NEW MONEY is a discussion of trends, news and macro events related to Bitcoin, Money, and Digital Assets, published by Adam Pokornicky of DAIM Advisors, a Registered Investment Advisor for Bitcoin and Digital Assets. Opinions are my own. Twitter: @callmethebear
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Back when I lived in New York and was the Head Trader at a 1bn+ Global Credit Fund, there was a political activist by the name of Jimmy McMillian, who ran for the mayor of New York City and Governor of New York under a single platform, “The Rent is Too Damn High”. While his candidacy never seemed to resonate, his unique look and broken record rants about how the rent was too damn high certainly did. If you lived in New York, you most certainly remember Jimmy McMillan, if not by name then by his single issue mantra that was played like a broken record on NY1 and plastered all over the NY Post and Daily News.
So what does Jimmy McMillan and “The Rent is Too Damn High” have to do with Bitcoin?!? Actually alot really. I wrote in “A Peaceful Protest: Opt-Out, Vote With Your Money and Buy Bitcoin” about how Central Bank monetary policy and printing money has transformed this country from an industrial empire to a financial one, where asset inflation, rent-seeking, and debt-serfdom subjugate Americans in their own country through a gross form of Financial Feudalism. I discussed in one of my earliest newsletters, how the Cantillon Effect has contributed to wealth inequality, harming most Americans, because wage growth is woefully struggling to keep up with the soaring costs of fundamental things such as shelter(rent), healthcare, food, and higher education, a symptom of the parasitic system we have where you’re always on a hamster wheel without enough dollars to keep up with the increased standard of living without debt.
So when I think of Jimmy McMillan and his “the rent is too damn high” campaign, I can’t help but channel his spirit and go on my own monetary activist campaign and rant about how "The Price of Bitcoin is NOT too Damn HIGH! Perhaps I’m repurposing a mantra turned meme for my own personal enjoyment, because it seems relevant now more then ever with Bitcoin above $20,000 and the #1 question new buyers seem to be asking as they consider Bitcoin, “is the price of Bitcoin too high?”
The Price of Bitcoin is NOT Too Damn High
This week’s issue of New Money will be entirely dedicated to the price of Bitcoin, its value, how other things would be priced in Bitcoin supply terms, and why it’s potential addressable markets and future value suggest that the Price of Bitcoin is NOT too Damn High but that the price of Bitcoin may very well be too damn low.
I’ve been wanting to write about this topic for a while but it never felt like the right time. I’ve been invested in Bitcoin for over 8 years now and I’m both floored and feel validated by the progress we’ve made and the future ahead. Almost every step of the way, I’ve heard complaints about the price of Bitcoin being too high even when it was under $1,000, when it hovered around $10,000 for most of the past two years and especially now that we’ve broken all-time highs and are firmly above $20,000. The price of Bitcoin, even at these levels, should not be a barrier to a personal or institutional allocation so it seems rather appropriate to tackle it. As a quick note for any subscribers new to Bitcoin, while the current price of $23,000 may be more than you are looking to allocate, you do not need to own a full Bitcoin to get exposure and participate. Bitcoin is divisible into 100mm micro units called Satoshis or “Sats” and you can accumulate Bitcoin or “Stack Sats” in any dollar denomination that works for you. The most important thing to do is allocate and GET OFF ZERO.
Now that I have teed everything up, get ready for a doozy from your favorite Bitcoin Investment Advisor. Enjoy the early drop, because like most of my work, I’m certain this will get repurposed and plagiarized in months to come. Let’s jump in.
When individuals invest in the stock market, they often mistake the price for value. When they perceive the observable price/share to be high, it’s expensive, when the observable price/share is low, it’s cheap. Rarely is the price as a function of value relative to fundamental operating metrics considered. Many companies understand the behavioral preference of investors to prefer low dollar-priced stocks they can afford and manipulate the supply of shares outstanding to price their stock to appear affordable for that very reason.
For example, back in July, the price of Tesla hit an all-time high of $2,230. The price which for the past few years, spent most of its time near $200 was becoming expensive at $2,230 for younger investors and loyal followers to purchase a single share. What fun of course is it to invest in something if you can only own 1 or 2 shares, right? The company, recognizing that incremental buyers of Tesla would be more excited if they could purchase multiple shares, decided to announce a 5:1 stock split, a cheap trick public companies do, to increase the # of shares outstanding to lower the perceived price of its stock and barrier to investing. For Tesla, the result brought it’s previously sky-high share price of $2,230 down to a more accessible $446 on Aug. 31. With a little financial engineering and the clickity-clack of a keyboard, the price of Tesla was suddenly affordable again.
