Skeptics Say Bitcoin Has No Value. Heres Why Theyre Wrong
On Tuesday, it was trading at $11,943 , a decline of 12 percent, according to CoinDesk. As bitcoin's popularity surges and its price rises and falls, more and more people are asking the same question: How does bitcoin , something that's essentially invisible and intangible, have value? In economics, something has value if it checks the following two boxes: scarcity and utility. Scarcity just means that something has a finite supply. In the case of bitcoin, the cryptocurrency has a set cap of 21 million bitcoins. Many analysts note that this set cap makes bitcoin more desirable than other assets, even gold. That's because unlike with gold, there's no need to worry about a digital Gold Rush. A treasure trove of bitcoin won't ever be "discovered," causing the crypto's price to crash with an influx in supply. "There are potentially millions of times more gold underground than actually has been extracted," said Tom Lee, head of research at Fundstrat Global Advisors. Lee was chief equity strategist at J.P. Morgan before co-founding Fundstrat in 2014. Ben Yu, a blockchain expert living in San Francisco, says technological advances are also making gold easier to mine. "Today we mine gold at four times the rate that we did just 100 years ago," Yu said. So if bitcoin has scarcity, what about its utility? Many believe the cryptocurrency's utility lies in its potential to be a more efficient commodity than we already have. Proponents of bitcoin like it for a number of reasons. First, bitcoin is decentralized, meaning no government, bank or single person has control over it; it can't be toppled by corruption at the top. It's also trivially divisible, meaning you can buy a small item like a doughnut with it as easily as you can buy a house or even a mansion. And finally, the code it Continue reading >>
Exchange Rate - What Determines A Bitcoin's Value? - Bitcoin Stack Exchange
Fiat money is money that has no entity backing it other than the issuer, usually a government. When the United States dollar finally disconnected from the gold standard in 1971 it became a fiat currency. Basically the USA declared, "The dollar has value because we are 'Murica" and the world said, "OK". In actuality, the US dollar has no intrinsic value other than the fact it is issued by the United States. Most modern currencies are fiat money. Bitcoin follows the same principle, in that its value is determined by perception. Instead of the trust of some government entity being evaluated to determine the value of Bitcoin, other factors (the technology, widespread acceptance, understanding of e-money, etc.) are taken into consideration. When magazines and online entities write intriguing articles about Bitcoin, people take interest in it, the demand goes up and so does its value v. government-back currencies. Likewise when Mt. Gox is DDoSed , a bitcoin service shutters , or $250,000 worth of BTC is stolen , people get nervous, demand drops, and so does BTC's value. Continue reading >>
Commentary: Bitcoin's Value Explained | Fortune
Bitcoin is a different kind of beast that can be difficult for people to understand. New things usually are. And while Bitcoin is nearly nine years old, it represents a completely new type of asset. Let’s break down what I perceive to be the three major components of Bitcoin’s value: As investors near the Bitcoin iceberg, the first thing they see is payments—after all, it’s a cryptocurrency, right? Currencies are used for payments and so Bitcoin must be all about payments. It’s true: Bitcoin is certainly used for payments, and this is an important part of its value. However, it’s not widely used for payments and, while it may be increasingly important over time, it isn’t the most important component of Bitcoin’s value today. Why don’t people use Bitcoin for payments more often? Simply put, people don’t like to spend appreciating assets. Given the choice of payment methods, people like to spend in the “currency” that is likely to be worth the least tomorrow. At this point, that’s not Bitcoin. Furthermore, most people don’t buy Bitcoin for payments. That’s simply not why they acquired it. Even if you could, very few investors would pay for their coffee with Apple (AAPL) stock because that’s simply not the reason they bought Apple stock in the first place—same with Bitcoin. Lastly, people don’t generally use Bitcoin for payments because goods aren’t broadly priced in BTC terms. Goods aren’t broadly priced in BTC terms because, if they were, the price would have to update several times each minute just to maintain a consistent revenue for the seller. In short, the major drawback to using Bitcoin for payments is that it is volatile, which is neither a great ingredient for payments (medium of exchange) nor the pricing of goods (unit of Continue reading >>
What's The Value Of Bitcoin? Who Knows
