The Bitcoin 2021 Convention held in Miami, Florida, attracted significant attention, particularly with Bitcoin prices nearing $100,000. Excitement within the cryptocurrency community has been renewed, bolstered by favorable election outcomes that have positively influenced crypto stakeholders, including sponsors, miners, and owners. Bitcoin, while not consistently reliable as a medium of exchange due to its extreme volatility, has emerged as a potential store of value akin to gold. Despite a dramatic drop in value, losing nearly 80% during 2022, Bitcoin has a history of bouncing back stronger, leading many enthusiasts to remain hopeful for future price increases.
Critics of Bitcoin often highlight its valuation challenges, not that it lacks value per se, but rather that its actual value is unpredictable. Unlike traditional assets that demonstrate underlying cash flows or economic production—such as stocks or real estate—Bitcoin does not yield returns, making it difficult to apply accepted valuation methods like discounted cash flow (DCF). Proponents that cite Bitcoin millionaires as justification for investment fail to recognize that such success stories are largely driven by luck or timing. This suggests that the historical wealth generated from early Bitcoin investments does not provide a reliable foundation for continuing to invest in the cryptocurrency market.
Bitcoin’s limited supply contributes to its perceived value, similar to precious metals like gold. Supporters mention the mechanism of “halving,” a process that decreases the rate of production over time, promoting scarcity. However, like gold, Bitcoin’s future price is uncertain, and historical returns on gold have been lackluster except during inflationary periods. Honest assessments of gold pricing indicate that traders often lack a concrete understanding of its value per ounce, which raises concerns about the stability and reliability of Bitcoin valuations.
For investors seeking leverage in the crypto space without direct exposure to its volatility, Block Inc. (formerly Square) presents a viable option. The company has a substantial investment in Bitcoin—nearly a billion dollars—and various crypto-related offerings through its Cash App. Importantly, CEO Jack Dorsey, a known advocate for Bitcoin, has structured Block’s business model such that it would not be severely impacted if Bitcoin were to collapse. Block’s core operations center around payment processing for small merchants, ensuring the company generates consistent cash flow and maintains significant financial reserves with over $9 billion in liquid assets.
Investments in Block can provide exposure to the crypto market with significantly lower risks than direct cryptocurrency investments or speculative businesses overly dependent on crypto valuations. Block’s value can be projected based on future expected cash flows, positioning it in a favorable light compared to more volatile cryptocurrency alternatives. Analysts estimate that Block’s shares could see a value of up to $150, even in a scenario where the growth of payment processing slows or Bitcoin loses all its value. This analysis reveals a fundamental strength in investing in traditional businesses capable of producing financial returns, as opposed to relying on the speculative nature of cryptocurrencies.
In summary, while Bitcoin continues to draw interest and speculative investment, it embodies significant uncertainty regarding valuation and long-term sustainability. Alternative investments like Block Inc. allow investors to engage with the cryptocurrency trend while relying on a stable business model, predictable cash flow, and intrinsic value measurements. With the caveat that the intrinsic value of a stock does not guarantee market pricing, companies with sound fundamentals present a more reliable pathway for investors compared to the unpredictable realm of cryptocurrencies.