The problem: the price we observe has only a fraction to do with its value and what you are actually paying for. The value is a combination of its observed stock price * the # of shares outstanding which usually represents a multiple of earnings. In Tesla’s case, it’s $645 stock price today seems much more affordable today than it was 3 months ago when it was $2,230, but the reality is the value of Tesla has increased by over 50% from its July ATH of $400bn($2,230/share) to $620bn with the Tesla pre-stock split-adjusted price of a cool $3,225.
The price, which the naked human eye often assigns an arbitrary price determination of being too high/expensive or too low/cheap often misrepresents value due to lack of valuation and context. Tesla, to the Robinhood traders and TikTok stock experts, appears cheap and affordable at $645 especially when you remember the stock was trading at $2,230 only a few months ago. But just like Tesla trading at 1300x earnings, eventually the value of what you are buying/investing matters, especially when you need to compare the opportunity cost of investing in something else.
Thankfully, we can use a little basic math to give us an apples-to-apples way to compare prices of things using their value. Because this blog is about Bitcoin, this is where start ranting about how The price of Bitcoin is NOT too Damn High!
Let’s start with Tesla and price it as if it had the same outstanding supply as Bitcoin.
current price is $645
947mm shares outstanding
current market value of $612billion.
current price is $23,000
18.57mm units outstanding,
current market value of $427bn.
So how do we compare Tesla’s $645 price vs Bitcoin’s $23,000 price? To the casual observer looking at simply price alone and nothing else, I of course can buy 35x as many Tesla shares for the cost of just one Bitcoin. This makes the price of Bitcoin appear too damn high compared to Tesla but is it?
Again, if we are looking at simply price alone, we need a way to compare their prices using a common supply count. For this exercise, we’ll do that by converting the price of Tesla into a Bitcoin adjusted price by using Tesla’s current market value and dividing it by the number of units of Bitcoin outstanding.
$612bn / 18.57mm = $32,870
Tesla = $32,870 in Bitcoin adjusted terms
All of a sudden the price of Tesla is 51x more expensive when replacing Tesla’s 947mm shares outstanding with Bitcoin’s limited supply of 18.57mm units.
But wait, what would the price of Bitcoin be if it were priced in terms of number of Tesla shares outstanding?!?! Using the same exercise in reverse we get:
$427bn / 947mm = $450
Bitcoin = $450 in Tesla adjusted terms
So when I increase the supply of Bitcoin to equal the number of shares of Tesla outstanding, the price of Bitcoin is suddenly much cheaper than the price of Tesla. The overall market value of Bitcoin hasn’t changed, it’s the price however for the purpose of this exercise that has been adjusted to account for the abundant amount of supply of Tesla outstanding. So when I view Bitcoin in Tesla terms, I can buy a greater share of Bitcoin than Tesla, all else equal? How can that be?
Well, the price of Bitcoin or anything really, comes down to its overall perceived market overall value as a function of price * supply. The amount you own is simply a percentage of the total amount outstanding.
1 unit of Bitcoin = 0.000005% of total supply
1 share of Tesla = 0.00000011% of total supply
Each unit of Bitcoin represents a greater share of the overall supply of Bitcoin than a single share of Tesla represents. In fact, each unit of Bitcoin represents 50x more ownership of the total value of Bitcoin than a single share of Tesla represents to the total value of Tesla. A unique property of Bitcoin is its immutability. With the supply of Bitcoin fixed, your 1 bitcoin will always equal 1 bitcoin and never be diluted. The same can not be said for a share of Tesla or any other asset really. Even Gold, one of the great Store-of-Values throughout humanity, can see it’s supply increased and diluted through perpetual mining and pulling it out of the earth’s crust (or off an asteroid or the moon).
This is a perfect example of how one of Bitcoin’s other greatest properties, it’s scarcity, becomes so powerful and attractive. It’s fixed supply and immutability make Bitcoin the most scarce monetary asset that is digitally verifiable every created.
Now that you understand all the above, let’s play a game:
You are given $100,000 to invest and you can invest in either Tesla or Bitcoin for the next 5 years. Would you buy a share of Tesla at $32,870 in Bitcoin adjusted terms (51 shares in today’s prices) or a single unit of Bitcoin at $23,000? One is an electric automaker, valued at $1.7mm per vehicle produced annually, the other is potentially a store-of-value and non-sovereign fixed supply form of money that may become the global reserve currency of the world in 10-15 years. Which horse are you backing?