Bloomberg the Company & Its Products Bloomberg Anywhere Remote LoginBloomberg Anywhere Login Bloomberg Terminal Demo Request Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world. Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world. Unlike tangible gold and silver, digital currencies haven't had hundreds of years to prove their durability. OK, bitcoinsure looks like it's a bubble. For one thing, there's that chart: For another, if you follow the Investopedia definition that a bubble "is created by a surge in asset prices unwarranted by the fundamentals of the asset," there's the unsettling reality that this particular asset has no fundamentals. That is, there's no stream of income orcollection ofassetsattached to ownership of a bitcoin.Bitcoins haveno intrinsic value. This last statement, which I have made before , tends to irritate some bitcoin partisans. It shouldn't! The U.S. dollar hashad no intrinsic value either since President Richard Nixon unlinked it from gold in 1971. Yet dollars remain useful as a means of exchange, and people are willing to accept them as payment for more tangible things. Come to think of it, gold doesn't have much intrinsic value either.Sure, you can make nice jewelry out of it and it has some industrial applications, but that's not why it sells for $1,248 an ounce. It sells for that much because people have over the millennia come to accept it as a durable store of value. During an earlier bitcoin bull market in 2013, Bank of America Merrill Lynch currency strat Continue reading >>
Faq - Bitcoin
Find answers to recurring questions and myths about Bitcoin. Bitcoin is a consensus network that enables a new payment system and a completely digital money. It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen. From a user perspective, Bitcoin is pretty much like cash for the Internet. Bitcoin can also be seen as the most prominent triple entry bookkeeping system in existence. Bitcoin is the first implementation of a concept called "cryptocurrency", which was first described in 1998 by Wei Dai on the cypherpunks mailing list, suggesting the idea of a new form of money that uses cryptography to control its creation and transactions, rather than a central authority. The first Bitcoin specification and proof of concept was published in 2009 in a cryptography mailing list by Satoshi Nakamoto. Satoshi left the project in late 2010 without revealing much about himself. The community has since grown exponentially with many developers working on Bitcoin. Satoshi's anonymity often raised unjustified concerns, many of which are linked to misunderstanding of the open-source nature of Bitcoin. The Bitcoin protocol and software are published openly and any developer around the world can review the code or make their own modified version of the Bitcoin software. Just like current developers, Satoshi's influence was limited to the changes he made being adopted by others and therefore he did not control Bitcoin. As such, the identity of Bitcoin's inventor is probably as relevant today as the identity of the person who invented paper. Nobody owns the Bitcoin network much like no one owns the technology behind email. Bitcoin is controlled by all Bitcoin users around the world. While developers are improving the s Continue reading >>
What Is The Fundamental Value Of Bitcoin?
What Is The Fundamental Value of Bitcoin? I write about monetary and tax policy for the 21st century. Opinions expressed by Forbes Contributors are their own. What is the fundamental value of bitcoin? It seems that even the Bitcoin enthusiasts themselves have trouble answering this question. Bitcoin does not have any assets, cashflow, cost of production or final consumptive demand, the traditional basis of most asset valuation techniques. The market price of anything is determined by supply and demand, in the market. Buyers and sellers. This, by itself, does not mean too much. It just means theres a price. However, we can then start to think about why people would demand (buy), or supply (sell) Bitcoin. Bitcoin is a form of money. It is, arguably, not a very good form of money, as its value is intensely volatile. However, it is used as payment in monetary transactions. Goods and services are traded on one side, and Bitcoin is traded on the other. Certainly, much of probably, most of; perhaps, nearly all of the present demand for Bitcoin is as an abstract trading sardine. Its buyers are not acquiring Bitcoin to later use it in some monetary transaction, like purchasing some goods or services. But, at least some of the demand for Bitcoin is for this purpose. (Most foreign exchange trading volume in regular currencies is also speculative, but most demand is monetary.) Bitcoin has proved itself to be quite useful for certain things. It is a nearly-costless way of transferring value over long distances, and (supposedly) anonymously. It does not make use of the banking system, and does not leave a paper trail. It can be used by anyone with a smartphone, which includes millions perhaps, billions of people in places like India, Afghanistan, rural China, Cambodia, and all of Af Continue reading >>
To Value Bitcoin Now, Think Back To Internet Startups
