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David Smith

David is on track to retire in two years from investing in bitcoins. David wants to help you understand the once in a lifetime opportunity this digital currency revolution provides. The digital...

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Bitcoin: Better Investment Than Startups

An article published Monday discussed how bitcoin gets unfairly compared against the most successful monetary units on the planet: gold and the U.S. Dollar.

Instead, it should be compared to startup companies: bitcoin is disruptive, not guaranteed to succeed and needs high growth or it will die.

Currencies vs. Companies

It is somewhat difficult to compare currencies to companies. Companies have a valuation, while currencies have a monetary base. Companies have revenue, while currencies have a monetary supply. However both have users and an ecosystem around them.

Another interesting point, since bitcoin is a currency and not a company, it has no employees, expenses or revenue.

Related Link: One Secret Of Bitcoin Bulls

Quick Stats (Potential Market cap is a back of the napkin calculation used for rough estimates):







 

Bitcoin

Tesla

Twitter

Western Union

Visa

Launched

2009

2003

2006

1851

1958

Market Cap

$8.2 B

$25B

$20B

$8.9B

$134B

Users

5 million

35,000

645 million

200 million

522 million

Potential Mkt. Cap

$2 T

$580B

$217B

$311B

$1.7T

What could propel bitcoin to a $2 trillion (according to Wedbush) valuation?

1) Stable store of value. Having bitcoin be a stable store of value would be great for people in countries like Argentina, Venezuela and Zimbabwe where inflation has destroyed family wealth.

2) Banking and financial services for everyone on the planet. The banking and financial systems that Americans take for granted are unavailable for about six billion people around the world. Bitcoin can give these people access to state-of-the-art financial tools at almost no cost.

3) Computer software can directly use bitcoin. Think of the way email enables computers and companies to interact with people. Bitcoin could allow companies to enable software, cars, refrigerators or anything connected to the internet to send and receive money on behalf of people.

4) Primary means of facilitating internet financial transactions. Bitcoin was built for the internet. If bitcoin had existed in the 1990s, it would have been built in as the standard way to pay for goods and services online.

5) Primary means of cross-border remittances. Today remittance services take billions of dollars from some of the poorest people in the world. If bitcoin is successfully accepted around the world, those fees would be fractions of a penny per transaction.

Related Link: 3 Secrets To Bitcoin Investment Success

Bitcoin vs. Startups

When comparing bitcoin to startups, two things jump out: risk and reward. Startup investors are expecting their investments to be risky, but provide outsized returns to compensate for the risk.

When comparing startups to bitcoin, the risk profiles are similar but the rewards for bitcoin investments are much higher if bitcoin is successful.

Here are two examples.

Tesla (NASDAQ: TSLA)

Tesla is valued at $25 billion while it expects to sell 35,000 cars this year. For comparison, Ford, General Motors and Toyota have a combined market cap of $306 billion and sold 715,000 vehicles to Americans in March.

Similar to bitcoin, Tesla’s stock has a lot of expected growth built in to its current price. Neither of the companies' market caps/valuations are reasonable based on current usage.

The big difference is in potential returns for investors. Someone investing in Tesla is making a bet Tesla becomes a serious player in the auto space. If it grows equal to Toyota’s $180 billion market cap, that is a 700 percent return. Tesla is an evolutionary improvement over existing technologies.

Bitcoin, on the other hand, is a substantially different currency compared to traditional currencies. If it reaches a fraction of its potential, it could still return 2,500 percent to investors.

Investors taking a risk on Tesla should at least be interested in bitcoin, due to the much larger comparative upside and similar risk profiles.

Twitter (NYSE: TWTR)

Twitter weighs in at a $20 billion market cap with 645 million users. With about 2.5 billion internet users, Twitter can only grab about four times more eyeballs before everyone on the internet is using them.

In addition to the limited growth potential, investors are also concerned about Twitter's revenue per user.

If Twitter does everything right over the next few years, investors might be able to get a 10,000 percent return on their money. However, if bitcoin achieves only a fraction of its potential, investors could expect a 10,000 percent return in a similar or smaller time frame.

Again, investors taking a risk on Twitter should at least be interested in bitcoin due to the much larger comparative upside and similar risk profiles.

Continue reading about bitcoin and payment companies here.

Tags: Bitcoin

Posted in: Startups Tech