Tech network disruption framework; bitcoin undervalued at $20K

MicroStrategy CEO Michael Saylor has given several wonderful interviews since allocating his $0.5bn Treasury balance sheet to bitcoin this year. Strong, concise and visual communication is a powerful combination. His background as a technology investor with experience of buying digital assets, combined with his concentrated power as CEO, positioned him to make the bold decision in a matter of months. Most investors dip their toes into bitcoin with 1% or 5% allocations. Saylor went all-in, personally and professionally. If you haven’t watched his interviews, stop reading this and get busy. Here’s a great one with Real Vision’s Raoul Pal. Saylor’s understanding of digital networks creates a great framework to think about and value bitcoin, which is the reason for this short note.

The internet has created powerful tech networks

Traditionally, business networks were built up over time, constrained by physical expansion, geographic location, relationships and organisational management. The internet and other technological advances enabled start-ups to disrupt traditional players, extract immense value and dominate traditional players. For example, Google dominates internet search and big data, Apple dominates electronic devices, Amazon dominates online shopping and Facebook dominates social media. These companies started as small fry but have grown to global leaders in a few years, dominating equity market indices. Amazon grew from a market cap of $2.2bn in 2001 to $1.6tn in less than 20 years.

Money and banking are ripe for tech disruption

Money is a network, banking technology is archaic, and neither has been properly disrupted by the internet yet. Let’s dwell on just how archaic banking is for a second. Every transaction on the internet requires the permission of each parties’ bank and takes days to settle. Banks only work on business days so if you execute on the weekend, you have got to wait for the weekday for your money. Transfers across borders are time-consuming and costly, particularly if you live in developing countries. But it’s not just a developing country problem. In the US, people still use physical cheques! No wonder there’s so much fraud! Don’t even get me started on central banking – I’d take archaic central banking any day of the week – modern central banking is a scourge!

Bitcoin was created for the internet. It works 24 hours a day, 7 days a week, with no intermediaries. Supply is perfectly pre-determined, removing political interference and additional fees altogether. Bitcoin is primed to disrupt money, banking and finance in the same way that Amazon and Google dominated shopping and information respectively. I love the way Andreas Antonopoulos says, “bitcoin isn’t the money of the internet, it’s the internet of money.” Just like the internet disrupted and distributed information, bitcoin is going to disrupt and distribute money.

Adding credence to $100K

Seen through this lens, bitcoin’s market capitalisation of $350bn is small relative to the tech giants.

The graph below shows possible bitcoin prices if its market cap grows to the size of the various tech giants. This perspective makes the $100K price target I spoke about in the article “Bitcoin Bulletin: Shifting from accumulation towards aggressive appreciation phase” look plausible. The analysis in this article is rough and conceptual. None of this should be taken as an explicit price forecast to pin up on the wall. But it does provide further evidence that this $100K range is reasonable.

The Sky’s the limit

Money and banking are orders of magnitude more important than any of the networks dominated by the tech giants. Bitcoin has the potential to put banks and central banks out of business – that’s a lot of capital! Additionally, most tech players have geographic concentration in the West whereas bitcoin is completely borderless so its got greater runway.

There is a massive upside potential to the $100K bitcoin price targets in the years ahead. Nevertheless, these calculations allow us to get our heads around lofty price expectations and provide a powerful conceptual framework. Bitcoin is disrupting money and banking, creating a new dominant global network. We’ve got an opportunity to buy that network while it’s still undervalued. $20K could be the sale of the century!

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