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?
Dr Alf's Blog 