I read an interesting statistic on a US news network the other day. Apparently, the current value of all the Bitcoin in the world is enough to buy PayPal, the NASDAQ listed payments company valued at over $70 billion. Yes, that's billion with a 'b'.
I don't know if that's true. My cursory research suggests the value of Bitcoin could be up to $20 billion less. But $50 billion or $70 billion, you can buy a lot of things. Like Wesfarmers Ltd (ASX: WES) and Suncorp Ltd (ASX: SUN) combined – $65 billion.
For the price, Bitcoin speculators could collectively have owned the entirety of Wesfarmers and Suncorp, including subsidiaries Officeworks, Bunnings, Target, a coal mine, an industrial chemicals and safety company, Coles, a bunch of petrol stations, Suncorp Bank, AAMI, Trov, Shannon's Vehicle Insurance, and Suncorp Life, plus a few others I'm probably forgetting.
They would be on track to earn over ~$3 billion in profit after tax in just one year. By contrast, with Bitcoin, the ability to earn a return on your initial outlay depends entirely on your ability to sell it to another person at a higher price in the future (the 'greater fool' theory). If all that money had gone into buying Wesfarmers and Suncorp instead, the owners would be sitting pretty. They'd never have to sell.
If you're not familiar with it, the 'greater fool' theory is where one person buys a thing solely for the purpose of finding an even greater fool to sell it to at a higher price. It's also called speculation, and if you're considering speculating on Bitcoin there are a few things you should consider:
- Bitcoin is not a currency with a fixed value, it is a device used for bartering. If the internet shut down tomorrow you could not take your bitcoins to the store to buy bread.
- Bitcoin prices are governed by supply and demand. Supply is constrained by technology so when demand is hot, like it is now, prices skyrocket.
- Bitcoin does not generate a cash flow. I would love to have $50 billion in cash in the bank. But the only reason I would want it in the bank is so I could live off the interest. If it can't earn anything, what's the point in buying it at any price?
- Bitcoin is not an investment. It doesn't generate a cash flow. There is no financial regulation that covers it. The market is unregulated and a nexus for the unethical. Volumes in the market are limited which means your ability to convert your Bitcoin into cash, should you need it, is limited.
I've been writing about investing for nearly four years now and I've been asked twice 'hey how would I get started with investing?' Now at least once a week I field the query:
"What do you think of Bitcoin?"