Bloomberg the Company & Its Products Bloomberg Anywhere Remote LoginBloomberg Anywhere Login Bloomberg Terminal Demo Request Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world. Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world. To Value Bitcoin Now, Think Back to Internet Startups If you accept that the currency will be the main pipe that finances cryptoenterprises, then current prices seem reasonable. Bitcoin's meteoric rise is forcing analysts to look for a method to estimate a fundamental value for cryptocurrencies. So far, there is no agreement on a global standard, but bitcoins are unlikely to lose their leading role anytime soon. However there is plenty of room for downside if crypto-technologies do not deliver anticipated economic value, or if that value is not captured through bitcoin appreciation. Buiter Says Bitcoin Is Crazier Than the Tulip Bubble I'm inclined to anchor bitcoin value to the enormous body of code written by cryptodevelopers. Not just bitcoin code, but code for other cryptocurrencies, tokens and assets; plus apps to run on top. Think of this as 1,000 Silicon Valley startups. Many will fail. But some could succeed and perhaps a few will succeed spectacularly. Moreover, new ideas are being introduced every day. I've done bitcoin valuation since 2012. 1 (Full disclosure: I own bitcoins and other cryptocurrencies.) Initially, I focused on money transfer and value store. Since then, superior cryptocurrencies have emerged for both purposes, and existing financial comp Continue reading >>
Three Ways To Value Bitcoin Hacker Noon
Crypto Fund Manager, First Follower, Wartime Founder CEO, Advisor, Angel Investor & Author on AI When talking with anyone interested in trading bitcoin, the question inevitably asked is, How much is bitcoin worth? Its a tough question to answer. Here are 3 ways to consider when evaluating what bitcoin is worth. If you want to take a stab at valuing bitcoin coming from the context that its a commodity, one way might be to estimate it as a percentage to the total value of gold. The market cap of all the gold currently mined today is about $8T . Gold is a good commodity to compare against because its not consumable and it is used mainly as a store of value. Gold was a store of value for a generation. Today, everything is digital, and bitcoin could be a store of value for the future generation. If bitcoin garnered 10% of the total value of gold, then the market cap of bitcoin could rise to $800B. To date, bitcoin has a market cap of about $100B . This is one way FundStrat Global Advisor co-founder Tom Lee is attempting to value bitcoin , though he uses 5% of gold. This might be one way to value bitcoin. That would still put the longterm value of bitcoin at $400B. Lee also explains the network effect and Metcalfes Law . Value is established in this way: the more engagement, the more value gets created. As more and more people use bitcoin, the higher the value because of the network effect. This focus on bitcoin as a technology or social network conveys the strong opportunity for non-linear growth. Speculation every speculative dollar that trades in bitcoin increases the value Merchant Adoption every new merchant that accepts bitcoin increases the value of the network Consumer Adoption every time a new consumer can buy something with bitcoin the value increases Security/Ince Continue reading >>
Why Does Bitcoin Have Value And How Is The Price Determined?
Why does Bitcoin have value and how is the price determined? As a growing number of people become aware of and interested in Bitcoin --especially when the price tends to increase -- we often get asked: Many people find it difficult to grasp how something which only exists digitally can have any value at all. The answer to this question is rather simple and it lies in basic economics: scarcity, utility, supply and demand. By definition, if something is both rare (scarce) and useful (utility) it must have value and demand a specific price, with all other things being equal. Take gold, for example. Why does gold cost as much as it does? Put simply, it is relatively expensive because it is rare, hard to find and limited in supply (scarcity). Gold also has some uses to which consumers derive satisfaction from (utility). The combination of these two elements creates value by which price is determined based on the markets supply and demand. So what does this all have to do with Bitcoin? Like gold, Bitcoin is also scarce: its supply is limited. There are currently just over 16.2m Bitcoin in circulation and the maximum that will ever exist is capped at 21 million. This set cap is well known, making its scarcity transparent. However, to have value, Bitcoin must also be useful. Bitcoin creates utility in a number of ways. Like gold, Bitcoin is perfectly fungible (one Bitcoin is similar to another), it is divisible (you can pay someone a small fraction of Bitcoin, should you want to) and easily verifiable (via the Blockchain). Bitcoin is not just scarce, it also has utility Bitcoin also has other desirable properties. It is fast, borderless and decentralised with the potential to change the financial world for better. Not only does it currently have value as a payment system, but Continue reading >>
What Determines The Price Of 1 Bitcoin?
