What would do better, $10,000 Invested in Bitcoin (BTC) or Tesla (TSLA)?

in LeoFinance4 years ago (edited)

teslavsbtc.png

I introduced myself to the Leofinance community as a person with degrees in Economics, Accounting, Business, and Sociology. I was asked by a fellow patron if I had experience day trading and I told him that Economics sometimes doesn't go well with day trading. I wanted to share that exchange with the broader community:

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A lot of day trading today is momentum investing and sometimes this actually goes against economic models. For example, most economist would probably say that Tesla would be a better investment than Bitcoin. I would have said that. This would have been my analysis:

TSLA holds a dominant position in a new technology that will disrupt cars. Bitcoin is not the best money and its not even the best cryptocurrency. Its one of the slowest blockchains. It has high fees. Its difficult for normal people to use. The value of the coin is volatile and its not broadly accepted as a form of payment. TSLA has a self driving electric car that is fast and everybody wants one.

However, if you invest in Bitcoin from the beginning and TSLA from the beginning you would be richer if you invested in Bitcoin.

Here is what $10,000 in TSLA would be worth since its IPO (June 29, 2010):
$1,841,817

Here is what $10,000 in Bitcoin would be worth since its ICO (January 3, 2009):
$1,317,970,908

Based on feedback from the audience I would like to make some corrections below:

Original Post

Here is what $10,000 in Bitcoin would be worth since its ICO (January 3, 2009):
$1,317,970,908

Correction
Here is what $10,000 in Bitcoin would be worth since (January 1st, 2011):
$1,317,970,908

I pushed the back button arrow for the calculator as far back as it would go and I thought that it went back to the beginning (ICO) but the calculator back button only went to January 1st, 2011.

Investopedia states that the earliest trading prices were around $0.08 per BTC and interestingly enough this was in July 2010 which is very close to the Tesla IPO date. If you $0.08 as the price of BTC then BTC even looks more attractive:

$10,000 / $0.08 * $40,538.90 = $5,067,362,500

https://www.investopedia.com/articles/forex/121815/bitcoins-price-history.asp

I agree with the commenters that any date I pick would be arbitrary, but I wanted to throw some numbers out there to really show that it would be hard for people to predict which would have done better from back in the day--hence my quote below.

“There are two kinds of forecasters,” said the economist John Kenneth Galbraith. “Those who don’t know and those who don’t know they don’t know.”

I know that I don't know :)

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Its difficult for normal people to use...

Why that? Compared to Hive (Hive, HBD, HP, savings, private, posting, active key,...) it is super easy :)

Also you forgot about the deflationary aspect. BTC can´t be inflated. TSLA stocks could be anytime diluted.

And finally, your comparison is quite arbitrary, using "since IPO/ICO". If you would e.g. compared the last year only, it would look quite different.

But other than that I agree :)

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I tried to not insert my bias by picking my own date. If I pick since last year that would be arbitrary and if I pick since April 1st 2018 that would be arbitrary. So I just did since inception because a lot of stock platforms and mutual fund platforms list that as one of the key stats, but I did leave an embedded link in the Bitcoin price for people to do their own calculations and I am sure a Tesla calculator exist as well for people to choose other dates.

I also made a mistake cause I push the calculator back as far as it would go and I thought that was ICO, but after double checking it actually only went to January 1st, 2011, so I made a correction to my post. I did some more research and posted a revised calculation for BTC which only made it more lopsided in favor of BTC.

As far as inflation goes. Bitcoin can be inflated and deflated, but in a different way than most people think. First, there is macro-inflation through the Federal Reserve Bank which has pumped the markets full of liquidity which has driven price increases for pretty much all asset classes--gold, real estate, bonds, stocks, cryptos, and even oil is starting to see an uptick.

Then there is slightly more direct inflation through hedge funds. As more of the currency supply is held by these hedge funds you will see the prices of BTC rise. The known fixed supply cutoff amount which was designed to prevent the kind of tampering that you see by the Federal Reserve Bank becomes a mechanism by which hedge funds tamper through HODLing.

This liquidity driven manipulation has led to massive amounts of deflation for anything denominated in dollars. I am sure many have heard of the story where a person bought two pizzas for 10,000 BTC. Today you don't need nearly as much BTC.

On the hand the hand this manipulation has led to rapid price volatility for transaction fees on the network.

https://www.coindesk.com/bitcoin-transaction-fees-hashrate

As for BTC being difficult for normal people to use I really just wanted to make the point that BTC is not a best in class technology as one might consider Tesla to be best in class for electric cars.

Thanks for engaging!

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I'd rather see the same date for comparison

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As mentioned by one of the other commenters. That these dates can be arbitrary. I just wanted to highlight the fact these things are really hard to forecast. Given, that Tesla IPO'd at $17 a share any early date that you pick for BTC vs TSLA will show that BTC returns a lot more because the early price for BTC was in the cents range. The high share price for TSLA has never hit 40k or anything close and that is even split adjusted. As long as you pick dates that are really early, BTC would win out, but as the other commenter mentioned that if you pick just last year alone. TSLA did a little better than BTC for 2020 alone.

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Interesting, if I studied economics, I would have joined the bandwagon that thought Tesla would have been a better investment option, but I'm in the tech line, and nothing will make me choose Tesla over Bitcoin even given those facts lol.

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For sure, and that is what I wanted to highlight in the post. That economic tools don't always work well in these situations and that we as a field don't have all the answers. I ended the post with the fact that, "I know that I don't know"

Quote
Bitcoin is not the best money and its not even the best cryptocurrency. Its one of the slowest blockchains. It has high fees. Its difficult for normal people to use. The value of the coin is volatile and its not broadly accepted as a form of payment.

I strongly disagree with the above points.
Bitcoin is not and will never become a widely spread payment network. It is a store of value. It is critical everybody understands this. Moreover, it is the best store of value the mankind ever invented. There is no other blockchain aspriring to become a store of value, so any comparison would be baseless.
Therefore, the slowness or the somewhat high fees (which is questionable) are irrelevant.

I accept it is difficult for newcomers to use, but it is getting easier and easier over time. In comparison, how easy would be for "normal people" to invest in physical gold, or even worse gold ETFs? Because the comparison with gold is the only that makes sense.

To sum up, Bitcoin has very solid fundamentals and is severily undervalued, given that retail as well as institutional investors have just started to realise its essence, that of digital gold. Many more will follow and want to posses some of it, pumping its value higher and higher.

On the other hand, Tesla is traded with a P/E ratio of 1548 which any traditional analysis would find astronomical. However, I accept that fundamentals do not play any role in this market climate.

It looks like brand recognition and cult plays much more important role nowadays. Retail investors buy Tesla because they follow Elon Musk on social media and find him cool. He understands the name of the game and engages with his potential investors as deeply as he can.

I expect Tesla to give good returns in 2021, but less than $BTC. However, $BTC's fundamentals are much, much, much stronger.

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