It\u2019s going to be fun because, as you (and they) will see, I actually understand value investing. Which is a bit different since they\u2019ve never actually taken the time to try and understand bitcoin.<\/p>\n\n\n\n
What\u2019s fun about poking fun at value investors is that they\u2019re usually a bunch of old men who believe themselves to be contrarian thinkers, yet they haven\u2019t really had any new ideas since 1950. Though they have butchered the term value investing so much over the years that value investing, the term, is pretty much bereft of any real meaning.<\/p>\n\n\n\n
Side note: Have you ever been to Omaha when the Oracle preaches to his congregation? You\u2019ve never seen so many contrarians who think exactly alike. Isn\u2019t it funny that they give bitcoiners shit for being in a cult? See, we\u2019re not so different, bitcoiners and value investors.<\/p>\n\n\n\n
They\u2019re quite tough as well, which makes making fun of them even more fun. You kind of have to be tough if you\u2019ve underperformed your competition for the last 20 years.<\/p>\n\n\n\n
\u201cOne day the mean will revert, and we\u2019ll outperform again!\u201d Yes old man, and if wasn\u2019t for that pesky central bank pumping everything full of liquidity you already would have wouldn\u2019t you? We\u2019re not so different, bitcoiners and value investors.<\/p>\n\n\n\n
So, what is value investing:<\/p>\n\n\n\n
I\u2019m just going to steal the definition from Howard Marks\u2019 latest memo (All of them have a different definition for what value investing is, much like bitcoin. Not so different bitcoiners and value investors):<\/p>\n\n\n\n So, let\u2019s apply some value investing principles to bitcoin.<\/p>\n\n\n\n First up \u2013 intrinsic value.<\/p>\n\n\n\n I\u2019ve done a simple DCF based on the fundamental cash flows produced from a bitcoin investment nailing the first requirement for something to qualify for a value investment: to quantify what something\u2019s worth intrinsically, based primarily on its fundamental, cash flow-generating capabilities.<\/p>\n\n\n\n This is the result:<\/p>\n\n\n\n Some notes on my assumptions:<\/p>\n\n\n\n Again, from Howard Marks\u2019 latest memo:<\/p>\n\n\n\n See, the art of value investing lies not in making the most complicated of mathematical computations, but rather in making superior judgements regarding the relevant inputs. <\/em>So, this amazing and important technique investing boils down to, well, who can suck the best thumb.<\/p>\n\n\n\n So how did I get to my numbers?<\/p>\n\n\n\n Simple buy and sell. One cash flow out, one cash flow in.<\/p>\n\n\n\n \u201cSo, you\u2019re just buying and hoping someone will buy it from for a better price! You\u2019re just hoping for a greater fool!\u201d Yes, you old relic, and how is that different from buying a \u201cundervalued\u201d business believing it will eventually get revalued by Mr. Market? Your whole investment thesis is based on someone buying your investment from you at a dearer price. Same as mine. We\u2019re not so different, bitcoiners and value investors.<\/p>\n\n\n\n Cash flow one is a purchase of one bitcoin, roughly trading at $30k, simple. Cash flow two is the sale of your bitcoin for $1,000,000, simple. I can hear value investors screaming and old Ben Graham turning in his grave as I type this. But I calculated that $1,000,000 using fundamental thumb sucking, exactly like value investors calculate the future cash flows of businesses.<\/p>\n\n\n\n So how did I suck the numbers for the $1,000,000 selling price? Fundamental research of course. Simple evaluation of past performance of bitcoin adoption over the last 12 years and extrapolation of that performance into the future. Precisely like any value investor would do for a company he\/she is analyzing. We\u2019re not so different bitcoiners and value investors. I\u2019m not going to dig into the details here, not the point of this article (I\u2019m happy to do so with any value investor if they were open enough to listen).<\/p>\n\n\n\n A simple heuristic for bitcoin adoption \u2013 active bitcoin addresses. To own bitcoin, you need to have an address, thus the number of addresses that are active is a good proxy for adoption.<\/p>\n\n\n\n Bitcoin active addresses:<\/p>\n\n\n\n Since 2014 the number of addresses has grown from 200k to roughly 1,400k (not precisely accurate but good enough \u2013 another value investing mantra). That\u2019s a CAGR of 32% which compares with a CAGR of 98% for bitcoin price p.a. Given that the amount of bitcoin is a fixed supply the growth rate of active addresses should ensure the growth of bitcoin\u2019s price and what you can sell it for.