Bitcoin has subjective value - intrinsic value is irrelevant

Sunny said:
What someone is willing to pay is not the value of something especially in a bubble....
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I'm afraid you're wrong: that's exactly what the value of something is, by definition. Whether it's in a bubble or not is irrelevant (I'd happen to agree by the way that Bitcoin probably is a bubble on the principle of walking like a duck, sounding like a duck..... etc., but again, that's irrelevant).

Otherwise you're in the Lewis Carroll territory of choosing your own meaning of words: interesting concept, but hardly useful as a means of communication.

As I said, there's a big difference between saying "X has no value", which is demonstrably not true, and "I believe X to be overvalued".
 
newtothis said:
I'd happen to agree by the way that Bitcoin probably is a bubble
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I want to make money myself and help other people to avoid losing money.

The way people do this generally is to say : That share or property or whatever is worth €100. The price is €10 so it's a good buy. The price is €1,000 so it's a bad buy.

One can get into navel gazing debates about the meaning of "worth" but it does not help at all.

Bitcoin is worth zero.
The price is $8, 300

No one should buy it at this price and anyone who owns Bitcoin should sell it before its price falls to match its worth.

Brendan
 
newtothis said:
I'm afraid you're wrong: that's exactly what the value of something is, by definition. Whether it's in a bubble or not is irrelevant (I'd happen to agree by the way that Bitcoin probably is a bubble on the principle of walking like a duck, sounding like a duck..... etc., but again, that's irrelevant).

Otherwise you're in the Lewis Carroll territory of choosing your own meaning of words: interesting concept, but hardly useful as a means of communication.

As I said, there's a big difference between saying "X has no value", which is demonstrably not true, and "I believe X to be overvalued".
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Well, I am afraid you are wrong. You are getting confused between price and value and quoting dictionaries doesn't really add anything. Every day, billions and billions are traded on exchanges buying and selling shares that are either undervalued or overvalued. Going strictly by your definition of value when it comes to investing, nobody would ever need to analyse a company or industry because the value is simply the price. Nothing is ever overvalued or undervalued.
If Brendan says Bitcoin has no value, he might be wrong. Bitcoin might well have a value but he could just as easily be right. It could be worth nothing. Just because people are buying it now doesn't mean it is worth anything. If all this trading suddenly stopped in Bitcoin, what are you left with? Are you left with something you can use? No. Something you can spend? Not really as who would want it. Make something? No. Same as owning a share in the latest dot.com company that gets a market cap the size of apple but doesn't generate a profit or even knows how to make money with it's idea....I would have no problem saying shares in that sort of company are worthless even if trading prices indicate something else. Could be proved wrong there as well but entitled to say it.
 
Firefly said:
There are two main types of people who transact in Bitcoin as far as I can see. Those engaging in illegal activity and those hoping for appreciation in the value of the coins. I can accept that there is a possibility of a more wide-scale use for Bitcoin in the future, but unless there is a take-up by the general population, in the near future, to actually buy stuff, then I think the intrinsic value will be limited to the value placed by those conducting illegal activity. If/when this happens, the price will plummet and those hoping to make a return on holding the currency itself will lose out and probably leave with what they can.
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This is an important point. There was a recent documentary on BBC 'Stealing Van Gogh' that said criminals use stolen paintings as collateral for drug deals etc. A criminal might not know exactly the value of a stolen Gainsborough relative to a stolen Van Gogh but would know it was worth a lot and would use it as collateral for obtaining drugs for a drug deal. You could see how cryptocurrency would fit into this model. If you can steal or force a cryptocurrency owner to hand them over, you use them as collateral for illegal activities. You don't need to establish an 'intrinsic value'. Anonymity is an additional benefit. The cryptocurrency need not necessarily plummet in value; its value would be established relative to the profitability of the illegal activities.
 
Value is subjective.
The price that is determined is the market that is formed between buyers and sellers. If the selling price exceeds the buying offer, either one or both need to move to make a market. If neither move, or the move is insufficient then there is no market. Simples.