By Brent Radcliffe | January 25, 2018 3:29 PM EST What's a Cryptocurrency Exit Scam? How Do You Spot One? Bitcoin is a cryptocurrency based on specifications outlined by Satoshi Nakamoto in 2009. Transactions are recorded in a blockchain , which shows the entire transaction history for each unit and is used to prove ownership. Processing transactions requires miners using computers to process blocks of transactions, which are the core components of the blockchain. Buying a bitcoin is not the same as buying a stock or bond. Bitcoin is not a corporation, so there are no corporate balance sheets or Form 10-Ks to review, and no costs, revenues, or profits to create a baseline against other cryptocurrencies. It is also unlike investing in a traditional currency, as it is not issued by a central bank orbacked by a government. As such, the monetary policy, inflation rates, and economic growth measurements that typically influence the value of a currency do not apply. This can make understanding why the price of bitcoin goes up or down confusing. Several factors can influence the price: the supply of bitcoin and market demand for it Countries that do not have a fixed foreign exchange rate are able to partially control how much of their currency is circulating by adjusting the discount rate, changing reserve requirements, or engaging in open-market operations.These options allow the central bank to potentially impact a currencys exchange rate. The supply of bitcoin is impacted two different ways. First, the bitcoin protocol allows new bitcoins to be created at a fixed rate. New bitcoins are introduced into the market when miners process blocks of transactions, and the rate at which new coins are introduced is designed to slow over time: growth has slowed from 9.8% (2015) to 6.9 Continue reading >>
Bitcoin Price Index - Real-time Bitcoin Price Charts
The vice president of the European Central Bank saidyesterday that investors are taking a risk buying bitcoin at current high prices. Do you believe celebrity endorsements help the blockchain industry? Yes big names add credibility and visibility No they back scam projects or distract from innovation Indifferent this neither helps nor hurts the space I would like to receive the following emails: CoinDesk Weekly - Insights for the week ahead CoinDesk Daily - Our snapshot of the day's news Subscribe to our free newsletter and follow us Continue reading >>
This Is What Determines The Price Of Bitcoin
This is what determines the price of Bitcoin Understanding the source of those crazy numbers. By Rob Verger posted Jan 22nd, 2018 at 5:38pm Hey look, a visual representation of Bitcoin prices. Just like a hiker hoofing up and down across a jagged mountain range, anyone who follows the price of Bitcoin is probably getting pretty tired. From a high of over $19,000 in December of last year to around $10,000 today, the price has been changing so quickly that any news coverage of it is quickly out of date. As if the wild changes werent enough, the price can even vary slightly depending on where you look for it. Heres what generates those crazy prices, and the small differences between them, that you might see the next time you shop for cryptocurrencies. The price at any moment is a natural result of the trading that happens on cryptocurrency exchanges in a process called price discovery. For example, consider Coinbase.com a popular hub, or brokerage, for people who want to buy or sell Bitcoin. If you purchase there, the entity selling you the cryptocurrency is actually Coinbase itself. Coinbase.com has a sister site, called GDAX, which stands for Global Digital Asset Exchangethats a marketplace for professional traders and institutions, and thats where the price discovery happens. The price of the last trade on GDAX is the value of Bitcoin there at the moment, and thats also the basis for the price you see on Coinbase.com. (Check in the upper left corner here on GDAX to see the last trade.) When people say, Whats the price of Bitcoin trading? Or the price of Ether? Its not any company that sets it, says Adam White, the general manager of GDAX. That price is discovered on open exchanges through individuals and institutions trading with one other. In short, the price of Bitco Continue reading >>
Who Sets Bitcoin's Price?
