Well, I have avoided writing about it long enough.  Today is the day I finally get on the bitcoin bandwagon!

Oh, no, I’m not actually, like, jumping on the wagon and buying bitcoin.  I’m not crazy.

I’m just saying that I have been avoiding writing about bitcoin, and that so many bloggers seem to love writing about it.  Since people keep asking me my opinion, I figure it’s finally time to give it.

This article is basically about why I think you are crazy for buying bitcoin today as it sits at over $15,000.

Let’s get to it!

Bitcoin will never have another run like 2017

I’m enormously confident when I say bitcoin won’t have another year like 2017 in terms of percentage growth.

In fact, I ‘m prepared to say that bitcoin won’t outperform it’s 2017 gain if you give it five years.  Hell, I’ll even go with ten or twenty years.

Here is why it is crazy to think bitcoin will gain as much as it did in 2017 over the next five-year period.

Take a look at the chart below.  It shows what bitcoin will grow to in 5 years if it achieves the same year to date return it currently sits at(about 1,750%).

Bitcoin Price

 

Ok, so you may look at this and think…TOTALLY possible!  You may be in the bitcoin cult and think bitcoin can EASILY grow to $292,300 within five years.

I would argue this is not exactly your rational brain speaking, but probably the obsessive emotional crypto state you are in.

So, let me give you some comparative context.

The chart below shows ALL coins and bank deposits in the US compared to bitcoin.  The entire amount of coins and deposits in the US is about $3.5 trillion, and the value of all bitcoins combined is currently around $259 billion.[i]

 Bitcoin compared to us bank deposits and coins

As we can see in the chart, the entire market cap of bitcoin is about 6.8% of total bank deposits and coins.

If bitcoin were able to achieve another 1,750% run-up by the year 2022, the next chart shows how bitcoin will look compared to all US coins and bank deposits if they grew at a 3% inflation rate.

Bitcoin vs us coins and deposits over five years

 So, here we are, with a cult of people who believe in their hearts that bitcoin will be worth all aggregate US coins and bank deposits within five years.  There are actually die-hard believers that bitcoin will go from the equivalent of 6.8% of coins and deposits in the US to over 109% of coins and deposits in the US.

Even with about half of bitcoin being owned outside the US, if the above scenario were to occur, bitcoin will have likely replaced the dollar as the official currency of the US.

And, to make it even more crazy, they think it will happen within 5 years.

You. Have. Got. To. Be. Kidding. Me.


When you’re done reading about bitcoin, you may want to checkout my stock portfolio page: My Stock Portfolio


 A poll and two bets

The reason I know there are at least exists a faction of bitcoin investors who think it will gain another 1,750%+ over the next five years, is because I took a poll yesterday.

Over the past couple days, I have posted a bet in a bitcoin thread on both Facebook and Reddit.

I also posted a poll on Twitter to see what the Twittersphere thought about my crazy question as well.

Facebook and Reddit

On Facebook and Reddit I posted the following bet:

“Anyone want to take the opposite side of my wager?  I’ll bet $100 worth of bitcoin it doesn’t grow (in percentage terms) as much the next 5 years as it did this year.

Luckily for those on Facebook and Reddit, nobody took me up on my bet.  In fact, I just heard crickets.

Maybe they realized the bet was crazy.

Twitter on the other hand… 

I tweeted a poll yesterday with some different wording than my Facebook and Reddit posts.  This is a screenshot of my Tweet:

Bitcoin twitter poll

I only had 10 people respond to my poll.  BUT, of those 10 people, 70% of them think bitcoin will increase more than 2,000% over the next five years!

When I wrote the tweet, I was honestly thinking, “This is batshit crazy.”  I was really hoping nobody would be voting yes for this.

Yet, there are genuine people out there who think this is going to happen.  For this exact reason, you should be frightened.

Be afraid…be very afraid

The fact that 70% of my poll said they think bitcoin will gain more than 2,000% over the next five years should frighten you if you are invested in bitcoin.  These are completely unrealistic expectations.  If people who are investing speculating in bitcoin are seriously thinking like this, bitcoin is even more of a bubble than I thought.

