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Is bitcoin a bubble or money ?

May 25, 2017

Allan Kohler, the respected Editor At Large of The Australian Business review asked the question in an article published on the 22nd of May and came to the conclusion that he couldn't decide ! So we thought we would have a stab at the same question.

 

Wikipedia describes   "An economic bubble or asset bubble (sometimes also referred to as a speculative bubble, a market bubble, a price bubble, a financial bubble, a speculative mania, or a balloon) is trade in an asset at a price or price range that strongly exceeds the asset's intrinsic value.".  With the price of Bitcoin having more than doubled in a matter of months, and other crypto assets increasing much more strongly, it is with confidence that we can conclude that speculative mania has taken hold in the crypto asset markets. However what is not so clear is wether the value of Bitcoin exceeds its' intrinsic value.

 

The intrinsic value of bitcoin ultimately depends on what it is and will be used for. With reports that bitcoin will be accepted by 260000 merchants in Japan alone by the end of the summer bitcoins intrinsic value as a currency is growing rapidly. Furthermore, Bitcoins' properties make it an excellent alternate to gold as a form of wealth preservation and many investors are beginning to accept it as such, further increasing its intrinsic value. Finally Bitcoin is the gateway to an exploding IPO market, where some of the worlds most innovative companies are raising capital. It is likely that the next Uber, Amazon, Google and Facebook will all emerge from this market and Bitcoins intrinsic value will then explode. Presently Bitcoins market capitalisation is just a minuscule fraction of each of these markets and if it manages to replace a % of even one of these it is arguably well under its' intrinsic value. If it takes a larger % of all three, then anything is possible!

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