Why a little bitcoin won't always go a long way
The value of any currency is largely a matter of faith, writes Jacques Plaut
Bitcoin is a virtual currency. In many ways it is like electronic monopoly money, except the price is up 300 times in the past five years. At the time of writing, you could exchange one bitcoin for $5200 (R70470). Does this mean a bitcoin has intrinsic value of $5200? Any asset is worth what you sell it for. In another sense, no: market prices change and at times bear no resemblance to intrinsic value. A dollar is only valuable if someone exchanges it for some real-world good or service. The value of any currency is largely a matter of faith. I will speak of value relative to dollars for the sake of convenience. As an asset The usual methods for valuing an asset are not readily applicable here: There are no future cash flows associated with bitcoin, except the price at which you will sell it one day. This price depends on the next selling price, and so on. Historical prices: The first bitcoin was traded in 2009. This is a short history compared with, say, the 150-year history we hav...
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