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Bitcoins at $1,000/each? That’s a steal.

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Bitcoins are to money what email is to communication.

Today, there are about 12,000,000 bitcoins—the unit of currency for the open source peer-to-peer electronic money and payment network created in 2008—in circulation.  At $1,000/bitcoin on Coinbase or BitMe, that represents about $12 billion in value. Though tremendous at first glance, as a point of comparison, the total value of all gold reserves in the world is about $7 trillion. Bitcoins therefore really amount to but 0.2 percent of the value of gold, historically the world’s primary store of value.

In other words, all bitcoins in circulation today are worth less than 1/6 of Bill Gates’s total net worth of $76 billion.  Through either comparison, they could be priced way too cheap.

The best way to think about bitcoin, as my friend Charlie Songhurst describes, is to ignore the urge to conceptualize bitcoin as a “currency replacement” or “money.”  It really is the next generation of currency used within a digital ledger.  Within this ledger, or virtual sandbox, the store of value is bitcoin; outside of this sandbox, the store of value can be converted back to whatever you want: USD, Euros, RMB, maybe even gold.  But, within the theoretically seamless, borderless sandbox, there will be a huge reduction of transaction friction, especially across country lines: lower transaction fees– and subsequent enablement of micropayments, lower currency exchange fees, faster transaction times, and even greater trust in the bitcoin unit (particularly for developing markets, where there may be hyperinflation in Zimbabwe or an artificial currency peg in China).  On top of this, bitcoins are a deflationary currency: as the demand rises, the price should rise, as there will only ever be a fixed amount in circulation (21,000,000 after all the bitcoin mining).

Why Bitcoins aren’t Tulips

The graphs of the meteoric rise in bitcoin price look eerily similar to the 1600’s Dutch tulip bubble…just without the crash (at least, so far).  However, I posit that bitcoins differ from tulips for two very simple reasons:

In a bull case, bitcoin could be the way we transact in the near future.  In the base case, it is a hedge against inflation, quantitative easing, and rogue monetary policy.  If you only believe the latter, and the total value of bitcoin could represent only 1 percent of gold, then that itself is worth north of $5,000/bitcoin (>$7,000 according to the table below from the Bitcoin Investment Trust, which was based on a higher gold to dollar exchange rate).  If you believe it has a chance at the former, the sky is the limit.

So, is bitcoin a steal at $1,000/piece?  Very possible.

UPDATE (12/1/13):  Ever since I published the article, people have asked me whether they should buy BTC.  My advice: don’t invest any more than you can afford to lose.  There is a significant probability (i.e. the bear case) that bitcoin will unravel as a ponzi scheme and be worth zero.  Here is a great article on that.  I personally think it will be worth either zero or thousands of dollars more than it is today.  On that risk/reward basis, it may make sense to put 1% or less of your net worth in it, but no more.

Disclaimer: I own some, but not nearly enough, bitcoin. 

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Written by sheeltyle

November 28, 2013 at 10:10 pm

On Cue 2012

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Hats off to Tony Tjan, Tony Pino, Richard Harrington, and the rest of the Cue Ball team for an amazing On Cue 2012.  On Cue is “a private salon gathering of leading thinkers, creators, business and cultural luminaries – coming together for one day of shared conversation and connectivity.”  It reminded me very much of a TEDx conference, except more mingling, cooler entertainment, and shorter & fewer talks.  There were a little less than 300 people at the event held at the Isabella Stuart Gardner Museum in Boston, and the Aston Martin, Fisker Karma, Lamborghini, and other exotic cars parked outside as we walked in was quite the entrance. 

Here are my highlights:

– Listening to Michael Bronner unveil his new company Unreal, which aims to start a health revolution through junk food

– Watching mentalist Gerard Senehi perform his amazing tricks, including bending a metal fork in my hand without touching it, with the CEO of NPR on my right and former CEO of Ticketmaster on my left! 

– Hanging out with Elliott and Jeff from Summit Series, Nico and Fabian from Sandbox, Stephanie from Her Campus, my brother Sujay, and many more.

My only qualm was that the event was too short.  There were so many amazing people there – like the President of MSNBC, the founders of ZipCar and Palantir, and the former President of Ann Taylor – but I didn’t get to meet even 10% of the attendees given that we only had ~8 hours together, with only ~3 hours for real mingling. However, you know it’s a good event when the only problem was that it was too short!

Very much looking forward to next year’s event as this was one of the best events I’ve been to all year.  

Written by sheeltyle

June 22, 2012 at 7:07 am