In a world where the Volkswagen Group (OTCMKTS:VWAGY) is worth just $109 billion, Tesla Inc. (NASDAQ:TSLA) is insanely overvalued.
But in a world where bitcoin (CCC:BTC) is valued at $880 billion, Tesla’s $810.5 billion market capitalization seems a bit like Goldilocks’ “just right.”
In other words, Elon Musk didn’t buy bitcoin as an investment. He bought it to validate Tesla’s “generous” market value.
If technological “vapor” is worth $880 billion, then a tech-savvy EV maker that sells half a million sexy cars a year should be worth at least that much.
As you likely know by now, Tesla announced on Monday that it had invested $1.5 billion into bitcoin and would soon start accepting payments in the cryptocurrency for its electric vehicles.
That caused the price of bitcoin to rise 15% — past $45,000 … then $46,000 … and then $47,000, all within an hour, for the first time ever.
Tesla’s stock also jumped on the news — but not too sharply. In this case, Tesla was better for bitcoin than bitcoin was for Tesla. Though one could easily imagine the reverse being true.
Recently, Tesla CEO Elon Musk has been tweeting about cryptocurrencies … leading the Reddit Army we’ve been talking about here to pile in further on bitcoin and “meme” cryptos like dogecoin (CCC:DOGE).
It’s all a perfect storm of … something.
That something is today’s topic.
Today’s topic is faith — the kind that moves mountains … or at least the kind that moves mountains of capital into profitless companies and intangible cryptocurrencies.
The chart below shows the price trajectories of Tesla and bitcoin. Based upon their similar price paths, you might assume that these two assets share some sort of connection. And you would be exactly correct.
The identical investment impulse is lifting the prices of both of these financial assets toward the heavens. That impulse is faith … perhaps even cultlike faith.
Neither of these assets even existed 15 years ago. Neither one produces a nickel of profit. And yet, together, they have obtained a market value of nearly $1.7 trillion!
That’s faith! Perhaps it’s not enough to walk on water, but more than enough to float on air.
Perhaps these lavish valuations are exactly as they should be. Or perhaps they should be even more lavish. I have no idea. That’s the market’s job.
I’ve never owned a single share of Tesla or a single bitcoin — not because I believe them to be bad investments, but simply because I lack the faith that would enable me to make a confident bet on either one of them.
In my congregation, we put very little faith in mere faith. We don’t commit capital to “things hoped for” or “things not seen.” We commit it in things known and seen … like earnings, for example.
And when it comes to money and other stores of value, we place our trust in things we can touch, like real estate and precious metals.
Bitcoin is not a tangible thing; it is a formula, an algorithm. It doesn’t glitter in the sunlight … it doesn’t make a clinging sound when you drop it on a table … and it doesn’t possess a multi-millennia history as money.
It possesses zero intrinsic value, which means that it derives all of its value from the faith of its adherents. Of course, the same could be said of gold. In fact, the same has been said of gold … over and over and over again.
“Gold will never produce anything,” Warren Buffett once declared. “Gold has two significant shortcomings, being neither of much use nor procreative.
“This type of investment,” he continued, “requires an expanding pool of buyers who, in turn, are enticed because they believe the buying pool will expand still further. Owners are not inspired by what the asset itself can produce — it will remain lifeless forever — but rather by the belief that others will desire it even more avidly in the future.”
Gold, like bitcoin, is a monetary asset whose value relies on faith. But the main thing gold always had going for it was its long history as money. Perhaps this history is what gold now has going against it. Gold has become “your grandfather’s store of value.” It is money for Luddites.
Bitcoin is not gold. That’s clear. This techno Johnny-come-lately, according to its fervent apologists, is not only better than the U.S. dollar, but it is also superior to every other currency known to man, including the money known as gold.
The faith that inspires confidence in bitcoin is not simply faith in a specific technological innovation; it is faith in a revolutionary new technological order.
Throughout the millennia, humans have always placed a certain amount of faith in technology. They have always believed that technological innovation could enhance their quality of life.
But this new faith in technology that is powering bitcoin is different. Technology is no longer the means to an end; it is the end itself.
Bitcoin is not the technological means to money; it is technological money. And by becoming actual money, this technological marvel delivers salvation from the old order of government-sponsored currencies.
In other words, to embrace bitcoin is to embrace a new faith and to reject the established one.
The New Religion
Technologically, Tesla is perhaps less revolutionary than bitcoin. The highway-worthy electric vehicle is a technological step, not an evolutionary leap.
On the other hand, the faith in technology that inspires individuals to follow Elon Musk wherever he takes them — and to buy Tesla shares along the way — is not so different from the faith that inspires a purchase of bitcoin … or that leads one to send money to Joel Osteen.
In both cases, as the New Testament states, “Faith is assurance of things hoped for, a conviction of things not seen.”
To Tesla’s naysayers, the company is simply a profit-challenged auto manufacturer with big dreams. But to the faithful, Tesla is a technological revolutionary, dressed in the modest garb of a car company. And Musk is the Tony Stark “Iron Man” in the flesh — a real-life superhero/uber-capitalist/genius inventor all in one package.
Yes, until very recently, Tesla lost money every year — if you care about that sort of thing — but Rome wasn’t built in a day.
So what price does one put on this “revolution”? The mark-to-market answer to that question is $1.7 trillion … and growing.
To be clear, I am not suggesting that Tesla deserves a lower valuation, or that it deserves a higher valuation. I have no idea. Nor do I have any idea what the price of one bitcoin ought to be. I am merely pointing out that both bitcoin and Tesla seem to derive their vitality from a similar strain of faith-based investment.
And after Musk’s actions on Monday, bitcoin and Tesla seemingly have become fused into some sort of Supreme Financial Deity.
Certainly, faith can be a powerful positive force, but it can also be an unpredictable and unreliable one.
All faiths get tested from time to time, and this one will be no different. When that day arrives, Tesla and bitcoin might fall together, just as they have soared together.
Tesla and bitcoin both represent the cutting edge of technological upheaval — an overhaul of the established order. They are both messengers of the Technochasm … the creative destruction that is splitting the world into haves and have-nots.
That means that the road ahead for both of these world-altering assets is sure to be a fascinating one, but it is also sure to be a rocky and volatile one.
Once the powers of creative destruction are unleashed, there’s no telling exactly how and where the creativity will flourish … or exactly how and where the destruction will leave its mark.
For those believe in the power and profitability of technology — but lack faith in St. Elon’s holy fusion — you can check out my Technochasm presentation here.
On the date of publication, Eric Fry did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Eric Fry is an award-winning stock picker with numerous “10-bagger” calls — in good markets AND bad. How? By finding potent global megatrends … before they take off. And when it comes to bear markets, you’ll want to have his “blueprint” in hand before stocks go south.