’t have to matter. Even the injury now suggests they do.
There’s a quick way to resolve that contradiction: by establishing that most of the current value of bitcoin is pure, not speculative speculation, with no connection whatever the underlying nature of the technology.
A good read
If you’ve followed my FT writing, you know I also wear a non-financial hat, writing a regular column in male style. I have always thought that my two different writings are related, in which they require a closer look at human behavior. I don’t always wear the Unhedged style hat, but once and then I can slip it on.
So: last week in the New York Times style magazine, there was a perfectly good example of style writing, Get the Tases piece how eastern and western cultures met the recent history of perfume. If you are interested in the history of fashion, read this.