Let’s see how other investments stack up when priced in Bitcoin terms:
What if we applied Bitcoin's scarcity and limited supply to other investments:
AAPL: $119,700 in BTC ( vs. $130 current price)
GOOG: $30,700 in BTC ( vs. $1,732 current price)
FB: $41,900 in BTC ( vs. $260 current price)
AMZN: $84,050 in BTC ( vs. $3,116 current price)
MSFT: $89,970 in BTC ( vs. $221 current price)
Visa: $18,766 in BTC ( vs. $205 current price)
Gold: $612,256 in BTC ( vs. $1900/oz current price)
Wait a second….. 🤔🤔🤔🤔…..all of the sudden, The Price of Bitcoin doesn’t seem too Damn High, but surprisingly low when priced in the relative supply issuance of other common stocks and assets we buy, sell, and invest in daily without giving much thought or pushback to their price.
Bitcoin’s Future Value
The above exercise only focuses on the price of Bitcoin in relative terms to other things we invest in….But how does Bitcoin’s current price and market value stack up to its potential future value and addressable markets that it’s competing for?
Bitcoin’s long-term potential is to compete as a Global Store-of-Value and eventually as Global Money. To capture addressable markets such as Store of Value (Gold ~$11.7 Trillion), Broad Money (~$100 Trillion), Negative yielding debt ($18 Trillion), and global debt ($277 Trillion). Bitcoin has a risk/reward profile that is inherently skewed to the upside given how small a percentage it is of each. If you were to look at the graphic below, you can see that if Bitcoin were to capture 50% of Gold’s share of its role as a Global Store-of-Value, Bitcoin would tip the scales at over $300,000. This basic calculation assumes Gold has zero increase in value along the way. Now, let’s consider broad money. If Bitcoin were to continue in its emergence of money and capture 50% of Broad Money, we are talking $2,650,000/Bitcoin. Wishful thinking? Sure. Realistic? Absolutely.
Lastly, let’s look at Bitcoin’s current price as a percentage of monetary, debt, and safe haven markets it’s competing for. This allows you to observe Bitcoin’s price and its value, and compare just how expensive or cheap Bitcoin is as a % of market share.
Gold ($11.7tn): 3.76%
Real Estate ($200tn) 0.21%
Global Debt ($277tn): 0.16%
Negative Yielding debt($18tn): 2.37%
Global Equities ($100tn) . 0.43%
Broad Money($120tn): 0.36%
As you can see above, Bitcoin’s current value is only a fraction of the markets it’s competing for in a world that is craving for sound money and safe-haven assets. So when you observe the price of Bitcoin or hear someone say “I don’t like Bitcoin here” or “the price is too high”, take a step back and look at the big picture of where Bitcoin is today and the global markets it’s competing to capture over the next 5-10 years. This is not a trade, this is a permanent balance sheet allocation to a non-sovereign, hard-capped fixed supply, decentralized, immutable new type of money that has a realistic likelihood of becoming a global standard and reserve currency of the world.
In the words of Paul Tudor Jones from his infamous investor letter back in May:
“So that was the flavor behind some of the discussions that were had when scoring the suitability of each asset as a store of value. What was surprising to me was not that Bitcoin came in last, but that it scored as high as it did. Bitcoin had an overall score nearly 60% of that of financial assets but has a market cap that is 1/1200th of that. It scores 66% of gold as a store of value, but has a market cap that is 1/60th of gold’s outstanding value. Something appears wrong here and my guess is it's the price of Bitcoin.
At the end of the day, the best profit-maximizing strategy is to own the fastest horse. Just own the best performer and not get wed to an intellectual side that might leave you weeping in the performance dust because you thought you were smarter than the market. If I am forced to forecast, my bet is it will be Bitcoin.”
So as we close out this issue of New Money, join me in channeling Jimmy McMillan and repeating the mantra:
The PRICE of Bitcoin is NOT too damn high.
If you enjoyed this post, please do me a solid and share it on Facebook, Twitter, LinkedIn and with friends, your personal text chatrooms, and anywhere else where it could be useful for anyone trying to understand the price of Bitcoin. Enjoy the holidays and I’ll be back after the new year to recap 2020.
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