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The value of the whole bitcoin is in the eyes of the holders of the "bits" - Walla! Business

2021-02-23T06:58:27.599Z


The digital currency has soared, and yet, an accurate determination of its value is not a simple matter, because it is not a traditional asset and not much is known about it. So what is its true value?


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The value of the entire bitcoin is in the eyes of the "bits" holders

The digital currency has soared, and yet, an accurate determination of its value is not a simple matter, because it is not a traditional asset and not much is known about it.

So what is its true value?

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  • Bitcoin

Wall Street Journal

Monday, 22 February 2021, 21:32

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Bitcoin’s total market capitalization crossed the trillion-dollar line on Friday, when the price of the currency rose above $ 55,000.



Enthusiastic currency wipers like to say that digital currency is on track to reach "to the moon".

For those who believe in it less, determining the value of Bitcoin is much more complex.



Bitcoin has soared since the beginning of 2020 when it traded around $ 7,000.

This rally is largely attributed to a steady stream of corporate demand.

Billionaire hedge fund managers have discovered acquisitions: Paul Tudor Jones called it "tremendous speculation."

A few individual companies, notably Tesla in particular, have recently begun purchasing the currency for their corporate treasury.



But determining fair value for Bitcoin is much more difficult than valuing stocks, investors say, both because Bitcoin is not a traditional asset and because not much is known about it.

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A steady stream of corporate demand.

Bitcoin (Photo: ShutterStock)

"This is a category of assets that is difficult to estimate," said analyst Nicolas Penigirtzoglou, of JPMorgan, which estimates the value of a single bitcoin in the range of at least $ 11,000 to as much as $ 146,000 at most.



At the lower end of this range is the cost, as of today, of the computing power needed to produce bitcoin, he said, while the upper end of the estimate reflects the value of bitcoin had it been adjusted to the gold standard.

Almost any amount between them can be justified because of the great interest in the currency on the part of day traders, he added.



People who support Bitcoin are quite enthusiastic and care less about analyzing basic components.

The belief that Bitcoin is the future drives them.

The ethos is summed up in one word: hodl, a distortion of the word “hold” born when one of the currency investors wrote the error in a 2013 post during one of the lows in currency value.

It always means buying more, no matter what, and never selling.

For such people, the value of Bitcoin is not limited.



For others, determining the value of Bitcoin is complex.

Bitcoin has features that make it look more like a commodity - and indeed it is classified as a U.S. income tax - and features that make it look like a currency as well, as it is classified by the Japan Financial Services Agency.



But this is not about this or that.

Bitcoin is software designed to facilitate online trading, mimicking real money, without the need for a bank or other broker to ensure the existence of the transaction.

Bitcoin is becoming a rare commodity and an asset that has deflation

One of the most popular arguments for Bitcoin?

This is a modern version of gold as a place to store value.

This belief rests primarily on one particular feature in Bitcoin programming, a limit of 21 million on the amount of coins that can be produced in mining.

Thus, currency proponents argue, bitcoin is becoming a rare commodity and an asset that has deflation, as opposed to inflation, at least compared to government-backed currencies.



Bitcoin has its own inflation rate, although it is predictable inflation and is planned to fall in the long run.

Today, about 6.25 Bitcoin coins are generated every ten minutes, and almost 19 million of the 21 million planned coins are already on the market.

The result is an inflation rate of about 2.2%, according to Bitcoin.com.



For comparison, this is a rate that is higher than the declared target of the Federal Reserve, 2%, and more than the last consumer price index, 1.4%.



The rate of inflation in Bitcoin will fall to zero sometime around 2140, when the last of the 21 million currencies will be minted.



The actual inflation rate is probably higher than that.

Nearly 80% of Bitcoin's inventory is liquid, according to market analysis firm Glassnode, and is held by long-term investors who will not sell.

Only about 4.2 million Bitcoin coins are on the market.

This small supply is much lower than the demand.



Another way to analyze this dynamic, and another popular dynamic among currency proponents, is a cash flow model, a framework used to evaluate commodities like silver and gold, which has become popular on social networks by an anonymous trader using the Plan B.



Cash flow model.

This is actually another way of noting the inflation rate of Bitcoin.

According to this model, Bitcoin should be traded like silver or gold, Plan B. argued. To the credit of the trader, in 2019 Plan B claimed that according to the model Bitcoin should reach a total value of $ 1 trillion and $ 55,000 per currency unit some time after May. 2020. This forecast came true on Friday.

Since September, only about $ 11 billion in professional money has entered the bitcoin market

But if Bitcoin is supposed to be an alternative to gold, then its price is already similar to the price of gold, says Fenigirzoglow from JPMorgan. The market value of Bitcoin is around $ 1 trillion, and the market value of gold in private hands is about $ 2.7 trillion, he estimated. But in an investment portfolio that also takes volatility into account, like a portfolio managed by a fund manager of a fund or corporation professionally, the much higher volatility of bitcoin means that it will ultimately be weighed like gold in terms of its impact on the portfolio.



Because portfolio managers and corporate finance managers must consider this volatility, the analyst said he does not expect more corporate money to be invested in Bitcoin unless its price collapses.



"For institutional investors, it is unrealistic to expect them to ignore the volatility of Bitcoin," he said.



Regarding this point, a Gartner survey last week found that only 5% of CFOs intend to hold Bitcoin as a corporate asset in 2021. Beyond that, 84% of them said they never intend to purchase Bitcoin.



Meanwhile, the media interest in cryptocurrencies on the part of companies may be smaller than it seems. Since September, only about $ 11 billion in professional money has entered the bitcoin market, the Penigirzoglo array. That is not enough to drive a change of $ 800 billion in total value and on the other hand implies that the attention from institutional investors has attracted more private investors and day traders, he said.



Thus, what drives the price of bitcoin is not some fundamental value proposition, but simply a momentum stemming from vigilant trading, Penigirtzoglo said.



There's a simpler way to define the fundamental value of Bitcoin, according to Steve Hanka, a professor of applied economics at Johns Hopkins University. Most types of "money", from bank deposits to bonds, repay a certain interest rate, even if it is minimal. Bitcoin does not. And while money printed by the government does not bring in interest, it is - unlike Bitcoin - a currency passed to a universally recognized trader.



“The fundamental value of Bitcoin is zero,” Breastfeeding said. "Almost everything is speculation."

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Source: walla

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