Investing in Virtual Currencies based on the Fundamentals

"Value investors" try to pick stocks based on the fundamentals: strong management team, large cash reserves, proven track record, etc. Why not look at virtual currencies/payment systems the same way?

If we imagine a world where there are a lot more virtual currencies and payment systems floating around - such as Linden dollars, Amazon coins, Ripple, Litecoin, MintChip, etc. - Bitcoin's fundamentals compare rather positively from a "value investing" perspective:

-4 year headstart and never been hacked, so proven track record
-strong, independent dev team
-significant "brand" recognition
-substantial liquidity in most major countries
-significant business adoption and user base
-fairly decentralized (compared to Amazon coins, MintChip, and even Ripple it seems)
-totally inflation-proof (beyond the preset schedule)
-sound, proven method for ensuring the transaction-securing mechanism grows as needed
-allows for substantial privacy
-etc.

And there are probably a few disadvantages from an investment perspective as well. In addition, opinions will vary as to which characteristics are most relevant.

The point is, if we assume cryptocurrencies are the future in one form or another, the "Dow Jones Industrial Average" of all functioning cryptocurrencies in the future (whether it turns out to be one or many) will be gobsmackingly huge. And right now, Bitcoin is far and away best poised to take the lion's share of that future "DJIA."

In that sense, Bitcoin could be called a value investor's dream come true: the most undervalued asset of all time.

Here of course I must pause to give the standard warning against "new paradigm" thinking, where - like right before the top of the dotcom bubble - people were talking of tech stocks as being an entirely different animal that would keep going up and up. And it was somewhat plausible, too. No one knew how much potential the internet really held. But even if the hopes placed on the internet were well-founded, they were too early. For the same reasons, this line of reasoning on Bitcoin may also be too early; but one day it won't be.

Take-home message: do not count on it, but also do not be overly surprised if Bitcoin just keeps on rising in giant steps. Note that this holds even if userbase and infrastructure lag behind speculation, for it is a speculator's job to anticipate trends before they happen, and for all we know the soundness of the monetary system is just as much of a fundamental as the userbase.