How to Value Bitcoin? People Psychology

Dear Reader,

Currently Bitcoin is worth 33 630.10 USD. Since Bitcoin does not have underlying cash flows, Bitcoin cannot be valued with the three main company valuation methods Discounted Cash Flows, Comparables and Net Assets method.

Bitcoin's valuation depends on the public's adoption of Bitcoin as money, that is store of value, means of exchange and unit of account. Both the public acceptance and the regulators', central banks and financial supervisors and ultimately governments, benevolence on Bitcoin determine the value of Bitcoin.

In a post from last year I forecasted that Bitcoin's price could rise above 100 000 USD. Bitcoin recently rose above 40 000 USD. I think it would take another 2 to 3 years before Bitcoin rises to above 100 000 USD.

Bitcoin saves effort, time and money for people, key attributes for a well-selling product. I forecast Bitcoin would get even greater adoption and Bitcoin's value would continue rising. Once the price of Bitcoin stabilizes, that is it becomes less volatile people would start to purchase more goods and use Bitcoin more to transfer money or value. New stable coins issued by major companies and central banks could contribute greatly to that.

In short, in the mid-term Bitcoin is undervalued. Even if the Federal Reserve raises interest rate levels and stocks fall a lot, Bitcoin could be less affected because in it valuation interest rate play less of a role.

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

Three Ways to Value a Company

Dear Reader,

Company valuation is the core of investments in publicly listed stocks.

There are three major ways to value a stock:

1) Discounted Cash Flow analysis.  Company's future profits are turned into dividends and discounted into the present divided by the risk premium and compounded by a growth rate. A risk premium is the extra income one demands for holding a risky security, riskier than the generally accepted as riskless government bonds. The so produced value is compared to the stocks' current market capitalization

2) Comparable analysis. An analyst collects data on Price/Earnings, Price/Sales, Price/Book ratios of companies similar to the one valued, for example from the same industry. Than the ratios of the other comparable companies with the valued company are compared and if the current valued company's ratios are lower, than the currently valued company is undervalued

3) Asset Based approach. The net asset value, roughly assets minus liabilities of the company is calculated and than it is compared to the current market valuation of the company. If the net asset value of the company is lower than the market cap, than the company is undervalued.

It has to be considered that the three different approaches are suitable for different types of companies. Currently, I think most technology companies listed in the USA are overvalued based on all three valuation approaches. Most technology companies do not produce dividends for a long time, so the discounted cash flow method is not directly applicable. Many technology companies do not produce net profit, so the comparables method is also only partially applicable only to Price/Sales and Price/Book ratios. The asset based approach is also partially applicable.

Valuation is more an art than science. Finance, like economics is a social science. The opinion of other people matters a lot like the recent mania in GameStop has shown. Actually, in my opinion, to value companies relatively successfully one has to combine hard mathematics with a deep understanding of people psychology.

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

Amazon and Cloud Services. A Valuation

Dear Reader,

Amazon.com Inc., the online goods retailer, cloud services and internet advertising company, is valued currently at 1.65 trillion USD. This a staggering amount of money. This is roughly the GDP of Russia or the goods and services that the 146 million people that live in Russia, a nuclear superpower and a large and strong global political and economic player produce per year.

In my opinion, Amazon is overvalued currently. The real intrinsic value of Amazon is around 1.1 trillion USD at present, as far as I am concerned. However, if its cloud services business, infrastructure as a service especially, continues growing so strongly or even more quickly in the next 7 years Amazon could end up being worth 2.2 trillion USD  7 years from now. The global market for cloud services is expected to rise to 832.1 billion USD in 2025.

I expect there will be a technology stocks lead stock market crash in the next 3-4 years with the Standard and Poor's 500 falling more than 30 %, while the Nasdaq Composite could fall off a cliff by more than 50 %.

Even after such a crash, Amazon will remain valuable and in 7 years from now Amazon could recover its valuation and rise to 2.2 trillion USD. If Amazon keeps its market share of circa 30 % of the cloud business services market Amazon's cloud revenue could rise above 100 billion USD and the company could potentially realize a profit of 20 billion USD from cloud services.  It should be added that now Amazon is the number three global internet advertising firm. With all that in mind a market value of Amazon of 2.2 trillion USD or even more 5 to 7 years from now does not look unrealistic at all.