Even if the crazy concept of bitcoin replacing the dollar were to come to fruition, it won’t happen quickly.

Maybe years from today, it is possible.  Even though bitcoin has major flaws, from mining, to competition from superior cryptocurrency, to scalability problems.

I know there are many people who think bitcoin will replace all the currencies and gold in the world.  If that candy-canes and rainbows prediction does happen, it’s not going to happen soon – maybe it takes 30+ years.

The funny thing is, the people investing in bitcoin aren’t looking 30+ years into the future, they are looking at next week.  So those invested in it will probably learn how this speculation thing works the hard way.  The more people expecting bitcoin to have another 2,000%+ percent gain within the next five years, the faster bitcoin will likely fall the next time it starts slipping.

If you invest in bitcoin…you are currently a speculator

There are speculators, and there are investors.  If you purchased bitcoin at $1,000 and you are still holding it, you are currently still a speculator.  You are currently still a speculator because you have an asset that you can’t value yet – it’s a number on paper.

I know you think it’s just as good as real estate or gold right now, but it is not yet.

If you own shares of a stock, you own a piece of a business.  That business has assets and produces products and/or services that are worth money.  If the business goes downhill, you can at least figure out the liquidation value and your margin of safety is.  If bitcoin were a company, it likely has some assets and you could put a liquidation value on  it – you would know your floor.

You can’t do that with bitcoin.  You just don’t know.

So, you are just a speculator right now.  You have no metrics to stand by.  And when people don’t have metrics to stand by, the fall is APOCALYPTIC.

The way I see it, right now, you are a speculator even if you have a 1,000%+ gain on bitcoin.  You won’t escape being a speculator until you put a significant bitcoin profit in a place you can value with confidence.

Once you are out, whether bitcoin somehow goes 290K, you at least know you did something rational and stopped being a speculator.

Bitcoin has to grow slowly for it to be accepted anytime soon

The funny thing about bitcoin is, for it to be universally accepted as a medium of exchange, it MUST be safe.  I don’t mean safe like safe from hackers.  I mean safe, like, volatility.

If  I run a multi-billion corporation and want to sell my product and accept bitcoin, I have to feel confident the value of bitcoin will be very close to the value of the price I sold the product for in the future (futures contracts can help with this).

Furthermore, if I am a shareholder in a company that decides to start selling $500 million of their product revenue in bitcoin, I am going to be pissed.

I am going to be pissed because they will have millions of dollars at any one point in time in bitcoin, and I don’t know if those millions in bitcoin will be worth only thousands next month.

As an investor, I’m not currently going to invest in a company that has huge exposure to bitcoin.

Bitcoin has to reach equilibrium for it to be accepted, and that price could be a fraction of what it is today, or it could be exactly what it is today.  Maybe stability for bitcoin is 6.8% of U.S. coins and bank deposits?  Maybe it is 1%?  Maybe it is 10%?  Who knows…

What I can tell you is, today, it’s definitely NOT 109% – which apparently some people think it is currently worth.

 

For now, I will happily accept investing in companies producing actual products that have actual assets that you can actually valuate.  As the madness continues, I will sleep perfectly in my bed knowing the investments I own are less than or equal my valuation.

Sure, there are some 18 year-olds that are richer than me on paper thanks to bitcoin.  But, remember, they may not be richer for much longer if they still own it.

In the words of Charlie Munger, “Someone will always be getting richer faster than you.  This is not a tragedy.”

The bandwagon just reached its destination…time for me to hope off!

Thanks for reading.

 

 

 

[i] Motleyfool / St. Louis Fed

 

 

Disclaimer: These are the ideas and opinions of the author.  The author is not responsible for the actions of those who read the posts on this blog.  Each individual reader has a unique situation and unique needs.  This blog is not intended to solve those unique situations of the readers.  This blog is not liable for decisions made by the readers of this blog.

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