Self-Directed Investor Talk

What is Bitcoin REALLY Worth?

January 16, 2018  --  Episode #295

Transcript    ∙    Links & Resources    ∙    Discussion

   

Summary

I don’t normally dive into these waters, but here we go:  What is Bitcoin actually worth?  I have some data-backed thinking on this you may not like, but hey… the truth is the truth.  I’m Bryan Ellis.  This is Episode #295 of Self-Directed Investor Talk.

 

Transcript

Hello, Self Directed Investor Nation, from coast to coast and all across the fruited plane!  Welcome to the show of record for savvy self-directed investors like you, where in each episode, I help you to find, understand and profit from exceptional alternative investment opportunities.

And let’s be honest:  No alternative investment opportunity has created more buzz in the last 6 months, or frankly in a very long time, than cryptocurrencies generally and Bitcoin specifically.  And today, I’m going to give you some thoughts about what Bitcoin is actually worth, and maybe more precisely what it is NOT worth… all back by real data.

I do this in particular for those of you choosing to bet some of your retirement portfolio on cryptocurrencies.  Am I saying you should or should not do that?  No, neither of those things.  But I do believe you should know whether the pool you’re swimming in is full of water… or maybe just pure, unadulterated B.S.  That’s Bull-Stuff for you hall monitors.  Hehehehe.

As I share this brilliant insight with you, I welcome you to join the conversation.  You can send in your questions by toll-free telephone at (833) SDI-TALK; by email at feedback@SDITalk.com, or best of all by visiting the resource page for today’s show at SDITalk.com/295.

So, what is Bitcoin really worth?

A year ago, it would have been much harder to answer this question.  And today, the answer still isn’t totally clear.  But some data of tremendous value is available now that wasn’t available then, and frankly, the negative information is mounting up.  In fact, I’ve found 4 really substantive pieces of data to strongly suggest a value for Bitcoin far below it’s current valuation.

For you Bitcoin true believers, don’t shoot the messenger.  I’m totally agnostic on Bitcoin, but I do think you owe it to yourself to see the facts.

Now here’s the thing:  I don’t have the time right now to cover all 4 of the really big pieces of evidence that are negative about bitcoin.  If you’d like to hear all 4, drop an email to me at feedback@SDITalk.com and if there’s enough interest, I’ll do a webinar for you about that topic.

Instead, I want to focus on one and only one of those pieces of data.  It’s a concept called “price discovery”.

Price discovery refers to a process where, in a free market, there’s enough market activity around a particular asset such that the market does a reliable job of determining the value of the underlying asset.  For example:  the stock of Apple Computers traded 26 million shares yesterday.  That’s a WHOLE LOT of shares… more than enough for us to have great confidence that the price settled on as a result of those trades is a good, legitimate price for Apple Stock.

So what we want to do is get to a point of price discovery for Bitcoin, so we at least have some legitimate idea about what the broader market thinks of its value.

And how do we get that price discovery?  Well, it simply didn’t exist for Bitcoin until recently… December 10, 2017 to be precise.

What happened on December 10?  Well, on that day, Bitcoin FUTURES began to trade at a major and reliable U.S. commodities exchange.  What that means is that, for the very first time, there was a regulated and safe way to trade Bitcoin.  More importantly, it was EASY and accessible to just about anybody.

That means more market participants.  More market participants means more liquidity.  More liquidity means more confidence in the accuracy of market pricing.

And what has the market been telling us?  It’s telling us that Bitcoin is worth somewhere between roughly $12,000 and $17,000, because those are the approximate lower and upper levels of pricing since futures trading began.  Bitcoin did pop up once to about $19,000, but the instant and dramatic fall that happened immediately thereafter tells us that the market rejects that valuation, at least for now.

The very fact that there appears to be a trading range developing for Bitcoin is itself unique, and quite certainly a function of legitimate price discovery as well.  If you look at the history of Bitcoin, it hasn’t done a lot of “consolidation”.  It’s been one almost totally uninterrupted screaming move upwards… until real money was able to enter the scene through the futures market.  And it’s the presence of REAL money being traded in larger volumes that is the ONLY way to know what an asset is really worth.

So my thesis for now is that the market is telling us that Bitcoin is worth between approximately $12,000 and $17,000.

My other thesis, while only anecdotal, is that when a cryptocurrency gets big enough to warrant commoditization by the conventional financial world, then the party is probably over for that cryptocurrency.  That’s what happened to Bitcoin.  As long as it was basically a thing traded in a totally unaccountable kind of way, then valuations were free to shoot to the moon.  But the moment that sizable players [relatively] brought sizable capital into the market through Bitcoin futures, the party seemed to dry up pretty much instantly.

And yes, like I said, I did actually encounter 3 more really substantial pieces of supporting evidence for a downward trajectory for Bitcoin, and if you’d like to know more about that, drop an email to me at feedback@SelfDirected.org and I’ll see about putting together a webinar to share that with you.

So at the end of the day, here’s my thoughts on investing in Bitcoin, particularly within your IRA or 401(k), and my advice has never changed.  It’s this:  Only invest in things that are Simple, Safe and Strong.  That’s it.  That’s a piece of simple advice that will serve you well forever.

My friends, invest wisely today, and live well forever!

 

Links & Resources

  • IRS does not Approve Bitcoin for your IRA

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Bryan Ellis

I am host of Self Directed Investor Talk, which I'm told is America's #1 podcast and for affluent self-directed investors. I'm also something of an expert in self-directed IRA's, solo 401k's and 1031 exchanges. You can find more of my writing in some cool places like TheStreet.com, Entrepreneur.com, ThinkRealty and even Forbes (that was always one of my goals!). I live in metro Atlanta, Georgia with my wife and business partner Carole Ellis(she's a real business partner... not just because she's my wife... I'd want to work with her if I wasn't married to her... and I'd want to marry her, too). I also have 4 children ranging in age from 2 to 20 (yes, you read that correctly). It's my goal to be the name everybody thinks of when they think of Self-Directed IRA's and Solo 401(k)'s.
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