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

Affirm Valuation

Dear Reader,

Affirm holdings or shortly Affirm is a financial technology firm that provides loans to consumers at the point of sale which can be financed later. Affirm claims consumers are not charged hidden fees or compound interest.

Affirm completed an IPO on Nasdaq on the 13 of January or last Wednesday. 

Affirm states in its IPO filing: "For the fiscal years ended June 30, 2019 and 2020, our revenue was approximately $264.4 million and $509.5 million, respectively, representing year-over-year growth of approximately 93%. We incurred a net loss of $120.5 million and $112.6 million for the fiscal years ended June 30, 2019 and 2020, respectively. For the three months ended September 30, 2019 and 2020, our revenue was approximately $87.9 million and $174.0 million, respectively, representing year-over-year growth of approximately 98%. We incurred a net loss of $30.8 million and $15.3 million for the three months ended September 30, 2019 and 2020, respectively."

Currently Affirm Holdings is valued at 28.4 billion USD by public markets. I estimate the intrinsic value of Affirm is around 20 billion USD based on the assumption that in 2021 Affirm achieves 1 billion USD revenue and its negative net profit margin is below 15 %. As can be seen from the IPO filing quote in the last reported quarter Q3 2020 Affirms negative net profit margin of -8.8 % which for a fast growing technology company is a very good achievement.

Actually, if the Nasdaq Composite grows in 2021 by around or more than 20 % the intrinsic value of Affirm could rise to 40 billion USD or Price/Sales ratio of 40 or 40 times Affirm's projected 1 billion USD sales in 2021.

Earlier 20 times Price/Sales was the 'normal' ratio of loss-making, fast growing technology companies. Now at the current hyper growth rate of the Nasdaq Composite the new normal value metric for fast growing technology companies seems to be 40 times Price/Sales.

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

The USD Exchange Rate and Its Influence on Stocks and Bitcoin

Dear Reader,

The United Stated Dollar(USD), the currency of the United States of America is the current global reserve currency. Due to the stability and stature of USD central banks all over the world keep much of their respective countries' reserve money in USD. 40 % of hard currency USD are outside the US.

In March 2020 when the coronavirus pandemic erupted the EUR/USD exchange rate fell to 1.07 and the Standard and Poor's 500 stock market index, the de facto global stocks benchmark was down 30 % from its recent peak. Bitcoin's price in USD was down more then 50 % from its recent peak.

Then, the Federal Reserve, the central bank of the United States, went all in, announced several shock programs to support the economy and basically started creating money, printing money to execute its announced programs to support the US economy. What is more, the Federal Reserve opened up its USD swap lines with the European Central Bank, Bank of Japan, Bank of England and other leading central banks which basically meant the Federal Reserve is ready to take in Euros, Yen, Pounds and several other select currencies and pay out United States Dollars.

All this helped alleviate investors' fears, the panic died down and investors went back investing heavily in stocks and Bitcoin. As a result stocks, technology stocks especially, and Bitcoin staged remarkable rallies since the depths of the fall in March. Now at 1.22 USD per EUR there is talk that the USD might strengthen again which exerts pressure on stocks and Bitcoin which wobbled recently.

Yes, if the USD strengthens markedly against a basket of other leading currencies, stocks, especially technology stocks and Bitcoin will crash. Being as it is stocks and Bitcoin are overvalued, so any catalyst, especially a significant one like USD appreciation, could lead to bursting of the technology stocks and Bitcoin bubble.

Before 2007 the flows in the financial system were going mainly through commodities prices driven by China's rise. Currently the financial system is being driven by the movements of the USD exchange rate. A currency is like an index for a country itself. And USD rise back to prominence means obviously that the United Stated of America are as great as they have ever been. 

The US consumer needs a strong dollar since the US economy is 75 % consumption. And it seems the new incoming US Treasury Secretary and former Federal Reserve Chair Janet Yellen is prepared to give a stronger USD to the US and global consumer.

I am of the opinion, though, that the coming USD strength in the next two years will not be excessive and some pockets of the US and global stock markets will perform very well. This seems especially true for value stocks like energy and materials companies, banks and other financials and industrial companies.

