Buy at these prices?
Sell now? Wait for the correction? What to do? The environment of greed and FOMO certainly attracts new investors and puts pressure on older ones. We don’t want to buy expensive, but at the same time we don’t want to miss the opportunity in case the correction never comes. Is it a good idea to buy now? Or is it too late?
Bitcoin is a speculative asset.
You have to call a spade a spade. I could use a more noble euphemism, but that would be a self-deception that makes no sense. We can romanticize the issue in a thousand ways. However, deep down we know the truth perfectly. We buy Bitcoin to make money. Yes, the dirty money. What’s the problem with that? We have money and we want to invest it to multiply it. So? We shouldn’t be ashamed of this. The aspiration is perfectly valid. Of course, many feel that we should hide this with a nicer story. „We bought Golden Profit review to change the world. „They’re the heroes in a financial revolution. „We’re going after the banks and the governments. „We are building a better world. How beautiful we are! Bravo, us!
Meanwhile, they are addicted to the swings of the price. And the greed makes us crazy. The phrase „Bitcoin price“ is the most popular in this space. The favorite sport of all Bitcoiners is making price predictions. Every time we hear that Bitcoin could one day reach a million dollars, our eyes sparkle with excitement. Revolution or money? Ideology or money?
How much is a Bitcoin worth? How much will it be worth in a year? That’s the key question. What’s the risk? What’s the opportunity? How much money should we put into Bitcoin? What should my strategy be? These are the questions you hear on the street. That’s what people want to know.
Now, how do we value a speculative asset? That is, how do we value an asset with no intrinsic value? In the case of a company or a farm, we would take into account the output of the asset. Income in relation to assets would probably be the most relevant variable in determining the total value of the business in question.
But how do we value a work of art?
An antique? A collectible? There is no income here, because they are non-productive assets. We have to resort to supply and demand. If the item in question has many buyers, the price will surely be high. Otherwise, it won’t be worth much. Note that I am not talking about scarcity. The item may be unique, but without demand, there is no value. That’s in relation to the price.
But how do we determine a good investment? Just because an item is quoted at a high price doesn’t mean it will be a good investment. A Picasso could be selling for $100 million, but that doesn’t mean it will be a good investment. It’s very important that future demand be higher than current demand for it to be a good investment. In other words, growth projections (of demand) must be favorable.
Real estate developers, for example, look at much of the population growth in cities to estimate the future value of their properties. If the population is young, many new people are moving to the city, and vacant lots are not plentiful, it is assumed that real estate prices will eventually increase. The price increase may not happen overnight, but it is only a matter of time. People, sooner or later, get married and want to buy a house. That’s the „future demand“.
What will Bitcoin’s demand look like in the next 5 years – bigger or smaller than it is now? We could begin to estimate this with two factors: demographics and liquidity. The Millennials look very favorably on Bitcoin as a reserve asset (speculative asset), but they don’t have much money to invest yet because of their youth. Of course, this will gradually change over the years. On the other hand, everything seems to indicate that the monetary and fiscal policies of developed countries in the next few years will be inclined towards flexibility. That is, there will be a lot of monetary liquidity due to macroeconomic factors.
Additionally, it is worth noting that the Bitcoin community is growing in infrastructure. In other words, more and more interesting services and products are being developed, which is gradually increasing Bitcoin’s overall appeal. That’s definitely something very positive. It’s now possible to get credit and use Bitcoin as collateral, for example. It’s getting easier and easier to exchange Bitcoin for other assets. In short, the Bitcoin world today is richer than ever.