Copy link
Increase text size
Decrease text size
Link copied

What is Bitcoin's fundamental value?

What is Bitcoin's fundamental value? Shutterstock

Sat, 13 Nov 2021, 08:11 am UTC

As it hits new highs, there is no shortage of bold predictions about Bitcoin reaching US$100,000 or more.

Often these are based on not much more than extrapolations by people with vested interests: the price has gone up a lot so it will keep going up. If it gets above its previous high, it must keep going up.

There is also “charting” or “technical analysis” – looking at graphs and seeing patterns in them. There may be fancy terms such as “resistance levels” and “Tenkan-Sen”. There is talk about “fundamentals”.

Let’s examine this last idea. Does Bitcoin have a fundamental value?

Calculating fundamental values

A fundamental value in traditional financial-speak means a value based on what return (or cash flow) is generated by an asset. Think of an apple tree. To an investor its fundamental value is in the apples it produces.

In the case of company shares, the fundamental value is the dividend paid from profits. A standard measure used by investors is the price-to-earnings ratio. In property, the fundamental value reflects the rent the investor earns (or the owner-occupier saves). For a bond, the value depends on the interest it pays.

Gold has a fundamental value also, based on its use for jewellery or dental fillings or in electronics. But this value is not why most people buy gold.

Fundamentals for cryptocurrencies

National currencies are different. Their value is in being a trusted and accepted unit of exchange.

In the past coins made with gold and silver had a fundamental value because they could be melted down for their precious metals. That’s no longer the case with fiat currencies, whose value depends solely on people trusting that others accept them at face value.

Most cryptocurrencies, such as Bitcoin, Ethereum and Dogecoin are essentially private fiat currencies. They have no corresponding assets or returns. This makes it hard to determine a fundamental value.

In September analysts with Britain’s Standard Chartered Bank argued Bitcoin could peak at about US$100,000 by the end of 2021. “As a medium of exchange, Bitcoin may become the dominant peer-to-peer payment method for the global unbanked in a future cashless world,” said the head of the bank’s crypto research team, Geoffrey Kendrick (a former Australian Treasury official).

Theoretically this could be possible. Globally an estimated 1.7 billion people lack access to banking services. But Bitcoin has been spruiked as the future of payments since its invention in 2008. It has made little progress.

There are at least two significant barriers. First is the computational grunt needed to process payments. Technology may overcome this. The second obstacle is harder: the volatility of its price.

Digital currencies that can maintain a stable value are more likely to become payment instruments. These include the existing stablecoins, Meta’s mooted Diem and central bank digital currencies, already operational in some Caribbean economies.

So far the only significant company to have accepted payments in Bitcoin is Tesla, which announced this policy in March only to reverse it in May.

The only country to adopt Bitcoin as an approved currency is El Salvador (which also uses the US dollar). But it is far from clear what benefits there are. The laws forcing businesses to accept the cryptocurrency have also led to protests.

Bitcoin as digital gold

If Bitcoin has no real value as a widespread means of payment, what about as a store of value, like digital gold? It does have this advantage over most of the “altcoins”. Its supply, like gold, is (arguably) limited.

One tool used by crypto enthusiasts to compare Bitcoin’s scarcity with gold is called the “stock-to-flow” model. This approach claims gold holds its value because the existing stock of gold is 60 times more than the amount of new gold mined each year. The stock of Bitcoin is more than 50 times than the new coins “mined” annually.

But this does not explain why Bitcoin’s price halved earlier this year. Nor does it have any theoretical basis in economics: prices don’t depend just on supply.

Some Bitcoin promoters predict higher prices on the assumption funds managers will eventually invest an abritrary proportion, say 5%, of their funds in Bitcoin.

But such predictions implicitly assume Bitcoin, as the largest and best-known cryptocurrency, will continue to maintain its dominant position in the crypto market. This is not guaranteed. And there is no limit to the number of cryptocurrency alternatives.

Remember Bankcard? This credit card company once had 90% of the Australian market in the early 1980s. It was defunct by 2006. What about MySpace? Before 2008 it was a bigger social networking site than Facebook.

Here we go again

In September The Economist argued Bitcoin “is now a distraction” to the future of decentralised finance, with rival blockchain cryptocurrency Ethereum “reaching critical mass”.

There are parallels between the Bitcoin bubble and the dotcom bubble of 2000, driven by overly optimistic assumptions about new technologies – and human greed.

