How to Think Bitcoin?

Views: 78 Comments: 0 0 Post Date: April 13, 2021

I am sure you are thinking….its about time someone who knows valuation, gives their opinion on Bitcoin’s value.

In this video, I will share insider secrets on how to ‘think’ about Bitcoin.

I am not going to get into details of what Bitcoin is, how it works, or why you should or should not invest in it.  There are various other videos you can visit to learn that.

However, once you understand how to ‘think’ about Bitcoin…you will know what you are getting into…

Ready?

Let’s think Bitcoin…

I tell owners what their companies, real estate, and investments are worth.  So far, I have valued over 2000 businesses with assets worth $2.6 trillion

Let’s hear from Garrett Goldman, who is a technology genius, and will share why he thinks Bitcoin is the future.

We have another $1.9 trillion stimulus package working its way through the system now. The influx of all of this new paper money reduces the value of dollars already in circulation and the valuation of our dollar has real consequences. Our buying power is eroding quickly. So, I am interested in investments that can protect against the ravages of inflation. In the past Gold was active as a great hedge to inflation.

But people are not flocking to it as they have for millennia and despite the fertile growing conditions the price has stagnated. There is only one reasonable explanation for this, Gold is finally being replaced by something better, and that something better is Bitcoin. Bitcoin is decentralized, censorship-resistant. It is easy to store and send. Its performance is also unmatched. It’s the best performing asset on earth in the last 10 years.

Some of America’s oldest financial institutions are even beginning to align themselves with Bitcoin. Including the Bank of New York Mellon, Morgan Stanley, and Soros Fund management. Finally. I love the community. I am forever fascinated by the founder Satoshi Nakamoto. And the mythology that Bitcoin celebrates.

Thank you, Garrett.

To value as an asset like Bitcoin I’d consider the three traditional approaches – income, sales comparison, and cost.

 

  1. Let’s start with income.  The income approach is simple.  Estimate the future cash flows from the asset, and present value them based on a reasonable discount rate. Well, in Bitcoin’s case, there is no future cash flow.  There are no dividends, no payouts, no earnings.  You will only make money when you sell.  So the income approach is out.
  2. Market or sales comparison approach.  Here we take a similar asset with a market transaction and correlate its value to our subject i.e. Bitcoin. What asset is most similar to Bitcoin?  Etherium. Other cryptos?  If yes, then why are their values so different. What’s so special about Bitcoin? In absence of any comparative asset, I cannot apply a market approach.
  3. So let’s move on to the third and final approach to value, the cost approach. What will it cost to rebuild or recreate a Bitcoin? Is it worth the system, the code, the software it runs on?  If so, how do you value that?  Its system is hidden and not available for public scrutiny?  In which case, again, the cost approach is inapplicable.

So, the three approaches to value did not work. Because its value is unquantifiable using traditional methods. This is why to let’s focus on how to think Bitcoin.

Imagine you are a pioneer heading out west in search of land, abundance, and freedom.

You pass a thousand miles of fertile plains of the Mississippi and middle America, and come to the Rockys!

Abundance is the word that comes to mind. Thick lush trees. Deep fast-flowing rivers. Green flowery valleys. This is the great American west.

Now, if given a choice what would you buy. Would you buy the valleys, or the hills, or the rivers, or the trees? One might say why not all!?

What is the worth of that valley?  Or that river?  Or the trees?

If someone sold 100 trees for ten cents, is that the value? If the land was sold at $1 per acre is that the value? There really was no way for anyone to know what or how, or why this land would be useful. They just knew it will be someday.

And while trading tangible assets like oil, land, lumber, and gold, fortunes were made and lost, these are tangible assets. Things that can be used in our daily lives.

Frankly, most of the people we hear about today who made fortunes out west purchased land held on to it and put it to good use.

As Bitcoin investors, you are in the same position as the pioneers who were trying to estimate the value of America’s natural resources in the 1850s. Or think of the dot-com boom in the late 90s. Did you know which dotcom was valuable and which one not?

One could buy a dotcom for $10 a year (still can) but the domain name itself (without any pre-existing name recognition) is worthless.

Similarly, any cryptocurrency without underlying assets or use is pure speculation like domain names or art. ”

Why does someone pay hundreds of millions for a Picasso or a Pollack?  Because they think that if they buy it today and hold it, it will be worth more tomorrow.  No reason, no rationale, just based on the human need to attain the unattainable and inflation.

When you buy Bitcoin, think of it like buying a piece of art or land in the open west.  It might be worth more…some day…

So long as the authorities do not find reasons to declare it illegal.

Did you know, gold was illegal to own between 1934 and 1975?  I am sure some of you are thinking why would the authorities make Bitcoin illegal….

I don’t think the government will make Bitcoin illegal….so long as it is traded and based on the US dollar.  Like gold, or oil.

But, if Bitcoin emerges as an independent currency…all bets are off!

Bharat Kanodia – Founder and Chief Appraiser

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