Like a number of growth stocks, Bitcoin (BTC -0.14%) has crashed hard this year. The largest cryptocurrency is down more than 50% from its peak last fall as investors have moved away from risk assets and Bitcoin has failed to live up to its reputation as an inflation hedge.
While some investors seem to believe that the cryptocurrency is cheap after falling so far from its previous peak, that argument seems suspect when taking a closer look. There’s no easy way to value Bitcoin, after all.
As a cryptocurrency, the asset doesn’t have any of the fundamentals that investors typically use to value productive assets like stocks, bonds, or real estate. Over its history, Bitcoin has moved more like a speculative asset, such as a penny stock, with large swings up and down. Even today, much of the value behind it seems speculative.
Bitcoin bulls often argue that gold is the best analog for the total value of the token. Since all the gold in the world is worth roughly $12 trillion, many believe that Bitcoin’s market cap will one day reach that milestone, up from $580 billion today.
PayPal co-founder and billionaire investor Peter Thiel even argued that Bitcoin should be worth as much as the global stock market, or $115 trillion. But without any fundamentals to go by, it’s easy to make these arguments, even if they’re flawed.
If we can’t look at numbers to value Bitcoin, it might make sense to consider its real-world influence in comparison to similarly valued companies, especially big tech companies, as the crypto is fundamentally a technology. The chart below shows how it compares in market value to the “big five” tech companies Apple, Alphabet, Microsoft, Amazon, and Meta Platforms.
|Asset||Current market cap|
|Meta Platforms||$545 billion|
It’s worth remembering that Bitcoin was worth $1.3 trillion at its peak. While it is smaller than most of the companies today, it’s still very much in league with them historically, based on market value.
Ingrained in the world?
It’s hard to overstate the influence of the big five tech companies around the globe. Apple has more than 1 billion active iPhone users and an installed-device base of nearly 2 billion. Many people would struggle to live their day-to-day lives without their iPhones, and financially and culturally, Apple’s trademark smartphone might be the most successful product in history.
Microsoft has dominated enterprise technology for a generation and is a leader in enterprise software, operating systems, and cloud infrastructure. More than 1 billion people use Microsoft products for work, and there are 1.4 billion monthly active devices running Windows.
Alphabet’s Google is the default search engine for the world, replacing everything from the phone book to the encyclopedia in the analog era. It processes over 8 billion searches a day.
Amazon has changed the way the world shops and reoriented the retail industry. It counts more than 200 million Amazon Prime subscribers and owns the leading cloud infrastructure service, Amazon Web Services. It gets more than 1 million orders a day and has more than 9 million third-party sellers around the world.
Lastly, Facebook parent Meta Platforms has nearly 3 billion people using one of its apps (Facebook, Instagram, Messenger, and WhatsApp) every day to connect with friends or get the news, and has more than 7 million businesses advertising on its platform.
All of these companies have disrupted their respective corners of the tech industry and have significantly changed the world. If they disappeared overnight, their absences would be glaring.
What has Bitcoin done?
At this point, Bitcoin still seems to be more of an idea than a reality, and its value is attached to its potential rather than what it’s actually doing today. As a currency, it’s unwieldy and expensive to use and has only barely penetrated the addressable market of payments.
As a medium of exchange, Bitcoin seems to be trying to solve a problem that doesn’t exist, as fiat currencies and credit card exchanges handle payments more efficiently than cryptocurrencies do. The recent drop in Bitcoin’s price also indicates that it’s a poor store of value, despite the argument that it’s “digital gold.”
About 114 million accounts hold Bitcoin around the world, so even ownership of the cryptocurrency pales in comparison to the daily exposure the world has to companies like Facebook, Google, and Apple. Most of those holders own Bitcoin as an investment, rather than a currency to transact with. Just 0.01% of those accounts control nearly a third of the Bitcoin in the world.
Its backers will argue that the cryptocurrency still has a long way to go in disrupting traditional currency, and efforts like the Lightning Network are underway to speed up transactions and add more utility. Still, it’s a mistake to think Bitcoin is a new product at this point.
Founded in 2009, it’s not much younger than Facebook, which was started in 2004. Bitcoin has built significant brand awareness in the last few years, so anyone who is interested in experimenting with cryptocurrency has probably tried it already.
Tech disruptions tend to happen quickly, as the success of Facebook, Google, or the iPhone show, so it seems like the Bitcoin disruption would have happened already if it were going to. Now, valuations in the tech sector have crashed as we’ve moved past the peak of the hype cycle that was inflated by the pandemic.
It’s not surprising to see Bitcoin falling with tech stocks, since so much of its value is based on its potential. But with the hype cycle now broken, it still seems like the cryptocurrency could have a ways to fall.
At a market value of $580 billion, Bitcoin is still worth more than Meta Platforms, which has its own stake in the metaverse as well as a global influence that is orders of magnitude greater than Bitcoin’s. From that perspective, there’s no good justification for the cryptocurrency’s current market cap.