As I pointed out in my recent post on cryptocurrencies in general and Bitcoin in particular, I can assert my disagreement over the harsh criticism and sharp proposals surrounding this issue. . Contrary to Jamie Dimon, I do not believe Bitoin is a scam in which only fools buy and pay the price for their stupidity. Unlike Bitcoin’s big fans, I don’t think that the digital currency is and will be an asset class or can change fundamental truths about risks, investments, and management. The reason for the above two views is that they both disagree about the definition of Bitcoin, and on the risk of causing trouble in one way or another, I will point out that Bitcoin is not an asset but a currency, so you cannot evaluate or invest in it. You can only price and exchange.
Assets, Commodities, Currencies and Rare Items
Not everything is value, but nearly everything can be priced. To understand the difference between valuations and valuations, let me begin by reassigning that the investment cases I’ve investigated fall under one of the following four categories:
- Cash Generating Asset
An asset class that generates or is expected to generate future cash flows. The business you own is an asset that depends on the cash flow of the business. The above assertions can be a block of contract (bonds or debt), surplus (equity or shares) or even random (options). What these types of assets have in common is that these cash flows can be assessed, and assets with large cash flows and low risk should be prized rather than small and high risk assets. At the same time, assets can be priced in relation to each other by comparing the price you pay for a regular metric. With stocks, assets form a multiple price comparison (PE, EV / EBITDA, Price to Book or Value / Sales Indices) through companies of the same type to form price assessments. See whether the stocks are expensive or cheap.
- Commodity
A good creates its value through its use as a raw material for basic needs, be it energy, food or shelter. While value can be measured in terms of the supply and demand of a good, delays and progress in the goods can make the assessment process more difficult for an asset class. Thus goods tend to be priced, often related to their historical development, with the prices of standardized oil, coal powder or iron ore being averaged over long periods.
- Currency (Currency)
A unit of currency acts as an intermediary for controlling cash flows, and is also a means of storing value in case you do not want to invest. When viewed independently, currencies have no cash flows and cannot be evaluated, but they can be priced against other currencies. In the long run, currencies are widely accepted as intermediaries and their better storage of value over time will cause their prices to go up, relative to other currencies. have these properties.
In the short term, other forces, including governments trying to manipulate exchange rates, may take over. Using regular currencies as an example, you can look at the chart below depicting the US Dollar against seven other paper currencies, over a long period (1995-2017), you can See the Swiss Franc and the Chinese Yuan rise in value against the dollar, while the Mexican Peso, the Brazilian Real, the Indian Rupee and the British Pound are showing signs of falling against the dollar- la.
- Precious and rare goods
A rare commodity has no cash flow nor an intermediary, but sometimes it has aesthetic value (as is the case with a precious painting or sculpture) or valuable mentally (like baseball card or Jersey team). Precious goods cannot be assessed because they do not generate cash flows, however they can be priced, based on people’s perceptions of the desire and scarcity of the commodity.
Observed through this prism, gold is clearly not the cash flow that makes up an asset, but is it a commodity? Since the value of gold has little to do with its practical function, but to a more permanent function, the nature of gold is more monetary than commodity. Real estate is an asset, even if it is in the form of a home, because you do not have to pay rent (cash flow). Private equity funds and hedge funds are forms of investment in assets, currencies, commodities and rare goods, they are not separate groups of assets.
Investment vs. Transaction
The bottom line here is that the cash that creates assets can be valued and priced, goods can be priced much more easily than they are, and we can only value money. and collectibles. So what? I’ve written about the divide between investing and trading, and that contrast is worth revisiting. In order to invest in something, you need to estimate their value, compare them with their prices, and then decide on that comparison to sell if the price is below value and buy otherwise. Trading is made much simpler, when you price something, judge whether the price will go up or down in the near future and bet on that price. Even if you can be successful with both, the skills and “tools” you use are different when investing and trading, and what makes a great investor is certainly different from the other. a must-have of a good trader. The table below shows the difference between a trade (a valuation game) and an investment (a review game).
As far as I see it, you can play both of these games well, but having you “delusional” of the game you are playing and the misuse of the “weapons” or skills in this game will be a feat. stay awake for disaster.
What is Bitcoin?
Bitcoin is not an asset because it does not generate cash flows independent of its holders (until you sell it). It is not a commodity, for it is not the raw material that can be used in the production of something useful. The only exception I can think of is that it is becoming an essential component of smart contracts, it can take on the role of a commodity, it can also compensate for Ethereum because it. is traded as a smart contract rather than as a currency. So the other two options are currency or rare goods, and Bitcoin supporters tend to be the first answer and those who oppose choose the second.