As for bitcoin, if you accept its concept of a trustless decentralised form of currency, or at least its potential to be, then that may represent value to you. If not, then it doesnt represent value to you.
How you determine the price to be paid on that value is in the eye of the buyer and seller.
There are plenty of people who saw value in developing apartment blocks in rural towns. They saw potential that others could not see. In some cases it worked out ok, in other cases it didnt.
Personally I see value in bitcoin at current prices. Im not advising to buy, its volatility is not for the faint-hearted.
I see that value in the way how the current monetary system operates combining with increasing tensions in geopolitical affairs. My view is these two combining factors are starting to clash and that ultimately will be costly.
Having an option to store money outside of this system has value - bitcoin can provide that option to me.
 
PMU said:
This is an important point. There was a recent documentary on BBC 'Stealing Van Gogh' that said criminals use stolen paintings as collateral for drug deals etc. A criminal might not know exactly the value of a stolen Gainsborough relative to a stolen Van Gogh but would know it was worth a lot and would use it as collateral for obtaining drugs for a drug deal. You could see how cryptocurrency would fit into this model. If you can steal or force a cryptocurrency owner to hand them over, you use them as collateral for illegal activities. You don't need to establish an 'intrinsic value'. Anonymity is an additional benefit. The cryptocurrency need not necessarily plummet in value; its value would be established relative to the profitability of the illegal activities.
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Cash is useful here as well.
 
TheBigShort said:
Personally I see value in bitcoin at current prices.
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Hi Shortie

It's not enough just to assert that.

You have to provide some analysis or calculation. Some basis for saying they are worth $8,000 - each!

So far, no one has been able to show why they are worth even $1 each.

There is no comparison with a subjective valuation of apartments in rural Ireland. I might say that I expect that the demand in Leitrim will rise over the coming years. At present, a two bed represents for €5,000 a year. If I assume rent increases of 4% a year. That would give it a range of €50k to €100k. You might counter by saying that there is an excess of apartments in Leitrim and that the population is falling. So you expect that the maximum rent will be €3,000 which makes it worth between €30k and €60k.

But I can show you my assumptions and my calculations. You can disagree with them and arrive at a different valuation. That is how markets work.

But all the Bitcoin faithful are saying is "Bitcoin is worth $8,000" without any analysis which we could challenge. Why is it not worth $80,000?

Brendan
 
Brendan Burgess said:
But I can show you my assumptions and my calculations. You can disagree with them and arrive at a different valuation. That is how markets work.
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What analysis and calculations can you provide for a specific piece of paper - in this instance the 10 euro note - having a value of a pint of plain and a packet of peanuts?
 
Sunny said:
Going strictly by your definition of value when it comes to investing, nobody would ever need to analyse a company or industry because the value is simply the price. Nothing is ever overvalued or undervalued.
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It's not my definition! Value and price are indeed two different things: I won't bother quoting you dictionaries again as I'm sure you can look it up.

The issue as I see it is that you are trying to replace opinion ("I believe X is overvalued") with fact ("X has no value"). A bit like Donald Trump's alternative facts: he may well believe there were more people at his inauguration than Barack Obama's, but that doesn't make it a fact.

It’s a demonstrable fact that Bitcoin has a value; that value is realised every time it is bought and sold at a particular price precisely because a buyer and seller have agreed at that point in time at that location what the value actually is. You may well believe differently, but that’s all it is: an opinion. Bitcoin may well drop in value to zero when people wake up to the bubble - if they ever do of course - but its value right now is not zero. If you still think it is, ask yourself what you would do if someone gave you 1,000 Bitcoins: would you just ignore them because you think they have no value? Seriously?
 
Sunny said:
You are being robbed!
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Indeed :p
However, how does the euro have a value and how can you provide an analysis of that value? It's the same thing. The only difference is that FIAT is settled. Crypto is going through a price discovery phase - and it may well end up near zero - I won't discount that possibility at all. It's value happens to be $8k+ today. When the technology itself, regulation, the eco-system, etc. is complete and settles, then I'd expect price to settle also. Where that price will end up at, we will have to wait and see.
 
tecate said:
What analysis and calculations can you provide for a specific piece of paper - in this instance the 10 euro note - having a value of a pint of plain and a packet of peanuts?
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Good question.

