What Happened to Bitcoin?

On Thursday morning, Volkswagen announced to the market they would be changing their name to Voltswagen.

They want to be big swingers in the electronic vehicle (EV) market and beat Tesla at their own game.

Consequently, their share price amped up 5%. and increased their market capitalization (overall value) by approximately US$1.85b.

Not bad for about two minutes work.

But if you think that’s impressive, how about this…

Last Easter, Bitcoin was trading at $6,793.

Two weeks ago, it hit a high of $61,243! A return of just over 900% in 12 months.

That’s almost the equivalent of doing what Volkswagen did, every trading day, for a whole year.

So what is Bitcoin and why the big deal?

Bitcoin is a digital currency, otherwise known as a ‘cryptocurrency’.

The main difference between a traditional currency and a cryptocurrency is a traditional currency is centralized. i.e. all transactions go via a bank account.

‘Crypto’ is decentralized.

Meaning, it doesn’t operate through a central hub like a bank, instead it’s strictly peer to peer. i.e. if you and I owned bitcoin we could transact with each other and bypass the banks.

Incredibly, there are approximately 2,000 different crypto’s in the world, but Bitcoin is the big dog in the house.

Simply put, crypto’s have two purposes:

Firstly, they’re seen as a store of value like gold and are traded the same way but on a cryptocurrency exchange.

Secondly, they’re also used as a medium of exchange to purchase goods and services. However very few businesses accept crypto’s due to their extreme volatility in value.

But crypto’s have one problem, they’re impossible to value. They don’t generate any cashflow and they don’t pay a dividend.

They’re like all other currencies, their value is simply determined by supply and demand…or hysteria.

So why has its value gone skyward in the past twelve months?

I liken Bitcoin to Tesla, the apparent leader of the EV market.

Tesla’s share price has gone from $85 to a recent high of $900 in one year. Its currently trading around $660.

Tesla’s share price is now so expensive, its valuation is greater than the top 10 car manufacturers in the world combined. (Toyota, Volkswagen, Ford, Honda, GMH, Chrysler, VW, KIA, Mercedes, BMW)

Incredibly, it’s car manufacturing business is yet to make a profit. (Its relatively small profits come from ‘regulatory credits’, which are like ‘green’ tax credits).

But it gets better, Tesla produces less than 1% of the world’s vehicles.

So you would think, with all the noise surrounding Tesla, it’s the only EV manufacturer, but it’s not. Tesla is one of 243 EV manufacturers in the world, just like Bitcoin is one of 2,000 crypto’s.

But at least we can ascribe a value to Tesla thanks to its tiny profit.

It’s impossible to work out what Bitcoin is really worth.

In fact, based on earnings for 2022, I value Tesla at $20-23 per share. About the same price as a family sized pizza.

This market is littered with examples like Bitcoin and Tesla and the only reason they have skyrocketed is due to unbridled hysteria, mostly on borrowed money.

To put it into perspective, if you think the property market is white hot, it literally doesn’t hold a candle to the current stock and crypto markets.

And to give you an example of the sort of hubris in the market right now, consider this…

You know the Volts-wagen announcement that was made on Thursday?

It was an April fool’s joke…by Volkswagen.

Try swallowing that with your Easter eggs.

Happy Easter!

Adam