Just as a few stars such as Amazon emerged from the wreckage of the bubble, so it is possible some applications of the block-chain technology underlying Bitcoin have enduring utility. But I doubt Bitcoin will be one of them.The Conversation

Source: TheConversation

TokenPost | [email protected]

<Copyright © TokenPost. All Rights Reserved. >

To leave a comment, please sign in.
  • JoshiahKing12
  • 2021.11.24 22:43:31
I was referred to a crypto platform that grew my two weeks pay check with a twenty percent and i feel like it's a good start for anyone out there, one benefit when you start is a free eighteen dollar bonus and its a safe place to become a millionaire{{ millionaireExchange, org}
  • 0
  • ·
  • 0
  • Danhanwat
  • 2021.11.15 04:37:20
Need you’ll to know COINWALLETRECOUP DOT COM, they’re the Best Crypto Recovery firm out there. i was scammed by a forex website Tradestation to be precise to the tune 0f $153,700. was firstly informed that ill be able to withdraw 11.5% roi weekly from the second month of membership and if i invest more, the roi could be increased by 4.5%. i later invested $17,300 to make it a total of $170,000.
After the whole investment, i was only able to make a withdrawal for the first week, then after was told  to invest more to withdraw more but told them that i wasnt interested and wanted to continue with the current roi plan but was told that i wouldnt be able to withdrawal till i invest that was when i saw the red flag and told them i wasnt interested anymore but not surprised by their act i couldnt make any withdrawal again. I told a friend and he referred me to Coinwalletrecoup dot com and withing a week of our contact i was able to withdraw all my funds in addition to my roi for the whole planned duration of 9 months advance payment. I cant still believe that this happened, all thanks to Coinwalletrecoup dot com, you can get in touch with them if you need any of this services, they’re the best out there. COINWALLETRECOUP DOT COM. I'm so grateful. 
  • 0
  • ·
  • 0
  • Bitcoin (btc) $48,854.00 (-1.29%)
  • Ethereum (eth) $4,132.44 (0.00%)
  • Binance Coin (bnb) $551.46 (-3.29%)
  • Tether (usdt) $0.998937 (-0.28%)
  • Solana (sol) $188.62 (-10.04%)
  • Bitcoin (btc) $48,854.00 (-1.29%)
Jul 15, 2021 (Thursday)
BTC Surges by 1.16% Within 5 Mins, Marking 31,824.01 USDT
BTC Surges by 1.12% Within 5 Mins, Marking 32,104.8 USDT
BTC Drops by 1.03% Within 5 Mins, Marking 32,171.88 USDT
TriumphX Scouts 'MINAMCOMPANY' CEO Woo-Seong Lee As Creative Director
ETH Tops List Of Crypto Net Inflow With $298.96 Mln In Past 10 Hours
Jul 14, 2021 (Wednesday)
BTC Surges by 1.03% Within 5 Mins, Marking 32,738.08 USDT
BTC Surges by 1.01% Within 5 Mins, Marking 31,899 USDT
Crypto Market Sentiment On Jul 14: Market In "Extreme Fear"
ETH Tops List Of Crypto Net Outflow With $224.97 Mln In Past 10 Hours
Jul 13, 2021 (Tuesday)
Crypto Market Sentiment On Jul 13: Market In "Extreme Fear"
ETH Tops List Of Crypto Net Outflow With $178.61 Mln In Past 10 Hours
Jul 12, 2021 (Monday)
Crypto Market Sentiment On Jul 12: Market In "Extreme Fear"
BTC Tops List Of Crypto Net Inflow With $164.82 Mln In Past 10 Hours
Jul 11, 2021 (Sunday)
BTC Surges by 1.02% Within 5 Mins, Marking 34,475.6 USDT
ETH Tops List Of Crypto Net Inflow With $122.76 Mln In Past 18 Hours
Crypto Market Sentiment On Jul 11: Market In "Extreme Fear"
BTC Tops List Of Crypto Net Outflow With $87.56 Mln In Past 10 Hours
Jul 9, 2021 (Friday)
BTC Surges by 1.08% Within 5 Mins, Marking 33,911.8 USDT
Crypto Market Sentiment On Jul 09: Market In "Extreme Fear"
Subscribe to the TokenPost newsletter!
Don't show me this again today.
Back to top
Copyright ⓒ TokenPost. All Rights Reserved.