- Cryptocurrencies are the world’s fastest-growing asset class and bitcoin is the front-runner.
- There are many different ways to value an asset, but few provide a model that fits bitcoin’s profile. How do you value the best and the first of something?
- As a value proposition, bitcoin represents a store of value, a peer-to-peer payment system, a digital currency, an off-shore banking account, and a payment processor (back- and front-end).
- Many asset classes will lose value to bitcoin, but the most impacted will be currency, the primary product of banks.
- Putting it all together, I value 1 bitcoin at approximately $4 million per coin. I believe this estimate to be conservative.
I was recently asked about the value of bitcoin.
“What is it backed by,” he asked. To which I replied,
“Currency. Your dollar.”
“So how can I buy shares,” he asked.
“You can just buy bitcoin. You invest by buying and using it.”
“But what is it backed by,” he asked again.
I wasn’t getting through. This post is my attempt at a better argument.
Bitcoin can’t be valued by traditional valuation methods like cash flow or P/E (I’ll be publishing an article comparing bitcoin P/E to other cryptos shortly). Bitcoin has a unique business model. There is no CGS, SG&A, EBIT or EPS. There is no bottom line. The work has been fully automated and the process of creating these automated digital systems is done by the “bitcoin miners”.
So what makes the value of bitcoin go up? What drives the value of bitcoin? When people use their local fiat currency to purchase bitcoin the value of bitcoin goes up. The more people that buy and use it, the more the value goes up, which means bitcoin’s value is directly connected to its utility over fiat currency.
Bitcoin: The Value Proposition
Bitcoin’s value proposition depends on the person. I see it as a way to improve the flow of resources around the world. I think of my investments in bitcoin as an investment in the front-runner of an emergent technology. For me, bitcoin is revolutionary and invaluable.