The founder of the famous Twitter account @Russian_Market on why certain tech stocks are in a speculative bubble and why Bitcoin has missed the train to change the structure of the financial system.
We are only halfway through it, but 2020 is already a year of extremes. The Covid-19 pandemic has upended the global economy. World trade is expected to fall by anywhere between 13 and 32%, according to estimates of the World Trade Organization.
At the same time, parts of the stock market are going crazy. In my humble view, investors should be extremely careful in taking more risks in equities these days. We see clear signs of exuberance that remind us of past periods of excess. For one, 2020 has already given us our fair share of corporate scandals: Just think of Luckin Coffee or Wirecard.
I never liked Wirecard, just as I never liked Luckin Coffee. Given the phenomenal growth numbers Luckin was reporting last year, one had to have a feeling that something was cooking there.
But of course, I can say today that I never liked this or that. That would be too easy. So let me tell you the strange feelings I have about other suspects.
Let’s start with Tesla. The following chart shows the development of Tesla’s market capitalization over the past twelve months. It’s up a whopping 50% in the past three weeks alone. You’ve probably read reports that Tesla is now more valuable than Toyota, more valuable than Ford and General Motors or all the three major German car producers combined.
Meanwhile, Tesla is valued at more than 230 times Ebit. Remember – it’s still just a car company.
Seriously? What year is it? Yes, 2020. The year where car sales are dropping by over 40%.
The stock market clearly doesn’t care about the recession. Or to be more precise: Stocks from the energy or banking sector indeed signal the deep recession we’re in. But momentum stocks like Amazon, Tesla, Facebook, Microsoft, Apple or Google are on fire. The hopium works. Retail investors bet that future cashflows of today’s growth stocks will just keep on rising. They are panic buying like it’s 1999.
There is no doubt: We are in a tech bubble. But of course I can’t say when it will pop. Just that it will some day. And that it will end in tears.
Oh, and just as an aside: The other day, Kanye West announced he wanted to run for president of the United States – while at the same time asking for a government relief loan to run his shoe business. A billionaire is asking for government help and it’s being shrugged off as normal. Mad times indeed.
The other «financial asset» I’ve grown very skeptical about is Bitcoin. Despite all the turmoil we’ve seen in markets and despite all the – sometimes forced – moves toward a more decentralized, digital economy, Bitcoin has clearly failed to gain more popularity in the past months.
I see that as an ominous sign. Suffering shop owners and companies in the real economy are fighting for their survival. They have to cut costs and jobs. And with that, they are putting off all fancy blockchain or cryptocurrency projects on the shelf for later, better times.
Nobel Prize winning economist Paul Krugman has said that Bitcoin is evil. I don't think so. Bitcoin is a great and unique creation – or as former Google chairman Eric Schmidt put it: a «remarkable cryptographic achievement». In my view, it’s just like the invention of email. It’s not a fraud like Luckin Coffee or Wirecard. As Mark Cuban said about the Blockchain technology: «It’s a great platform for future applications.» I fully agree with him.
But one thing Bitcoin is not: It’s not a currency, and it is also not anything like some new digital gold. In my view, Bitcoin has missed the train and its big chance to change the structure of the financial system. Remember, they said Bitcoin never wanted to participate in the financial system with central banks. Today the central banks have their own digital currencies projects.
So if we deduct all fancy, future ideas about what could be done with Bitcoin one day, it is today just an asset which buyers buy in the hope to sell it at a higher price to someone else later.
Students of financial history know this is called the «Greater Fool Theory».
As an investor, I have no tools to value Bitcoin as an asset. It has no intrinsic value. Granted, it does have some sort of marginal cost of production, but this is vague. So in the end, if I buy Bitcoin today I would not buy it with the idea that it is undervalued. I would buy it solely based on the idea to sell it to a greater fool at a higher price tomorrow.
That’s not investing. That’s speculation. And we know this is what bubbles are made of. They inevitably pop and reveal the speculative damage. Or, as Warren Buffett famously said: You never know who’s swimming naked until the tide goes out.
Don’t get me wrong: To me, Bitcoin is not the biggest bubble in human history, as Nouriel Roubini once claimed. He’s exaggerating wildly with that claim. It is just a regular-sized bubble. Bitcoin is not a scam, Bitcoin will stay - but at a way lower price than we see today.
In my view, the only asset that has really proven itself in those past, mad months was gold. In the end, we don’t want some digital promise on some shiny, distant future. No, we want to hold something physical in our hands and in our accounts. Something that has proven its value over centuries, something that gives us confidence on an individual level that at least we, personally, haven’t gone mad yet.
That’s why I close with a prediction. 2020 is the year when gold will reach a price of $2020. And it’s also the year when Bitcoin will fall towards a price of $2020. That’s the point where these two assets will finally meet.
*The above is the writer's personal opinion and not an advice to buy or sell