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

Apple's New Hardware Products Prospects. An Autonomous Car

Dear Reader

It seems Apple Inc., the consumer electronics company, plans to mass produce an self-driving car by 2024.

Basically, if it succeeds, Apple could add 30 % to its current market capitalization of currently 2.22 trillion USD. As evidenced by Tesla's constantly rising stock price and astounding market capitalization and valuation relative to other major automobile manufacturers like Volkswagen, Toyota and Ford the gains to be expected from successful car manufacturing, especially autonomous driven vehicles, by Apple are substantial.

Apple's brand and artificial intelligence knowhow could provide for a breakthrough in the automobile production sector. Apple has been known to be able to sell high-premium products, so its prospective car is likely to be a luxurious sedan in the likes of Audi, BMW, Mercedes and Tesla, but Apple driven by its fan base could outsell the aforementioned brands by a large margin. Apple could actually break the mold that luxury sedans usually have around 2% market share in cars and reach  10% market share, around the share of iPhones' market share in the smartphone market.  Audi, BMW, Mercedes have profit margins of around 6-8%, while Apple's self-driving car could command a margin of around 14 % let us say, which could prove very valuable given how large in terms of billions in USD revenue per year the car market is.

All in all, if Apple succeeds and starts mass production of an autonomous Apple car in 2024 as rumoured, its market capitalization could even surpass 3 trillion USD in 7 to 10 years.

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

Financial Institutions Are Now Investing in Bitcoin

Dear Reader,

Many financial institutions like hedge funds and asset management companies have started investing in Bitcoin.

What does that mean for the cryptocurrencies asset class? Financial institutions investing in Bitcoin is, when weighed, unequivocally good for cryptocurrencies.

Financial institutions bring huge liquidity to Bitcoin which has been a problem for the cryptocurrencies asset class. The tidal wave of money brought in by hedge funds and asset managers further support the prices of Bitcoin and further inflate the medium sized bubble in Bitcoin that is now in formation. What is more, financial institutions bring a higher level of sophistication to cryptocurrencies which will provide for a better Bitcoin intrinsic value formation based on fundamentals. Hedge funds and asset managers can better evaluate the fundamentals of Bitcoin and price cryptocurrencies. 

In the short-term financial institutions investing in Bitcoin is not that good, because the Bitcoin bubble keeps inflating, but in the long-run hedge funds and asset managers' money will provide for a broader, more liquid Bitcoin market, better price discovery and ultimately a better cryptocurrency market.

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

Which Is a Greater Bubble? Bitcoin or Tesla?

Dear Reader,

Bitcoin's current market capitalization is 638.12 billion USD, while Tesla's market capitalization is 669 billion USD.

Which one is a greater bubble or more overvalued? Bitcoin or Tesla? In the long-term, 7-10 years from now, I think Bitcoin could well trade above its current price of 34 188 USD. I think in 7 to 10 years Tesla would be worth less than now and its market capitalization could fall to 90 billion USD.

If governments do not ban outright cryptocurrencies and Bitcoin in particular, Bitcoin with its usages as store of value, unit of account and means of exchange which it fulfills to something like 55% could well pave the way for Bitcoin to become an alternative global currency. The aforementioned characteristics are the definition of money.

Of course, a large fraud with Bitcoin may occur or cryptocurrencies' security may be compromised, which can also thwart the progress of cryptocurrency. But due to the ease of exchange and investment gains Bitcoin provides, Bitcoin could well make more inroads as a global currency. 

Tesla is still barely profitable and this happens while it books future revenues now. If Tesla does not achieve a technological breakthrough, Tesla could well go bankrupt. For now Tesla is quickly burning through the cash raised by outside investors. Electric vehicles are expensive to produce and if they are sold at prohibitively high prices, no one will buy them. That is why electric vehicle manufacturing is unprofitable with the current state of technology. Tesla has a first mover advantage in the electric vehicle industry, but as with most revolutionary technologies, the initial production cycle is unprofitable. And consumers are not adopting electric vehicles as fast as the greatest enthusiasts expect. And without government subsidies manufacturing electric vehicles is even more loss making. Currently, the market capitalization of Tesla is higher than the combined market capitalizations of the top 5 automobile manufacturers, which is basically a nonsense, an aberration. To substantiate such a market capitalization Tesla has to be as profitable as Apple and as fast growing in terms of revenue as Alphabet, the parent of Google, or Amazon and has to lead and breakthrough existing industries or alternatively disrupt large existing industries. Which are all large stretches of the imagination for realistic assumptions.

