What is bitcoin currently worth
It's a decentralized system that changes over time, and it might end up being something else entirely. So which is it? The author does not provide a clear answer. Anyone that ever tried to pin down the value of Bitcoin faced this problem. Company stock is fairly simple in comparison. Companies have revenues, earnings, and profit. You can calculate the return on investment, which tells you how much money your stock is earning you. Even gold, a commodity whose price has been a hot topic for centuries, has some properties that can help you calculate its value: It's used for industrial purposes and for making jewelry.
It's also in finite supply, and it's very hard to make more of it. With Bitcoin, you've got very few metrics to start from. Its supply is limited to an ultimate 21 million bitcoins, but you could argue that inflation can happen through alternative cryptocurrencies, such as the recently created Bitcoin Cash. You could look into Bitcoin adoption by users and businesses—probably the only solid ground on which to base Bitcoin's value—but figures like "number of transactions per day" don't easily translate into dollars.
You could say, as some do , that Bitcoin is only good to criminals, and look at the size of the black market as guidance. But Bitcoin is not fully anonymous; criminals would likely prefer cryptocurrencies like Monero and Zcash. And however you slice it, you'll always have the problem that the value of Bitcoin as a system might be more or less decoupled from the value of one bitcoin, the coin.
You can also go all technical on Bitcoin: Fire up a dashboard at any exchange, turn on some indicators such as MACD or Bollinger bands, and try to decipher the message hidden among the candlesticks. Many analysts do this, but no matter what anyone tells you, technical analysis can never predict real-life events such as China banning all Bitcoin exchanges. But dig a bit deeper, and you'll see no analyst has anything close to a perfect track record when it comes to Bitcoin.
Those who keep saying that Bitcoin will continue growing have so far mostly been right. Even after the recent drop in value, Bitcoin is roughly percent more valuable than it was at the beginning of the year. Many believe that there's some sort of bubble going on, but when will it burst? Chris Beauchamp, chief market analyst at IG, believes the current price has little to do with it. Instead, we will need to see a new rival emerge, or see a general disillusionment with cryptocurrencies take hold ," he recently wrote.
Right now, Bitcoin's value lies in its potential. It has the potential to replace a government-issued currency of a community, country, or—if you're really optimistic—the whole world. It has the potential to disrupt the banking industry. It has the potential to become a store of value similar to gold, that's infinitely easier to obtain and trade than gold.
Sometime in the future, one of these potential uses, or an entirely new one, will become Bitcoin's killer feature. To continue reading this article, please exit incognito mode or log in. Visitors are allowed 3 free articles per month without a subscription , and private browsing prevents us from counting how many stories you've read. We hope you understand, and consider subscribing for unlimited online access. Some have said that its worth lies in a high cost of production.
Others see it as simply a form of credit that allows the transfer of resources, which is why it can take the form of pieces of paper or even digital records. Then there is the idea that a currency is worth whatever somebody is willing to pay for it given the limited supply. All these approaches run into trouble of one form or another.
But their value has little relation to this cost. Today we get an answer of sorts, thanks to the work of Spencer Wheatley at ETH Zurich in Switzerland and a few colleagues, who say the key measure of value for cryptocurrencies is the network of people who use them. The value of a network is famously accredited to Bob Metcalfe, the inventor of Ethernet and founder of the computer networking company 3Com. In other words, it assumes that all nodes can connect with each other. It also reveals when Bitcoin has been overvalued.
Wheatley and co point to four occasions when Bitcoin has become overvalued and then crashed; in other words, when the bubble has burst. These events have been well documented. The first big crash occurred in when Mt. A crash in was preceded by the discovery of a Ponzi fraud involving Bitcoin. Another crash occurred in when high trading volumes overwhelmed Mt.
Gox, causing it to collapse; the value of Bitcoin then dropped by 50 percent in two days. The most recent collapse, at the end of , occurred after South Korean regulators threatened to shut down cryptocurrency exchanges. Sornette has long suggested that it is possible to predict the collapse of speculative bubbles using certain characteristics of the markets. Indeed, readers of this blog will be familiar with his ideas. First, he looks for markets that are growing at a super-exponential rate—in other words, markets where the growth rate itself is growing.
That can happen for short periods of time because of factors such as herding behavior. But it is not sustainable without an infinite number of people. For this reason, a crash, or correction, is inevitable.
This much is uncontroversial. But Sornette goes on to say that the timing of the crash is predictable. And this makes the market increasingly unstable, to the point that almost any small disturbance can trigger a crash.
So in the Bitcoin crashes listed above, the triggering events are insignificant. The situation is analogous to a forest fire. If the forest is dry enough to burn, almost any spark can trigger a blaze. And the size of the resulting fire is unrelated to the size of the spark that started it.
Instead, it is the network of connections between the trees that allows the fire to spread.