A Ponzi Scheme on top of a Ponzi Scheme inside a Ponzi Scheme

Hey team

It was my birthday yesterday. No gifts required. But if you want to, I’d love for you to share this with a friend  who you think may enjoy reading what’s being written. I’d love you long time for it. Truly, madly deeply, do. They can sign up to getting it daily by clicking here.

Now back to the good part.

Stock Splits and Stock Consolidations
If you want to work out the market value of a company, you take its current stock price and multiply it by the number of shares outstanding. A2 Milk Company, the business I wrote about on Wednesday has 723 million shares on issue for example. Yesterday its stock price closed at 7.60. 723 million x 7.60 is ~5.5billion dollars. That is the market value of a company. Make sense?

Every now and again, companies may decide to undergo a stock split, or a stock consolidation. The reason being that retail punters like you and I, tend to like stocks at certain prices. It’s stupid but it’s true. If you look at most stocks which trade on the ASX, they are usually between 2 and 100 dollars each. For some reason, lobbing your money in a stock priced within this range feels more palatable for investors.  Investor psychology for some reason has them thinking stocks priced less than 2 dollars are too speculative and dodgy and those priced above 100 dollars are too expensive and out of reach. The sweet spot, for what it’s worth is somewhere between 5 and 30 dollars, or thereabouts.

As an example, back in 2007, in the peak of the mining boom, Fortescue Metals (the third largest Iron Ore miner in Australia) split each share outstanding into 10 new ones. So if you had 100 shares valued at 50 dollars each pre-split, post-split you would own 1,000 shares at 5 dollars each.

Importantly, the market value of Fortescue did not change. The number of shares they had on issue increased by a factor 10 its true, but the value of their shares fell to one-tenth of their pre-split value. No-one was better or worse off. Everything remained the same.

That is not how it works with Bitcoin. Don’t be like that. You read the title of today’s note. You knew it was coming.

A Ponzi Scheme on top of a Ponzi Scheme inside a Ponzi Scheme
Like I wrote here, Bitcoin has undergone a couple of forks in its time. And a fork is extremely similar to a stock split in the share market, with one key difference. When a stock split occurs the total value of an investors holding does not change as per above. With a Bitcoin fork however, it does.

When the Bitcoin Cash fork occurred a few months ago, speculators received an equivalent number of Bitcoin Cash for every Bitcoin they held. So if you had 10 Bitcoin’s pre fork, post fork you now have 10 Bitcoin’s and 10 Bitcoin Cash. So your holdings have effectively doubled. However, the value of the bitcoins did fall. So by virture of the fork occuring, you now had more money. Out of thin air.

And then on 24 October, Bitcoin Forked again. This time to create Bitcoin Gold. So now you hold 10 Bitcoins, 10 Bitcoin Cash and 10 Bitcoin Gold.

The reason I’m writing this today? Because over night Bitcoin Cash has jumped 20%, Bitcoin Gold 18% and Bitcoin original is sitting around its all time high price.

  • 1 Bitcoin = 8,160 USD
  • 1 Bitcoin Cash = 1,570 USD
  • 1 Bitcoin Gold = 280 USD

So, as it turns out, your parents were right. Money doesn’t grow on trees. It grows on Bitcoin forks.

A Ponzi Scheme (Bitcoin Gold) on top of a ponzi scheme (Bitcoin Cash) inside a ponzi scheme (Bitcoin)

Anyway, that’ s 5 minutes. Hope it helped. 

Categories: Bitcoin, General Finance

Tags: , , , , , , , ,

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