Understanding the Fundamentals of Investing

Bitcoin should not be classified as a traditional investment; rather, it is more akin to a speculative wager. Enthusiasts may take issue with this characterization, but consider this: many participate in lotteries without taking them too seriously.

When someone buys a third of Tesla’s stock, they own a proportional share of the company. However, purchasing a third of Bitcoin does not equate to owning a portion of the currency itself.

Technology creates the illusion that all financial charts and data are comparable, but that isn’t accurate. Publicly traded assets confer legal ownership of tangible goods or cash flows, which are evaluated by market forces. Unfortunately, the market is often irrational.

This misperception leads many to treat Bitcoin as if it were any other financial asset. While the candlestick charts of Bitcoin may resemble those of Amazon or Facebook, they are fundamentally different.

Pragmatism is a common approach; many see similarities in buying and selling stocks versus cryptocurrencies. While I appreciate a practical mindset, it’s essential to understand that Bitcoin does not function like shares in a company. Acquiring Bitcoin is closer to gambling than investing.

The crux: profits can be realized, but losses are equally possible.

Why Bitcoin Isn't a Traditional Investment

Let’s simplify this. When one invests, there’s typically a way to ascertain value. Take Elon Musk's acquisition of Twitter, for instance. We can evaluate its worth by assessing the value of its assets, properties, brand recognition, and revenue-generating capabilities.

Attempting to apply the same valuation techniques to Bitcoin reveals a gap; we only have the current market price. This price often hinges on finding someone willing to pay more, leading some to label it a Ponzi scheme.

Bitcoin’s worth is dictated solely by market perception. This often results in confusion, as people conflate functional value with the underlying value of corporate stocks.

For instance, while Apple’s stock price reflects market sentiment, its intrinsic value is driven by sales and brand reputation. These factors contribute to cash flows, allowing analysts to determine if the stock is overvalued or undervalued.

With Bitcoin, however, there’s no metric to determine its financial worth. Although the technology is revolutionary and beneficial, that does not address its valuation.

Bitcoin as Currency: A Debate

Despite Bitcoin's classification as a cryptocurrency, it’s tempting to view it as a form of money. Economists identify three primary criteria for something to be considered money:

1. A medium of exchange
2. A unit of account
3. A store of value

There is ongoing debate regarding whether Bitcoin meets these criteria, with volatility being a significant concern.

However, consider a couple of practical aspects: Governments mandate tax payments in their official currencies, not Bitcoin. This requirement creates inherent demand for fiat currencies.

Moreover, Bitcoin lacks military backing. While it has a dedicated following, it doesn’t possess the security that military might provides to traditional currencies.

In the grand scheme, powerful militaries enable nations to safeguard their economic interests and uphold investor confidence.

So, is Bitcoin truly money? Some theorists may argue in favor, but practically speaking:

• No government accepts Bitcoin for tax payments.
• Bitcoin lacks military support.

For these reasons, my conclusion is negative.

The Core of the Issue

When individuals claim Bitcoin is an investment, they imply there’s potential for profit. There’s no doubt about that.

As the world evolves, complexities increase, yet fundamental truths remain unchanged. For those versed in advanced concepts, it can be disheartening that basic principles often hold the key.

Consider a simple scenario: driving to the countryside and purchasing produce directly from a vendor. This simple transaction encapsulates the essence of business, investing, finance, and even Bitcoin.

Ultimately, profit is generated by selling goods at a price higher than the purchase cost. This principle applies universally, whether dealing with financial products, tomatoes, services, or Bitcoin.

No matter how sophisticated your strategy, the basic formula remains: deduct the cost from the sale price.

The same applies to Bitcoin.

Some optimistic individuals might believe that holding onto Bitcoin bought at $69K will yield profits when it reaches $100K again. But the question remains: Will they sell once it appreciates, or hold onto it, risking a decline below their initial investment?

One can only wonder...

In any case, remember that the information shared in this discussion is subject to change and should not be construed as legal or financial advice. Always seek guidance from a financial advisor or tax expert for personalized insights.

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