I don't think this is a bubble, but expected inflation, due to COVID19.
I am guessing we will see cash devalue roughly 2x in the next five years. As a result, there's a scramble where to put money safely.
If the alternative -- cash -- loses half of its value once COVID19 financial measures start unwinding, all of a sudden, investments just need a 50% ROI to be profitable. If I dump a million dollars into a startup, and it sells for the equivalent of $500k in five years ($1M after inflation), I've come out neutral.
How's that? I think you'd need it to sell for at least 2 mil to come out neutral. We're ignoring the reality of your shares getting diluted in future rounds.
I wrote that badly, didn't I? Let me rephrase that more clearly: Let's say I expect 100% inflation over the next 5 years.
I can buy an investment which will lose 50% of its real value over that time. I come out neutral compared to holding cash.
In dollars: I buy today at a nominal value of $1 million, and sell at $1 million. Same as cash.
In value: I buy today at a real value of $1 million. I sell at a real value of $500k in 2020 dollars.
I can buy into investments whose real value is falling, and still come out ahead in inflationary times. Value-losing startups suddenly become okay investments since they lose less value than dollars.
Both due to COVID19 and government debt generally, I think we're heading for high inflation.... People are looking for assets to put money into. Real values can go going down, while nominal (dollar) values can be going up.
Selling at $2 million would mean I didn't lose value, but I'm not sure people are finding alternative investments which won't lose value; it's why people are grabbing bitcoin, and stocks are hot.
I am guessing we will see cash devalue roughly 2x in the next five years. As a result, there's a scramble where to put money safely.
If the alternative -- cash -- loses half of its value once COVID19 financial measures start unwinding, all of a sudden, investments just need a 50% ROI to be profitable. If I dump a million dollars into a startup, and it sells for the equivalent of $500k in five years ($1M after inflation), I've come out neutral.