New Bitcoin Valuation Using Experimental Economics

[altoidmintz]

The Mineforman website (http://mineforeman.com) was kind enough to allow me to write a blog using an experimental economic method. The article is called "Bitcoin Valuation as a Fiat Hedge With Information and Substitution Effects" and can be found below:

http://mineforeman.com/2013/05/14/bitcoin-valuation-as-a-fiat-hedge-with-information-and-substitution-effects/

For my calculations I did some new research that no one else has done on the rate of dilution of BTC value from competition and some other stuff. Unfortunately the data pickings were slim so the projection has a fairly wide confidence interval but I'm still proud of the fact that it covers new territory. The article links to another article with a highly detailed breakdown of the methodology, even including a downloadable copy of the spreadsheet I used! What do yall think?

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[wolverine.ks]

what is intrinsic value?

[AlternativeCypt]

Value in-itself.

[myrkul]

Intrinsic value is nonexistent. All value is subjective.

[wolverine.ks]

Intrinsic value is nonexistent. All value is subjective.

i wasnt going to say it....

[Viceroy]

unlike bitcoin gold has an intrinsic value because it is used in several industries and this use and consumption of the raw metal give it that intrinsic value.  bitcoin, on the other hand is only worth the paper it's printed upon.

[myrkul]

and this use and consumption of the raw metal give it that intrinsic value.

Only to those who use it in those industries.

[Viceroy]

nice conclusion op, I like your approach.  I did a little thought experiment and some back of the napkin calculations led me to think that if the equivalent of only 1% of the NASDAQ trillion dollar market cap were invested in bitcoin each would be worth something north of 10,000 usd.

[altoidmintz]

Intrinsic value is nonexistent. All value is subjective.

Would you be open-minded enough to here an opposing viewpoint? 4 Arguments for intrinsic value (I don't even buy all 4, just ideas):

1)
Value is the ability of a person to satisfy his or her wants. While wants are subjective it still holds that there are ideal wants, ie what a person should want. When all people value a good as they should a price is reached as it would be in any other market situation and that value is the intrinsic value of the good. What it should be worth.

This heads straight for morality. However, upon finding morality we are still constrained by the human condition: The imperfect ability to ascertain, process, retain and act upon information.

If we had perfect morality, information and ability inside of a normalized market system (the hypothesis goes) we would be able to attain the ideal intrinsic value of a good. As evidence I submit that any economy with superior information, ability or morality results in superior economic performance.

2)
Value may be personally subjective but a market value is an objective phenomena in a free market because no person directly determines it. Over time market values approach a long-term equilibrium. That long-term equilibrium is determined entirely by objective economic law. In this sense it is objective.

3) Intrinsic value literally means what the thing itself is worth. While we say that a person's preference for something is subjective, we may also say that a person's opinion of the value of a thing is that person's appraisal of the good's intrinsic value.

4) Finally, are preferences ever really subjective or are they simply predetermined by complicated interactions of nature? In other words, does free will really exist? Personally I think it does but it is worth bringing up because many people who believe in "free markets" have no reason to think that free will really exists. If free will does not exist then all prices are non-subjective ie objective because even what we perceive as our own preference is really determined objectively.

Just food for thought. Let me know what you think.

[myrkul]

Intrinsic value is nonexistent. All value is subjective.

Would you be open-minded enough to hear an opposing viewpoint? 4 Arguments for intrinsic value (I don't even buy all 4, just ideas):

I pride myself on my openmindedness and ability to judge opposing viewpoints on their merits instead of discarding them out of hand.

If we had perfect morality, information and ability inside of a normalized market system (the hypothesis goes) we would be able to attain the ideal intrinsic value of a good. As evidence I submit that any economy with superior information, ability or morality results in superior economic performance.

Even with perfect (and uniform) morality, the desires would still be subjective.

2)
Value may be personally subjective but a market value is an objective phenomena in a free market because no person directly determines it. Over time market values approach a long-term equilibrium. That long-term equilibrium is determined entirely by objective economic law. In this sense it is objective.

It is objective, in that sense, yes. (More accurately, intersubjectively valid) But you can't say that's an intrinsic value, it's just an average of people's subjective valuations.

