Dear Reader,
Many analysts and successful and famous investors say that Bitcoin and other cryptocurrencies do not have intrinsic value, so they are worthless.
What they mean is that there are no cash flows backing Bitcoin and other cryptocurrencies.
Standard finance theory says the value of a stock or a bond is derived from the discounted value of the future cash flows derived from the stock or its dividends and finally the selling price of the stock holding and the future cash flows from the bond or its interest payments and the selling price or maturity notional payments.
However, just look at Amazon.com, Inc, the online merchandizer and cloud computing company. Amazon, in its 24 years of public company status, has never payed any dividends. And many doubt that it will ever will. Earlier Amazon was making losses, later its Price/Earnings ratio was around 200 or even higher, now its Price/Earnings ratio is 61.3 and Amazon is profitable. At 1.63 trillion market capitalization of Amazon.com, Inc. investors seem to think there is huge intrinsic value in the company.
Bitcoin provides actually infrastructure for the cryptocurrency market. Ethereum in a way also. Other cryptocurrencies are tied to companies' projects, so there are to a company's prospects similar to common stocks, but they are not entitled to company dividends or proceeds in the event of bankruptcy of the company.
Bitcoin's infrastructure service and its for now not full blown function of means of exchange, unit of account and store of value or money does have some value. Paper money has value, although it is not backed by cash flows, but just by the public's beliefs, perceptions and trust in the governments. Money and Bitcoin, actually, save people time, effort and money so they facilitate. Facilitation or saving of effort, time and money does have value since our life spans are limited, our physical and mental capabilities are also limited.
Governments can, of course, simply outlaw Bitcoin in a globally coordinated way. This will drive cryptocurrencies' value to 0(zero). That, however, is an unlikely event because Bitcoin and other cryptocurrencies provide many benefits and efficiencies.
Disclaimer: The blogposts and comments on this blog and posts on social networks(Twitter, LinkedIn, Facebook etc.) are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".
Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blogposts on this blog and posts on social networks.
Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blogpost and posts on social networks(Twitter, LinkedIn etc.)!
Respectfully yours,
Petar Posledovich
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