Bitcoin Wrecks Your Hurdle Rate
It will take a decade or two for the financial world to catch on & adjust accordingly. But you get to read about it here today.
Read full report here.
I'm going to make 3 assertions in this article. Together, if true, they break the world of finance.
It will take a decade or two for the financial world to catch on & adjust accordingly. But you get to read about it here today.
The assertions:
Bitcoin is actually a low-risk asset
Bitcoin will continue delivering fairly high annualized returns
Every capital allocator on earth is using the wrong hurdle rate for their investment decisions
The concept of a hurdle rate
What do you do with a dollar? The smart thing to do is to find a way to invest that dollar into a project that you forecast will deliver an attractive return on investment. But how do you choose between an endless stream of possible ways to invest that capital?
From my Bain consulting and Stanford MBA days, I can say that the most common managerial framework to evaluate various capital projects is to forecast ROls and draw a line. Any capital projects with a forecasted ROI below that line are not worth considering; those above may be worth pursuing.
Where you draw that line is your "hurdle rate." Projects that clear the hurdle merit further consideration, those that do not are filtered out.
But exactly where you set your hurdle rate at is a mixture of art and science for individuals and companies.
Read full report here.