Bitcoin is a volatile animal. When the currency was first launched, it had no official price at all, because no one was selling it for US dollars. But then, when the first exchanges began to appear, a price developed. It started small, at around 6 cents, and didnt hit a dollar until around February 2011. It spiked that June, reaching around $22, and then fell back again, ranging below $20 for the remainder of that year. It wasnt until February 2013 that bitcoin really began to take off. It began climbing, rapidly, reaching over $140 that April, and then topping $1000 in December that year. No wonder speculators took such a lot of interest in the cryptocurrency. But who sets that price, and why does it keep swinging so crazily? Bitcoins price isnt set by anyone in particular. Its set by the market, and to make things even more complex, it varies. Today, I looked up the bitcoin price on Google, and it told me that it was $311. Yet surfing to the Bitcoin Price Index for the popular bitcoin website CoinDesk, I was told it was $243. Then, surfing over to Winkdex , the bitcoin price index operated by the Winklevoss twins (who also have a bitcoin exchange traded fund), I find the figure $243. Why the difference? Part of the reason is where the data comes from. Bitcoin is never traded in one place. Instead, it is traded on multiple different exchanges, all of which set their own average prices, based on the trades being made by the exchange at any one time. Indexes gather together prices from several exchanges and average them out, but not all of the indexes use the same exchanges for their data. And in any case, you cant trade bitcoin via these index sites all theyre doing is aggregating price information. If you actually want to buy and sell bitcoin, you have to choose a par Continue reading >>
Bitcoins Price: Who Decides The Value Of Cryptocurrencies?
Bitcoins price: Who decides the value of cryptocurrencies? Graffiti on the outskirts of the city center of Vilnius, Lithuania. (Photo by Sean Gallup/Getty Images) Investing in a cryptocurrency like Bitcoin is a very existential experience. You get incredible highs and dizzying lows. And a lot of questions in between. After hitting a record of nearly $20,000 in December 2017, Bitcoins price has been a roller coaster of late. It went up to $11,440 per coin in mid-February 2018, a welcome recovery from trading as low as $6,000 just several days earlier. Other cryptocurrencies are also not having the steadiest of months. On February 2, over$100 billion was wiped from the global cryptocurrency market, all in 24 hours. The sell-off was prompted by concerns that prices of digital currencies were artificially inflated as well as regulation talk in India and South Korea, one of the biggest cryptocurrency markets in the world. why-bitcoin-is-better-than-gold-with-wences-casares Some analysts are not too concerned with such volatility, however, seeing in it a natural lifecycle of cryptocurrency stock. In fact, Tom Lee of Fundstrat Global Advisors predicts that by July 2018, Bitcoin will be back up to $20,000 and reach $25,000 by the end of the year. He finds that judging by historical performance, it takes Bitcoin about 85 days to recover prior highs after a period of bottoming out. Vitalik Buterin, the founder of the cryptocurrency Ethereum is less bullish. He warned last week that such currencies are really not the best place to put your lifes savings since they are new and hyper-volatile, with the possibility to drop to near-zero at any time. Instead, traditional assets are still your safest bet, added Buterin. This chart from Coinbase shows you the wild ride bitcoin has been Continue reading >>
What Is Bitcoin's Intrinsic Value?
Bitcoin offers an efficient means oftransferring money over the internet and is controlled by a decentralized network with a transparent set of rules, thus presenting an alternative to central bank controlled fiat money. There has been a lot of talk about how to price bitcoin and we set out here to explore what bitcoin's price might look like in the event it achieves some level of widespread adoption. In this article, we seek to lay a framework for calculating a medium to long term value for bitcoin, and to empower the reader to make their own projections on the value of bitcoin. (Haven't filed your taxes yet because you don't know how to declare your virtual currency? Check out Investopedia's definitive Bitcoin IRS Tax Guide .) As part of our framework, we make several key assumptions. Our first assumption is that bitcoin will derive its value both from its use as a medium of exchange and as a store of value . As a footnote to this assumption, it should be stated that bitcoin's utility as a store of value is dependent on its utility as a medium of exchange. We base this in turn on the assumption that for something to be used as a store of value it needs to have some intrinsic value, and if bitcoin does not achieve success as a medium of exchange, it will have no practical utility and thus no intrinsic value and won't be appealing as a store of value. Our second assumption is that the supply of bitcoin will approach 21 million as specified in the current protocol. To give some context, the current supply of bitcoin is around 13.25 million, the rate at which bitcoin is released decreases by half roughly every four years, and the supply should get past 19 million in the year 2022. The key part of this assumption is that the protocol will not be changed. Note that changin Continue reading >>