This idea has gone around my mind for a while, but I’ve finally decided to open a post about it after watching this video:
https://www.youtube.com/watch?v=iqyLByXUksgValue investors in the stock market measure what they calculate is an objective value for assets using different factors. There are different methods for this but usually most value investors agree on an approximate price on many companies, especially the big ones.
They may take all the assets a company has, substract all the debt, take into account ratios, cash flow, growth projections, etc.
In that video, the author says that the 1000% return of bitcoin in a year is not justified by a fundamental ratio of bitcoin, which is the number of transactions completed using the cryptocurrency. He goes into consider different aspects and says that the only factor that could justify that price raise could be bitcoin taking over gold as a reserve currency, but he doesn’t agree 100% with that view.
So, what he says is that bitcoin is in a bubble in the sense that it is overheated, meaning that the actual price is above the fair value. Which leads me again to what I said in the beginning:
Could we calculate a fair value for bitcoin? If so, what ratios should we use?