Bitcoin, on the other hand fulfills many of the prerequisites for a product that sells well - it saves people money, time and effort. What is more, many investors, now even institutional made a lot of money by investing in Bitcoin and cryptocurrencies. Cryptocurrencies do not participate in the capital structure of the company and they are not entitled to a part of the bankruptcy estate, so investors can lose 100 % of their money invested in cryptocurrencies. Cryptocurrencies usually depend on a company's successful projects, so analyzing prospective cryptocurrencies investments is like analyzing stocks investments. Basically, one must analyze the historical performance of the company by scrutinizing the historical income statements, balance sheets and the cash flow statements of the company. What is more, one should also be mindful of the future prospects of the company and the likelihood of success of its most promising projects. If the company is successful, its minted cryptocurrency will also prove a success. 

In addition, leading central banks like the Federal Reserve, The European Central Bank, the Bank of Japan and the Bank of England are in the advanced stages of planning for stable coins, which will be cryptocurrencies issued by central banks that are supposed to be less volatile than Bitcoin and other cryptocurrencies. But as soon as a large company like Facebook for example issues a cryptocurrency that is stable in price backed by let's say a basket of major fiat currencies like USD, EUR, JPY, GBP or gold even, Bitcoin and other cryptocurrencies will most probably become extremely popular and more and more people will start using them as money. For now cryptocurrencies serve as a hot new investing asset, but as soon as cryptocurrencies' price volatility diminishes their popularity as a means of exchange will rise. Bitcoin offers all the characteristics of a well-selling product - it saves people money, time and effort. In addition, people are gaining multiples on their investment if they invested in Bitcoin let's say a year ago. Based on a hashing tree algorithm, Bitcoin's algorithm structure looks robust enough to withstand any fraud attempts and agile enough to handle many transactions. Bitcoin is the flagship of cryptocurrencies, but smaller crypto tokens issued by companies should gain in popularity as an investment vehicle because they keep making people a lot of money, at least many of the issued individual cryptocurrencies. Stable coins issued by major central banks can legitimize cryptocurrencies as a means of exchange.

More and more financial institutions are embracing Bitcoin as an investment vehicle. Regularly there are news of new hedge funds that have started investing in Bitcoin. There are news of the preparation of the launch of a Bitcoin exchange traded fund. Large banks like Goldman Sachs have Bitcoin desks, while others skeptical at first like JPMorgan are contemplating entering Bitcoin more and more. The news of institutional money flowing into cryptocurrencies is another seal of approval for the cryptocurrencies asset class. The constantly rising price of Bitcoin is attracting more and more capital, which is good in the short-run, but in the mid-term it most likely will cause a Bitcoin price crash. But Bitcoin seems here to stay.

Basically, Bitcoin may well rise in value 10 years from now. While I forecast that there is 90 % probability that Tesla will be worth less than now.

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

Moderna Looks Undervalued Now. A Valuation

Dear Reader,

Moderna, the coronavirus COVID-19 vaccine maker, is currently valued at 41.34 bln. USD by public markets. Moderna's stock price fell approximately 38 % from its recent December peak.

At the current valuation, I estimate Moderna is undervalued. Moderna's vaccine should sell for around 20 USD a jab. If Moderna sells 1 billion shots from its vaccine this would mean 20 billion USD in revenue. Yes, the revenue will come lumpy in the space of 2 years, but if you distribute it for 5 years this means 4 billion USD in revenue a year. Quickly growing biotechnology companies sell at very high valuations. If Moderna is valued reasonably at 30 times Price/Sales, this means Moderna is currently worth 30*4=120 billion USD, so Moderna's stock price has 200 % upside potential from current levels.

Furthermore, messenger RNA is the new hot scientific track in medicine. Many specialists foresee mRNA to be able to cure cancer and facilitate breakthroughs in the treatment of other diseases that are a scourge for humanity at present. But these are future prospects, expectations and extrapolations.

Currently, Moderna is expected with a high degree of confidence to make more than 10 billion USD in revenue from its COVID-19 vaccine in the space of the next few years.

So, I think Moderna is undervalued now.

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