If you had invested $10,000 in Warren Buffet’s stock, Berkshire Hathaway Class A, at the beginning of the year, you would now have $12,125. Notice I used a dollar amount and didn’t position it as “if you owned x number of shares”. In actuality, your $10,000 would have purchased .04166 of a share, because Berkshire’s stock was trading at $240,000 per share (now $291,000). That stock price sounds expensive. It’s P/E (Price to Earnings Ratio which measures the “expensiveness of a stock”) is 25, which is a bit pricey, but not outrageous. Netflix’s P/E is 182…that’s “expensive”.
So, why the focus on expensive? Because on Wednesday Bitcoin spiked over $11,000 for the first time in history and everyone is going nuts. I keep CNBC on the television in our office lobby and conference room and I noticed on Thursday at least a half dozen headlines and/or guests pontificating on the crazy high price of the worlds largest cryptocurrency. It’s amazing to watch people who really don’t know what they’re talking about try and sound intelligent.
When I first recommended buying Bitcoin it was under $350 and my price target was $12,000. Obviously, I’m not surprised at the rise in price, but I must admit that the more than doubling in price in less than 30 days has impressed me.
For all of you who followed the advice, I expect a really nice Christmas basket this year. I figure with over a 3,000% profit, you can afford it. I’ve received a lot of questions asking is now the time to sell? No. I’ve raised my price target and I’ll get to that. I have even more people asking if they should get in, ‘since it seems to be on a run’. The answer is yes, but allow me to qualify why I say that and more importantly give you context not only on cryptocurrency valuation, but also educate you on the importance of why we should all be paying attention to this phenomenon.
You will own a cryptocurrency in the next 5 years, whether you want to or not.
In 1951 (77 short years ago), if you were at a restaurant in NYC and saw someone pay their bill with a little plastic card, you would have said “what the heck is that guy doing?”. He was using a Diners Club credit card. Thanks to the magnetic strip, by the 1970’s everyone had credit cards in their wallet.
This brings up the most frequently asked question about Bitcoin (and all other cryptocurrencies):
How is this different than a credit card or debit card?
When you buy a sweater at Macy’s, there are four entities involved: Macy’s, Macy’s financial institution that handle’s its credit transactions, Your credit card company and You. With Bitcoin there’s just you and the seller. You can’t send cash to someone with a Visa card, nor with your Bank debit card. You can wire from your bank account, which is cumbersome, or you can use a phone app called Venmo to send money from your PayPal account to someone else’s PayPal. With Bitcoin you can simply give someone a coin (electronically) the same as handing them a $20 bill.
Have you ever thought why the price for gasoline at the pump is cheaper if you pay cash versus credit? Did you know that store owner simply tries to break even on your gas purchase and really hopes you come inside to buy a snickers, which has at least a triple mark-up? So, by incenting you to fill-up your tank with cash, it allows them to avoid the 2% credit card processing fee, which in reality helps them not lose money at the pump. Bitcoin has no such processing fee.
Let’s keep sitting in that New York restaurant and come up with a few more objections as to why that first Diner’s Club card was a fad and would never catch on.
Someone can simply hack electronically and steal my coins.
This fear isn’t unique to cryptocurrency.
Take a look at the Wells Fargo logo.
Wells Fargo (later American Express) was founded on the need for you to safely transport money from one location to another. Imagine, you worked hard raising cattle, transport them hundreds of miles to auction, receive payment in gold and silver coins, then as the coach was transporting your money from one town to the next, robbers knocked a tree over the road, held the teamster at gun point and stole your money. What was your recourse?
Rob, that was 1849. People don’t push trees over to steal money any more. Can’t you use a more current example for argument? Oh, you mean like this past September 7th when Equifax announced they were hacked and 143 million records were stolen?
Bitcoin isn’t real, the price isn’t attached to anything.
Money started as a barter replacement. You grow wheat, I have chickens, we trade a bag of grain for a dozen eggs. If I’m an educator, what can I barter? Time in teaching? Maybe. But not very scalable. So, I need a device to serve as my barter. Currency.
Money has developed into an accounting system. A way of recording who owns what, who has what, who owes what to whom. Someone needed to be designated as a central issuer, someone who would stand as a guarantee that the money was real (backed by something).
What is real about Facebook’s stock price? Yes, the company generates revenue, owns buildings, computers and employees thousands of people. But, if it’s stock went to zero, would you hop on a plane to Menlo Park, CA and demand your dollar values worth of office furniture or data server?
Pre-1971 our US Dollar was backed by gold. Now it’s backed by a promise.