The first step in getting into a serious debate is to decide whether Bitcoin is an asset, currency, commodity or a rare commodity.
In my last post I pointed out Bitcoin as a currency, but still incomplete, to the extent that it is only limitedly accepted as an intermediary exchange and that it is too volatile to becomes a store of value. There are three positive ways for me to see Bitcoin as a currency, in all good to bad cases.
Global digital currency
In the best possible scenario, Bitcoin is widely accepted for exchange around the world, becoming the widely used global cryptocurrency. In order for this to happen, Bitcoin must become more stable (in monetary terms), the Central Banks and Governments around the world have to accept its function (or at least they don’t try to hinder Bitcoin). , and the mysteries surrounding Bitcoin need to be removed. If this happens, it can compete with paper money and set the limit for its creation based on the algorithm, Bitcoin’s high price can be adjusted.
Generation Y “Gold” coins (those born between 1980 and 2000)
In this case, Bitcoin becomes paradise for those who do not trust the Central Bank, Government, and banknotes. In short, Bitcoin has served as gold historically, for those who have lost faith in the rulers of the centralized model. The interesting thing here is that Bitcoin’s language is flooded with the term Mining, because when it intentionally proposed or vice versa, the founders of Bitcoin shared this mission. In fact, Bitcoin’s hard cap of 21 million coins seems more compatible with this case than the first. If this were the case, and Bitcoin exhibited strength like gold, it would behave like gold: rising in price during a crisis and losing value during an economic boom.
The “Tulip Bubble” of the 21st Century
In the worst-case scenario, Bitcoin is seen as a shooting star, attracting money as it “flies” soaring, especially for those who see Bitcoin as an easy source of profit, but likewise. with Bitcoin “flashes and then turns off” so quickly, these traders will switch to something new and different (perhaps a better and better designed digital currency). again Bitcoin holders helpless with memories of the “ruins”. If this happens, Bitcoin could easily become the equivalent of “Tulips”, a speculative asset in which its price rose to 600 in the Netherlands before collapsing in. final result.
It would be a lie if I told me these cases were revealed, but they are still plausible scenarios. If you are trading Bitcoin you may not care but your time range is most likely measured in minutes and hours only, not weeks, months or years. If you have a long-term interest in Bitcoin, instead of focusing too much on the price movement day to day, you should focus more on the advancement of Bitcoin’s use as a kind. currency. Another note is that you can become a cynic with Bitcoin and other digital currencies but be an optimist about the underlying technology, especially Blockchain technology, and its potential for demise. to pour.
Actual inspection
Combining the part I talk about categorizing investments in assets, commodities, currencies and precious goods with the part where I point out Bitcoin as a “nascent” currency, I can draw conclusions. after:
Bitcoin is not an asset group: For those of you who are taking a part in your portfolio in Bitcoin, be really sure of why you did it. Not because you want to diversify your portfolio or hold entire asset classes, it’s because you want to leverage your trading skills for Bitcoin to increase portfolio returns. private. Unless you take this as a risk on cryptocurrencies, I would quickly add that paper money (like the US dollar, the euro or the yen) are also not asset groups.
You cannot value Bitcoin, you can only value it: This is subject to the acceptance that Bitcoin is a currency, not a commodity asset. Anyone who thinks they can value Bitcoin, maybe they define “value” in a completely different way or simply make up and go on playing.
It will be viewed as a currency: In the long run, the price at which you are tied to Bitcoin will depend on how well it performs as a currency. And if it is widely accepted, it should offer a higher price. If it turns out like gold, a sub-currency investors will use to hide in times of crisis because its price will be lower. Even worse, if it were a temporary currency that easily lost purchasing power and was replaced by something new and different, then it would collapse and die.
You don’t want to invest in Bitcoin, use it to trade: In order to be a successful Bitcoin trader, you need to be aware that every price movement has something to do with the fundamentals. Status as well as dynamics, and large price changes are likely based on incremental information.
Should I buy Bitcoin at the price of $ 12,200? The answer is no, but not for the reasons you think. Not because I see it being overrated, when I cannot give an opinion without overestimating it and as I have pointed out that Bitcoin cannot be overrated. That’s because I have never been a good trader, and as a result I can never count on my price judgment. If you have good investment instincts, you should play a valuation game, as long as you are aware that this is a game where you can win or lose millions of dollars, based on your decisions about the move. force. If you win millions, I would like to send you best wishes! And if you lose, please don’t let your paranoia get you to blame institutions, banks and governments for why you lost.