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
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