How do I know my Bitcoin is real and not counterfeit?
Experiment: Go to a convenience store and purchase something with a $50 or $100 dollar bill and let me know what the cashier did to insure it was real. Did you know that the most devastating weapon the British used against the Continental Army was not a canon? It was a printing press in NYC that cranked out hundreds of thousands of fake currency, literally in wheel barrels rolled down the streets.
Bitcoin is an accounting system. It records value and transactions digitally. Question: How does Mastercard and Visa record your purchases and bill payments? Electronically, hmmm. The difference is that Bitcoin’s ledger is open, meaning everything is verifiable. This collective system of monitoring does away with the need for a central depository entity (a bank or government).
Bitcoin can’t keep going up. It’s a bubble waiting to burst!
We can make this argument about any currency. We don’t hear about a country simply saying ‘sorry, your money isn’t any good’. What they do is inflate it by printing so much of it, that the value becomes worthless.
So, let’s us this as an opportunity to discuss valuation. In January 2015 when I first recommended Bitcoin and said if you purchased $1,000 while the price was under $350, that you would eventually be able to pay for a child’s education or help them with a down payment on their first home. Those 2.85 coins at today’s price of $11,340, would be worth $32,400. In Connecticut that pays for almost 2 years worth of a state university…
In the beginning of 2015 my top valuation prediction was $12,000, before needing to assess the regulatory environment to determine how unfettered Bitcoin could operate. Here we are knocking at the door and though the IRS made some rumblings about taking their pound of flesh, I don’t see any ceiling for quite some time.
If you add up all the cash, money and precious metals (used as a currency) in the world, you would be right at $200 trillion. If you add up all the cryptocurrencies today, you’re only at $200 billion. That’s 10%. If you believe that cryptocurrencies are eventually going to replace all currencies (as I believe), then that means Bitcoin could go as high as $1million.
Okay, let’s breath through our nose. Before we get anywhere close to that number the Central Banks and the International Monetary Fund will have stepped in and taken control of the system. Bitcoin has clearly proven to be best-in class for cryptocurrencies, but whether it’s “it”, only time will tell. There are over a thousand other cryptocurrencies, all vying for legitimacy. Can you buy the next Bitcoin at a much cheaper price? I believe so.
As I stated in my blog this past June, I recommended splitting $1,000 among 3 currencies, Bitcoin, Ethereum and Tezos. At the time, Tezos was an Initial Coin Offering and you could have purchased a Tezzie for roughly 50 cents in the raise. If you bought it open market, it was around $1.90. It’s now trading at $2.63. Etherium, meanwhile, has gone from $305 to $464.
I’ll add another currency to the mix – Ripple (XRP). You can buy it via https://gatehub.net/.
Remember, I’m not talking about big money here. Don’t go crazy. Allow me to close by repeating what I said earlier: you’re going to own a cryptocurrency within the next 5 years, whether you want to or not.
If someone’s professional nickname was ‘Wildcatter’, what comes to mind? Drilling for oil, right? Correct. But, that’s not the industry where the term was first coined (oddly enough, the pun works). It was a disparaging classification the big New York, Boston and Philadelphia banking centers used in the late 19th century to describe the rouge ranchers and farmers who were opening up Banks and Savings & Loans all throughout the West.
It wasn’t long before the massive population boom and desire for money to be secured locally, that money earned in the West, stayed in the West. The Eastern Banks didn’t take a shine to that and came up with a clever way to take back control of the monetary system. You know the technique they used? Fear.
They convinced the politicians that the country needed a support system in place, so if the Jones family in Lubbock TX had their coins stolen, confiscated by the bank proprietor, leant without recourse or hood winked in other way, that a remedy was available. They would do this by requiring all banking institutions maintain a ‘reserve’ for all the deposits. Thus in 1913, President Woodrow Wilson signed the Federal Reserve Act into law. It was an important play on words. Today, we don’t blink an eye referring to our FED as the Central Bank. Back then they had to call it a Reserve, because anything smacking of ‘central’, as in Washington DC, was met with swift vitriol. Funny how some things come full circle.
Cryptocurrencies are the new Wildcatters. The world Central Banks, led by the International Monetary Fund, want to take us to an electronic currency. It allows them to perpetuate the control of our monetary system that they crave. I believe Bitcoin is playing a crucial role in their scheme by helping to work out all the kinks. After all, you can’t takeover the planet’s financial system and have a hiccup.
When do the global elites step in and implement their plan? In the context of Bitcoin’s price, somewhere between $11,000 and $1million….