<\/p>\n\n\n\n Based on fundamental research I believe bitcoin is a better form of money than gold or the dollar. Not going to dig into that here, not the point of the article, but happy to argue it out with any value investor if they\u2019re open enough to it.<\/p>\n\n\n\n Thus, the DCF gives us an intrinsic valuation per bitcoin of $530,000 in todays money.<\/p>\n\n\n\n A note on the discount rate: I\u2019ve used 6% as the risk-free rate and not the 1% US treasuries are trading on because if you think bitcoin is a bubble, US bonds probably scares the shit out of you (not so different, bitcoiners and value investors, are we?).<\/p>\n\n\n\n Based on the intrinsic valuation for bitcoin we have a margin of safety of 94%! That\u2019s a net-net by Ben Graham\u2019s standards!<\/p>\n\n\n\n Let\u2019s rehash quickly:<\/p>\n\n\n\n Again, from Howard Marks\u2019 memo:<\/p>\n\n\n\n Let\u2019s square the bitcoin value investing circle:<\/p>\n\n\n\n There you go value investor. Here\u2019s Mr. Market giving you the opportunity of a lifetime. You going to swing old man?<\/p>\n\n\n\n Last word: Value investing is dead:<\/p>\n\n\n\n Yes old man, you heard me. Value investing is dead. You\u2019ve underperformed for 20 years and you\u2019re being outperformed by a bunch of Robinhood traders that buy stocks that go up and sell them before they go down. You\u2019ve expanded the definition of the term so far that it\u2019s now just an empty word that even bitcoin can fit into. It means nothing anymore. You\u2019ve lost.<\/p>\n\n\n\n We\u2019re not so different, bitcoiners and value investors:<\/p>\n\n\n\n Now, before you dig out this article in a few years\u2019 time when \u2018value investing\u2019 has its day again, because it will, remember that in 2018 and 2019 you were the ones saying bitcoin was dead. But look at us now assholes!<\/p>\n\n\n\n See, we\u2019re not so different, bitcoiners and value investors, are we?<\/p>\n","protected":false},"excerpt":{"rendered":" I don\u2019t know who I like trolling more; nocoiners, libertarians, liberals, Tesla shorts, or value investors. Today I\u2019m going to have some fun at the expense of value investors. It\u2019s a bit of payback for all the value investor stabs they give bitcoiners like: Bitcoin is a bubble Tulip mania It doesn\u2019t produce any cash […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_coblocks_attr":"","_coblocks_dimensions":"","_coblocks_responsive_height":"","_coblocks_accordion_ie_support":"","footnotes":""},"categories":[1],"tags":[],"class_list":["post-12","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/sevexity.com\/index.php?rest_route=\/wp\/v2\/posts\/12","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/sevexity.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/sevexity.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/sevexity.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/sevexity.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=12"}],"version-history":[{"count":3,"href":"https:\/\/sevexity.com\/index.php?rest_route=\/wp\/v2\/posts\/12\/revisions"}],"predecessor-version":[{"id":27,"href":"https:\/\/sevexity.com\/index.php?rest_route=\/wp\/v2\/posts\/12\/revisions\/27"}],"wp:attachment":[{"href":"https:\/\/sevexity.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=12"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/sevexity.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=12"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/sevexity.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=12"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}![\"\"](\"https:\/\/sevexity.com\/wp-content\/uploads\/2022\/02\/Screenshot-2022-02-17-at-14.17.23-1-1024x224.png\")
<\/figure>\n\n\n\n![\"\"](\"https:\/\/sevexity.com\/wp-content\/uploads\/2022\/02\/Screenshot-2022-02-17-at-14.17.48-1024x290.png\")
<\/figure>\n\n\n\n![\"\"](\"https:\/\/sevexity.com\/wp-content\/uploads\/2022\/02\/Screenshot-2022-02-17-at-14.18.00-1024x141.png\")
<\/figure>\n\n\n\n![\"\"](\"https:\/\/sevexity.com\/wp-content\/uploads\/2022\/02\/Screenshot-2022-02-17-at-14.18.13-1024x638.png\")
<\/figure>\n\n\n\n
So, extrapolating the growth of active addresses into the future, I think the $1,000,000 price you can sell bitcoin for in 2030 is rather conservative (another trait of the value investor \u2013 not so different, bitcoiners and value investors). Given that only about 3% of the people in the world own bitcoin, I\u2019d say we\u2019re still in the early days of adoption and growth rates should remain pretty strong. A 42% growth rate in bitcoin price is about half the CAGR of the last 6 years. Conservative!<\/p>\n\n\n\n![\"\"](\"https:\/\/sevexity.com\/wp-content\/uploads\/2022\/02\/Screenshot-2022-02-17-at-14.18.35-1024x295.png\")
<\/figure>\n\n\n\n