Bitcoin Bubble? Analysis Suggests More Room to Grow – Bitcoin News

Here’s an interesting article from Bitcoin News. With all the media attention and the skyrocketing price of bitcoin, it is common to hear that bitcoin is in a bubble. However, some analysts disagree.

Source: Bitcoin Bubble? Analysis Suggests More Room to Grow – Bitcoin News

I tend to disagree with this article and the cited evidence.

Trying to value Bitcoin on a PE basis is both naive and simplistic.

Let’s look to basic financial theory to understand the Bitcoin proposition.

There are two important elements.

Firstly, we need to look at projected forward cash flows and discount them back to a present value. Obviously, there are practical challenges in establishing projections. But this is the proper basis, given existing technology and market assumptions.

Then there’s a need to try to evaluate the potential value of technology or market breakthroughs. Finance would value these future contingencies as a warrant.

Otherwise, we are looking at a potential bubble. Throw in other risks, like an imperfect market and there are plenty of opportunities for speculators to get seriously burned.

If you must invest in Bitcoin, take a relatively small investment which you can afford to write off and lose.

Thoughts?

 

 

 

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: