~ Un-Common Sense In An Irrational World: We Challenge the Conventional WisdomTM ~
WHY WOULD YOU BUY CRYPTOCURRENCIES!!!??? (That’s Another Rhetorical Question)
Why would you buy bitcoin or any other cryptocurrency? A better question is: How much is bitcoin worth? In early October, bitcoin was trading at $126,000. Over the weekend, bitcoin had fallen below $76,000, trading around $78,000 on Monday, a 38% decline from the early-October peak.
So, like I asked in Monday’s article on the “worth” of gold [Why Would You Buy Gold!!!???], I ask again – how much is bitcoin worth? It’s not $126,000 or $78,000 – those are bitcoin’s prices. The answer is: I don’t know, you don’t know, no one knows! You cannot determine how much bitcoin is worth. It all has to do with a concept known as intrinsic value. According to Investopedia, “Intrinsic Value is a measure of what an asset is worth that is arrived at by means of an objective calculation or complex financial model, rather than using the currently trading market price of that asset.” Such calculations and financial models often use cash flows in the calculations. But gold, silver, cryptocurrencies, and other non-financial assets don’t have cash flows. Accordingly, you can’t calculate an intrinsic value, or “worth”, of the asset. And when you can’t calculate its worth, or intrinsic value, you don’t know if the price you’re are paying for the asset is too much (overvalued), too little (undervalued), or just right (a fair price). Without the ability to make this determination, you are just speculating on the purchase. Will it go up, down, or stay the same? You have no reasonable basis to make that judgement. For an excellent primer on intrinsic value, see Berkshire Hathaway, Inc. – An Owner’s Manual.
What will cryptocurrencies close at today, or next week, or next year? The truthful answer: I have no idea! That’s why I’m investing in stocks and other assets where I can determine an intrinsic value.