A single share of Apple Inc. (NASDAQ:AAPL) is now worth less than a bitcoin. So should you dump Apple and invest in bitcoins instead? Not so fast, says Michael Santoli, a contributor to Yahoo! Finance.
The value of bitcoins is pure speculation
We’ve seen the price of bitcoins skyrocket over the last few weeks, and they traded as high as $675 at Japanese bitcoin exchange Mt. Gox today. Just six weeks ago, bitcoins were trading for less than $150. Meanwhile, shares of Apple Inc. (NASDAQ:AAPL) are still hovering at around $519 a share.
There are a few things which may be driving bitcoin prices currently. China has seen huge demand recently as its bitcoin exchange surpassed Mt. Gox to be the world’s largest. Bloomberg TV reported via its Twitter account today that China accounts for more than half of the world’s daily bitcoin turnover.
And then there’s the uncertainty surrounding the digital currency. Many people just aren’t sure about what bitcoins are. Seems to me like a good reason not to buy them, but investors just can’t get enough of them. And then there’s the fact that regulators are holding meetings on bitcoins, thus taking a step toward legitimizing the currency (and possibly slapping regulations on it).
Do we need bitcoins?
Santoli suggests that the world doesn’t need bitcoins, and he’s right to some degree. Bitcoins are just another form of currency, but some Europeans may have thought they didn’t need the euro back when each country had its own currency. Not that bitcoins are anything like the euro, but there are certainly going to be people on both sides of this argument. Human being survived for a long time without any kind of currency at all, although there’s no denying that having currencies has made our lives easier.
The real question here may be just how many different kinds of currencies the world needs. And whether bitcoins are less of a currency and more of a commodity like gold.
One of the reasons some investors may have been leery at first about investing in bitcoins is how prevalent they were in illicit transactions like those conducted through the online marketplace Silk Road, where buyers could find many illegal products for sale.
How high will bitcoins go?
According to Santoli, bitcoins can be segmented into fractions just like most other currencies. And since no one really knows what bitcoins should be worth, the value of them could, in theory keep skyrocketing. He reports that bitcoin supply will eventually peak at 21 million of them. Currently there are about 12 million of them in existence, and the pace of their creation is pre-set. The digital currency is mined using specialized super computers which discover them by solving highly complex mathematical equations.
Another driver he mentions is this idea that there is a cap on how many bitcoins will ever exist. He says this issue also gives them a diminished ability to act as a currency.
Putting bitcoins up against Apple
The author notes that there really should be no comparison between bitcoins and Apple Inc. (NASDAQ:AAPL). When you own a bitcoin, you own a string of computer code that may or may not be worth anything. However, when you own a share of Apple, you own “about 1 / 900 millionth ownership of the most valuable company in the world.” You get about $12.20 in annual dividends and a tiny bit of a say in what happens at Apple. Also the value of Apple shares is somewhat tied to the company’s profitability, unlike bitcoins, which are entirely speculative in nature, at least currently. This could suggest that there’s a near-term floor on the value of Apple Inc. (NASDAQ:AAPL) shares, unlike the value of the bitcoin.