Bitcoin is not such a great investment anymore
Each time Bitcoin goes up by another $1,000, it seems as if it defies all reality and continues to be the best investment out there. Well — the good news is, it should still be a good investment. The bad news is that investors are already behind 90% of its potential.
The price of one Berkshire Hathaway stock just dropped by $1,290 last night. But for them, this is just another ordinary day, which the stock dropped by 0.47%. Pretty standard in stock terms. And yet the fact that Bitcoin’s value increased from $7,000 to $8,000 seems to be a huge news item just about in any case. Don’t get me wrong, I am not saying it’s not impressive. But in July of 2010 one Bitcoin was worth 8 cents. An increase of value from 7 cents to 8 cents is a 15% rise in value, just as an increase from $7,000 to $8,000 is. This is essentially the same for investors — if an investor would buy X amount of Bitcoin and then sell it after the 15% increase he would have made 15% on his money. This is why it makes more sense to look at stock prices in logarithmic scale versus actual scale. It’s the relative increase to the last value that matters when talking about investments, not the absolute increase.
Since Bitcoin was worth 8 cents, there were no less than 82 times where it has increased in value by 15%. (0.08 * 1.15⁸² = ~$7,600). And yet only the recent three or four 15% recent price gains were covered by the media, like it has any meaning.
Now comes the question, if Bitcoin has already bumped up in 15% portions of value 82 times since July of 2010 — then how many more times can it go on? How many times can Bitcoin please its investors like this?
So here’s the bad news — we are starting to get to the point of saturation, where the amount of people who would ever buy Bitcoin actually buy it. Just as Facebook has a growth problem because it literally has taken over the world and has nowhere to grow, It should not take more than ten years until we get to the same point.
I believe that Bitcoin is more of a store of value which is comparable to gold in many ways, and therefore if we take a lower-bound assumption that the market size of Bitcoin will reach about 10% of the market cap of gold (8 trillion) to around $800 billion USD in the point of saturation in 10 years from now, and taking into account that the current market cap is already $128 billion, then Bitcoin only has a potential of rising 6 times in value by 2030 or so.
How many 15% increases is that? Only 11 out of the 93, since it was 8 cents and until it reaches about $50,000 (which gets us to 10% of the gold market cap more or less). How many Business Insider articles will we see until it reaches the $800 billion market cap? well, if we’ll see one for each $1,000 rise in value then it’s about 50 or so. But it looks impressive and generates clicks, so why not :)
Although this might sound as a pretty positive outcome, keep in mind that there are still many risks in Bitcoin investment — reliance on the Bitcoin community, attacks on the blockchain, or even just losing your private keys or getting hacked. Amazon’s stock rose 50% in value since last year, and it’s a much safer investment, so maybe you should rethink your investment strategy now that Bitcoin passed the $8,000 mark.