Your Money This Week

Bitcoin

This week saw the SEC approving spot bitcoin ETF’s and eleven started trading on Thursday. Spot means that they track bitcoin’s price as opposed to tracking bitcoin futures, so by owning an ETF you get the price movements but don’t own bitcoin directly.

Tracking the actual price can be better than tracking futures contracts. Owning the ETF is easier than buying bitcoin directly and safer.

I don’t care, and I don’t want you to care.

Bitcoin is still speculative nonsense that doesn’t serve an actual purpose, and the thesis on why you should own it suffers from a fatal paradox.

To be clear, you can speculate and make money in it, and it may even run up in price now with all these ETF’s. That still doesn’t make it a good investment.

As I wrote in The Bitcoin Investing Paradox:

You may have heard the story of the guy who in 2010 convinced someone to take 10,000 Bitcoins for two pizzas. The coins didn’t have value then. Now, at around 30,000 per coin, those two pizzas cost him $300,000,000.

This might be a strange way to make the investing case against Bitcoin. After all, it went from zero to $30,000 in 12 years.

But the investment case being made for Bitcoin, or at least the most consistent one I see is that it’ll increase in value as more people adopt it as a currency. And with a finite number of coins predetermined, the sky’s the limit for that price increase.

If adoption grows, so should its aggregate value as a payment system. A growing system value, measured by the market capitalization of Bitcoin, should mean a growing value of Bitcoin given the limited supply of the denominator.

The Value Investor’s Case for… Bitcoin?! by Bill Miller IV, CFA, CMT and Bill Miller, CFA

If you imagine it being used for some fraction of world commerce, then there’s only going to be 21 million coins for the whole world, so it would be worth much more per unit.

The Bullish Case for Bitcoin by Vijay Boyapati

Bitcoin is a classic network effect, a positive feedback loop. The more people who use Bitcoin, the more valuable Bitcoin is for everyone who uses it

Why Bitcoin Matters by Marc Andreessen

So, you invest in Bitcoin because you think it’ll be used as a currency and the price will go up. But as an investor you should never want to use it as a currency because you risk buying two pizzas for $300 million.

A Bitcoin investing paradox. Still sounds too goofy for me.

Tax Planning

Quick reminder that for those making estimated tax payments, your Q4 estimates are due on January 15th , but really this year it’s January 16th due to the Federal Holiday Monday.

Inflation

Consumer prices rose 0.3% in December, higher than expected, pushing the annual rate to 3.4%. The reading was slightly higher than expectations, but was driven largely by rising shelter costs which Fed officials expect to decline given that there’s a lag effect to shelter and renewed leases may reflect lower rents. The market took the report in stride, and investors should too.