Why is oil's rally in danger?
Yes, oil prices are burning right now, and inflation is getting hotter along with it worldwide. However, the oil's bullish momentum is under threat.
Does Bitcoin really have a fair value?
2019-11-11 • Updated
Bitcoin is inflating and deflating from day to day like a bubble. Nowadays there are a lot of questions about Bitcoin and one of them is what its fair value is.
Economists and analysts are trying to create their own formulas to count Bitcoin's value. So let’s look how they tried to do it.
There are two parameters of a currency's fair value measurement. To measure the fair value, it is needed to identify a store value and an exchange value. Mostly, all economists who believe that Bitcoin has a value, make their calculations based on these two figures. Currency strategist at the Bank of America Merrill Lynch David Woo is one of them. Woo tried to compare Bitcoin to silver as a store of value but failed. The value was not determined. And later analysts of the bank declared that a true value for cryptocurrencies may be impossible to assess.
Then Bitcoin also was compared to gold. Nowadays, the total amount of Bitcoin is much less than that of gold. However, real fans of Bitcoin believe that it will surpass gold in total value.
There is another approach to this issue. Analyst of Credit Suisse Damien Boey estimated the Bitcoin fair value at $6,000. How did he count? He took into account the size of Bitcoin's network and the yield spread on BBB-rated bonds. So Bitcoin rises as more people use the network. He found out that Bitcoin price has a negative correlation to BBB credit spreads – the difference between the yield on BBB-rated debt. The price of Bitcoin depends on a financial policy of a government as well.
In the next approach, economists were taking into account the distributed system of the currency. They gave value to Bitcoin because of its transactional system. But they concluded that it was wrong to assess the value based on convenience of payments because now Bitcoin is rarely used for buying anything. So economists came to the dead end again.
However, we should not miss an opinion that Bitcoin does not have any value at all. For example, Richard Turnhill, a strategist for BlackRock Financial, the world largest money manager, world-class investors Warren Buffett from Berkshire Hathaway Inc. and Jamie Dimon from J.P. Morgan Chase & Co. said that Bitcoin is a bubble that can rise in a short-term, but it will burst anyway.
Conclusion
When economists start to estimate Bitcoin, they meet 2 main problems. Firstly, Bitcoin is rarely used for buying anything. It is impossible to estimate its exchange value because nowadays transactions include only buying and selling Bitcoin, Bitcoin is not exchanged for anything else because of the permanently changing price. The total number of bitcoin transactions over the past year added up to less than one-tenth of 1 % of total e-commerce transactions. Secondly, considering a store of value, analysts met another problem. They compared cryptocurrency with silver and gold, but if we can hold metals, we cannot hold Bitcoins. Numbers of metals and cryptocurrency are not compared as well. Cryptocurrencies do not have underlying value like metals. Bitcoin cannot be guaranteed by an issuer because there is not any.
That is why, we can come to the conclusion that the value of Bitcoin is created by users: as much as people believe in cryptocurrency, as much it increases.
Similar
How Will Gas Supply Reduce Affect Eurozone?
What is happening? The Russian president's announcement that countries "unfriendly" to Moscow must pay for gas deliveries with rubles shows that he's willing to use energy as a weapon in the Ukraine war…
What Awaits Oil Markets If Russian Oil Disappeared?
A month after Russia invaded Ukraine, oil markets are still more volatile than ever, with little clarity on how the sanctions will affect Russian crude production as well as global oil demand.
Latest news
Indices and Stocks in the Red
The stock market has reversed, and now it’s going lower and lower…
Walmart earnings outlook
Walmart is one of the biggest retail corporations in the US, with $244 billion in total assets. Does it worth buying amid rising prices and supply concerns that shatter the world economy?
Japan's inflation is at 2%, but what about a weaker Yen?
Japan's inflation is set to reach 2% in April's reading, for the first time since 2015. But what about the weaker Yen?!
