Home Cryptocurrency News Bitcoin Bitcoin Not Valueless, Just Un-Valuable

Bitcoin Not Valueless, Just Un-Valuable

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I can tell you my estimate of the value of every asset that I’ve ever purchased. It will only be an estimate, and it will sometimes be wrong. But more often that not, it will be approximately right. I would never be able to say the same for Bitcoin. As a result, I have no position in Bitcoin, long or short, and never would.

As with all parabolic price increases, there will be many who ignore my pedantry. A lucky few will strike it rich, as some have with Bitcoin. Most will not. By definition, a bubble is caused by the greatest number of buyers buying at the top. This is what creates the top and what ultimately bursts the bubble.

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Given the astronomical gains last year, many have understandably asked if they should purchase some Bitcoin.

I would say no. Not because it’s a mania, a novelty, or a fad—though it certainly might be all of those things. I would say no for the same reasons I advised against buying companies like Pets.com in 1999. Not because it has no value, but because the value cannot be determined. I have no idea whether Bitcoin is worth $0 or $100,000 and if you cannot answer that question—at least within a range of 10%—buying the thing is just gambling, no different than playing roulette.

As Bitcoin trades at nearly $14,000, this advice must look woefully pedantic and stupid. After all, I said the same thing to a client when Bitcoin was trading at $7,000 and $10,000—and it’s doubled since then. What can the definition of stupid be if it’s not the leaving of a 100% gain on the table?

Pedantic or not, however, the discipline of being able to determine value is the most important thing. For every Bitcoin it causes you to miss, it helps you avoid hundreds of other passing worthless fancies, whether they be Beanie Babies, hoverboards, dotcom washouts or anything else.

The difference between investing and speculating is that the investor can make a determination of intrinsic value while the speculator cannot. And why can Bitcoin not be valued while a blue-chip stock or bond can? Simply because Bitcoin has no underlying yield or cash flows. If an asset lacks these features, it just cannot be valued. All methods of valuation used by successful investors, from Warren Buffett on down, approximate value based on the cash flows the asset produces. If it doesn’t produce any, good luck assessing the right price.

The same can be said for all currencies, not just the crypto kind. Naked yen and euros don’t produce yield or cash flows either, nor does the almighty dollar. To extract value, they must be invested in a bond or stock, or at least a Treasury bill or savings account. To make money on buying a raw currency, you need it to appreciate against the currency you used to buy it. And if you have no idea at what price that exchange should take place (and there’s no way to know because currency fluctuations are unknowable), you cannot take the gamble. Period.

I can tell you my estimate of the value of every asset that I’ve ever purchased. It will only be an estimate, and it will sometimes be wrong. But more often that not, it will be approximately right. I would never be able to say the same for Bitcoin. As a result, I have no position in Bitcoin, long or short, and never would.

As with all parabolic price increases, there will be many who ignore my pedantry. A lucky few will strike it rich, as some have with Bitcoin. Most will not. By definition, a bubble is caused by the greatest number of buyers buying at the top. This is what creates the top and what ultimately bursts the bubble.

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