3) Intrinsic value literally means what the thing itself is worth. While we say that a person's preference for something is subjective, we may also say that a person's opinion of the value of a thing is that person's appraisal of the good's intrinsic value.

Which is a tautology.

4) Finally, are preferences ever really subjective or are they simply predetermined by complicated interactions of nature? In other words, does free will really exist? Personally I think it does but it is worth bringing up because many people who believe in "free markets" have no reason to think that free will really exists. If free will does not exist then all prices are non-subjective ie objective because even what we perceive as our own preference is really determined objectively.

If free will doesn't exist, then there is little point in arguing anything, is there?

[wolverine.ks]

if there is no point in argung anything, then there is no point in not arguing, right?

[mgio]

unlike bitcoin gold has an intrinsic value because it is used in several industries and this use and consumption of the raw metal give it that intrinsic value.  bitcoin, on the other hand is only worth the paper it's printed upon.

Gold's intrinsic value is a very tiny fraction of it's market price. It's actual use in industry is very limited and if you go by that it is tens of thousands of times over valued. It also takes very little gold to plate a wire or a pane of glass which is one of it's main uses.

The intrinsic value argument doesn't fly with gold. Gold's value is purely subjective.

[myrkul]

unlike bitcoin gold has an intrinsic value because it is used in several industries and this use and consumption of the raw metal give it that intrinsic value.  bitcoin, on the other hand is only worth the paper it's printed upon.

Gold's intrinsic value is a very tiny fraction of it's market price. It's actual use in industry is very limited and if you go by that it is tens of thousands of times over valued. It also takes very little gold to plate a wire or a pane of glass which is one of it's main uses.

The intrinsic value argument doesn't fly with gold. Gold's value is purely subjective.

As I said before, there is no such thing as "intrinsic" value. Even gold's demand for industrial processes is driven by the subjective desires of the users of those industrial processes. Gold does have several intrinsic properties which make it desirable, but value is not an intrinsic property. It is assigned solely externally and subjectively.

[Hawker]

unlike bitcoin gold has an intrinsic value because it is used in several industries and this use and consumption of the raw metal give it that intrinsic value.  bitcoin, on the other hand is only worth the paper it's printed upon.

Gold's intrinsic value is a very tiny fraction of it's market price. It's actual use in industry is very limited and if you go by that it is tens of thousands of times over valued. It also takes very little gold to plate a wire or a pane of glass which is one of it's main uses.

The intrinsic value argument doesn't fly with gold. Gold's value is purely subjective.

As I said before, there is no such thing as "intrinsic" value. Even gold's demand for industrial processes is driven by the subjective desires of the users of those industrial processes. Gold does have several intrinsic properties which make it desirable, but value is not an intrinsic property. It is assigned solely externally and subjectively.

myrkul is right.  Lead has most of the attributes of gold and we don't obsess over it as its not pretty.  The value of gold is purely what we project onto it.

[myrkul]

myrkul is right.

Just wanna enjoy this for a moment....

You say it so rarely.

[Hawker]

myrkul is right.

Just wanna enjoy this for a moment....

You say it so rarely.

lol thats only because we debate things we don't agree on.  The fact we are here says that we probably share a common view of a lot of things.

[Pzi4nk]

tl;dr: the answer is 1 BTC=$550 (USD) in December 2013.

[altoidmintz]

Intrinsic value is nonexistent. All value is subjective.

Would you be open-minded enough to hear an opposing viewpoint? 4 Arguments for intrinsic value (I don't even buy all 4, just ideas):

I pride myself on my openmindedness and ability to judge opposing viewpoints on their merits instead of discarding them out of hand.

If we had perfect morality, information and ability inside of a normalized market system (the hypothesis goes) we would be able to attain the ideal intrinsic value of a good. As evidence I submit that any economy with superior information, ability or morality results in superior economic performance.

Even with perfect (and uniform) morality, the desires would still be subjective.

2)
Value may be personally subjective but a market value is an objective phenomena in a free market because no person directly determines it. Over time market values approach a long-term equilibrium. That long-term equilibrium is determined entirely by objective economic law. In this sense it is objective.

