by Is it worth it to buy cryptocurrencies like Bitcoin or Dogecoin? To understand the value of crypto we have to put it in perspective. In this post, we’ll perform a cryptocurrency market cap comparison with various other asset classes. Then we’ll ask ourselves some important questions before even considering buying crypto.
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Cryptocurrency Market Cap
Let’s compare the market caps of various cryptocurrencies.
Here’s a screenshot taken on 2/26/21 of the top 14 cryptocurrencies by market cap.
Bitcoin has a market cap of $884.8 billion dollars.
How does that compare to some well established companies in the S&P 500?
Bitcoin has a higher market cap than Tesla, Facebook, and various other companies.
Before you consider buying Bitcoin you have to ask yourself several questions.
- Do you think Bitcoin is worth more than Tesla?
- What makes Bitcoin worth more than Facebook?
- How is Bitcoin worth more than Visa and Walmart COMBINED?
- What gives Bitcoin its value?
Crypto vs. Company Equity
Let’s compare the equity of some of these companies compared to Bitcoin.
Equity is the value of a company’s assets minus its liabilities.
Essentially, if the company had to liquidate everything today, this is how much the company would be worth.
Of course the value of a firm is more than its equity value. It includes brand, and future cash flows (i.e. earnings).
Notice that Bitcoin and Dogecoin have zero equity.
Crypto vs. Company Earnings
(Successful) Companies are designed to earn money.
A company will build a product for $80, and sell it to consumers for $100, for a net earnings of $20. In this basic example, forget about debt, taxes, depreciation, etc. The $20 is essentially returned to shareholders as profit, whether through dividends or capital gains.
Bitcoin on the other hand does not produce profits.
Let’s compare the earnings of some of these companies compared to Bitcoin.
How can something that produces no earnings continue its rapid ascent?
Bitcoin vs. Gold
Bitcoin is not a company. It does not produce profits. What Bitcoin is, however, is a medium of exchange. Like cash. Like gold.
Here’s how Bitcoin has performed vs Gold over the last 11.4 years.
Over the past 11.4 years, a $1 investment in gold would be worth $1.68.
A $1 investment in Bitcoin, on the other hand, would be worth $62.2 Billion.
If you can justify that price, or make sense of it even in the slightest bit, then you might have good reason to buy Bitcoin. I certainly can’t.
Bitcoin vs. Market Indices
Bitcoin has managed to produce returns that are over 70x the return of the S&P 500 over the past 5 years.
How do you rationalize that? How does a medium of exchange surpass an index of money-making companies in the order of magnitude of 70?
If you can confidently answer that question, you can certainly buy Bitcoin at your own risk.
Dogecoin vs. GDP
Dogecoin is one helluva fun coin. It’s fun to say. It’s fun to think about. It’s fun to joke about. But is it really a worthwhile INVESTMENT?
Dogecoin has a market cap of $6.57 Billion.
Time to put that number in perspective.
Gross domestic product (GDP) is the market value of all final goods and services from a nation in a given year.
Here’s Dogecoin’s market cap compared to the GDP of some notable countries:
Now ask yourself some questions:
Is Dogecoin worth more than all goods and services from Maldives in a year? How about Barbados? Or Fiji?
The same Dogecoin that was formed as a complete joke.
Dogecoin founders Markus and Palmer mined about $10,000 worth of Dogecoin before splitting it evenly between the two of them. That’s all they would ever own.
“We thought it was this big joke that would die off” – Palmer, co-founder of Dogecoin
Source: CNET
How can a joke currency in which the founders gave up after mining a value of $10,000 turn into a cryptocurrency worth $6.57 billion?
Dogecoin vs. Celebrity Net Worth
Let’s compare Dogecoin vs. the net worth of celebrities who are cash cows.
Tell me how a joke currency developed by two dudes 8 years ago, is worth more than double what Oprah, who has been successful in the entertainment business for nearly 50 years, is worth.
If you have the answer to these questions, and still feel comfortable buying Dogecoin, then by all means do it.
I can’t answer these questions, so I will not be buying Dogecoin anytime soon. Not in any meaningful quantities at least.
Putting It All Together
Cryptocurrencies are becoming increasingly popular. Before blindly throwing your money into them, it might be a good idea to put it in perspective by comparing its cryptocurrency market cap to other things:
- Company Market Cap
- Company Earning
- Company Equity
- Gold
- Market Indices
- GDP
- Celebrity Net Worth
Go ahead and ask yourself questions that can help you justify its price. If you feel confident in your answers, you can come closer to making a decision on whether or not you want to purchase it.
I can’t justify the price of market caps of these cryptocurrencies so I won’t be investing (large sums) in them anytime soon. Check out my article here for more reasons to stay away from Bitcoin.