With 10 euro, I could have bought about 2 pints of plain anytime over the past ten years.

I can buy them in any pub anywhere in Ireland or Europe, although the pints of plain may be more or less expensive depending on where I go.

If the eurozone economy strengthens compared to the UK, my euro will probably gradually increase in value vs. sterling.

I will be able to buy about two pints of plain for the foreseeable future.

I am concerned about QE. It may actually wipe out the value of the euro. But that does not mean that Bitcoin has any value.

Brendan
 
This debate invariably goes round in semantic circles with people throwing truisms at each other. Let me try and put the Boss question in another way. Imagine there was a complete blackout on the prices that bitcoin trades at. You haven't a clue how much people are exchanging fiat for it. All you know are the "intrinsic" facts - its limited supply, its decentralised nature etc. etc. How would you go about putting a value/price on it? The point is that with any other financial asset you can make plausible assessments of its capacity to earn fiat and that enables at least some valid attempt to put a fiat value on it.

The nearest I could see was the Investopedia attempt to project its ultimate share of world transactional currency and then dividing the total value of world currency requirements by 21M. Is there any other metric which can be used (in the hypothetical absence of any published price).
 
Brendan Burgess said:
Good question.

With 10 euro, I could have bought about 2 pints of plain anytime over the past ten years.
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So the distinction between the two you are making is track record. There's nothing else that differentiates them and there's no calculation or analysis that needs to be carried out as to why you can buy 2x pints with your 10 euro?

If so, I won't argue with that.
 
Duke of Marmalade said:
How would you go about putting a value/price on it? The point is that with any other financial asset you can make plausible assessments of its capacity to earn fiat and that enables at least some valid attempt to put a fiat value on it
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A 2nd hypothetical for you..

You've just established the Dukedom of Marmalade as a completely independent statelet. How many marmalade coins or notes do I need to buy those 2 pints?

It could be 1, 10 or 100.

What calculations or analysis are you going to show me to demonstrate how much is needed to buy those pints?
 
tecate said:
A 2nd hypothetical for you..

You've just established the Dukedom of Marmalade as a completely independent statelet. How many marmalade coins or notes do I need to buy those 2 pints?

It could be 1, 10 or 100.

What calculations or analysis are you going to show me to demonstrate how much is needed to buy those pints?
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This is not a valid metaphor. The Boss has explained how financial assets are valued in terms of money. This is effectively using money as a unit of value. There is a logical process - the asset has a money generating potential and can therefore be given a plausible monetary value. That is distinct from the price level between money and goods and services which I have addressed in an earlier post.

The question that is posed is how on earth do you even begin to strike an exchange rate between bitcoin and fiat?
 
Duke of Marmalade said:
The question that is posed is how on earth do you even begin to strike an exchange rate between bitcoin and fiat?
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How do you do so when the next FIAT comes out? IE. Set price of new FIAT currency against USD/GBP/EUR? Whats the difference?
 
tecate said:
What analysis and calculations can you provide for a specific piece of paper - in this instance the 10 euro note - having a value of a pint of plain and a packet of peanuts?
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Hi tecate

I have been thinking of this a bit further. I value Ryanair shares, my home, an investment property etc. in terms of the return they generate. So I can look at Ryanair's EPS and look at their outlook and then multiply that by a p/e ratio. You can challenge my analysis and forecasts and arrive at a different value.

So that is how to value Ryanair as an investment.

You can't apply any of that, or no one has applied it, to Bitcoin. So as an investment, it's worth zero.

But, you argue, by the same token, the euro is worth nothing.

Or put it another way, if we apply the same criteria by which we value the euro at two pints of plan, then we can arrive at a value for one Bitcoin.

In theory, I can issue a Burgess Coin, and if I can persuade the World that each one is worth 100 pints of plain, then it becomes worth 100 pints of plain. But you would probably trust me even less than you would trust the evil Central Bankers.

Brendan
 
Ok, so for shares & stocks there is some form of science in arriving at a value but for currencies, not so much..
 
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