It is objective, in that sense, yes. (More accurately, intersubjectively valid) But you can't say that's an intrinsic value, it's just an average of people's subjective valuations.

3) Intrinsic value literally means what the thing itself is worth. While we say that a person's preference for something is subjective, we may also say that a person's opinion of the value of a thing is that person's appraisal of the good's intrinsic value.

Which is a tautology.

4) Finally, are preferences ever really subjective or are they simply predetermined by complicated interactions of nature? In other words, does free will really exist? Personally I think it does but it is worth bringing up because many people who believe in "free markets" have no reason to think that free will really exists. If free will does not exist then all prices are non-subjective ie objective because even what we perceive as our own preference is really determined objectively.

If free will doesn't exist, then there is little point in arguing anything, is there?

Thanks! You say you are open minded and your post confirms it. To delve a little deeper:

1) Yes desires would be subjective but they would be attempting to mimic objective desires and therefore those objective desires in essence determine the subjective desires in the long run. Such is the intrinsic value argument. It is not that A is objectively worth B and therefore the market value equals B rather it is that A is objectively worth B and therefore the market value will approach B as people subjectively realize that it is worth B and the market works toward it. The intrinsic value is never realized because it is intrinsic, rather it is realized because people subjectively choose the correct intrinsic value, which they should. Rather than maximizing personal wants the intrinsic value maximizes the wants of the objective reference frame. Of course this is necessitated by an objective reference frame which is also capable of wants. It may seem contradictory that an objective reference frame can have wants but that is not a contradiction if the wants are necessarily ideal desires ie God.

2) I like the term intersubjectively valid and it comes close to what I am suggesting. However everyone can agree on a bad allocation of resources. What I am suggesting is that there is a maximally great possible allocation of resources. If that were achieved then every good would necessarily be at its intrinsic value. Pt 1 emphasized that this maximally great allocation would simply be the will of God Pt 2 emphasizes that this maximally great allocation can be determined in the long run by a combination of "superpeople" (perfect market information, moralilty and ability) and free market economic law.

3) It is a tautology but a revealing one. It implies that objective value can equal subjective value in certain cases. Therefore in certain cases the subjective market value can equal the intrinsic value. Namely, in the case of an optimal allocation of resources.

4) Of course you are right but the point I was hoping you would make is that people neither have perfect nor imperfect free will. Rather, we have limited free will. Similarly all decisions we make are only partly subjective. Furthermore, if free market theory is true, economic law outweighs preferences in the long run and fully determines prices. This full determination should result in a maximally great allocation of resources in the long run. As previously discussed when this allocation occurs each good should be priced at its "real" "true" and "intrinsic" value.

I hope you are enjoying this conversation! Actually I have been working on a post-free market economic theory of Christian Anarchism and this discussion is helping me improve that theory. The basic idea is that a free market satisfies all people's wants but a post-free market satisfies the wants of an objective reference frame. In other words what an economy would look like if everyone did what they should be doing rather than what they want to do, which, as pointed out, could be the same thing in certain cases.

[myrkul]

All four of these points can basically be boiled down to this argument:

There is an ideal distribution of resources, and given perfect knowledge and perfect morality, the price of an item would always reflect that ideal distribution, and would therefore be it's intrinsic value.

I can't really argue with that, except to say that the "ideal" is variable, and mankind does not have perfect knowledge, nor perfect morality. Nor can you deduce what the market price would be in such a situation from any information in the real world.

All that you can know is that the price of an item will asymptotically approach the price it would have in that ideal, which, as I said, is itself a moving target.

[altoidmintz]

All four of these points can basically be boiled down to this argument:

There is an ideal distribution of resources, and given perfect knowledge and perfect morality, the price of an item would always reflect that ideal distribution, and would therefore be it's intrinsic value.

I can't really argue with that, except to say that the "ideal" is variable, and mankind does not have perfect knowledge, nor perfect morality. Nor can you deduce what the market price would be in such a situation from any information in the real world.

All that you can know is that the price of an item will asymptotically approach the price it would have in that ideal, which, as I said, is itself a moving target.

You summed the argument up nicely. Thanks again for being someone I can bounce ideas around with. You're a great asset to our BTC community here.