Is Bitcoin Overvalued?
Bitcoin inherently doesn’t have any value but it is imbued with value by the sentiment and trust of the market. I believe Bitcoin is undervalued. Let’s unpack that by exploring expert, historical, and analytical points of view.
I sat down with a venture capitalist, a blockchain identity startup founder, and a blockchain payment startup CIO, to ask them: is Bitcoin overvalued and why? Their responses varied — I summarize them below:
Venture Capitalist: I can’t say that Bitcoin is either over- or undervalued. I think that Bitcoin’s valuation is directly correlated with how “well” or “poorly” the economy is functioning. If the economy is perceived to be functioning poorly, then Bitcoin’s valuation goes down (and visa versa).
Blockchain identity startup founder: The litmus test of Bitcoins valuation is the market. The market is always right. That said, the narrative that people most recently bought into — a get-rich-quick scheme induced by a few getting rich quick and fear of missing out (FOMO) — has faded with fluctuating and dropping prices.
Blockchain payment startup CIO: The price of Bitcoin is purely speculative. However, if I were to try to calculate the true valuation of Bitcoin, I would take into consideration variables such as: 1) price of electricity, 2) costs in running a bitcoin mining company (e.g. location, cooling), 3) hardware for mining, 4) regulation & taxation (e.g., KYC process, restrictions), 5) markets perceived value of crypto (e.g. supply and demand of it) and the 6) manipulation of cryptonaire whales (collusion of a crypto oligopoly).
In a crypto world full of asymmetric information, communication, and anonymity (but full transparency), there are no right or wrong arguments. They all warrant consideration and they all are — I am certain — relevant to Bitcoin’s short-term value. But, what about Bitcoins long-term true valuation? Is that over- or undervalued? That’s a more interesting question to answer.
Some may say it’s overvalued, I say that Bitcoin is undervalued.
Some may say it’s overvalued, I say that Bitcoin is undervalued.
Some may say that Bitcoin is just a hype that will come crashing into worthlessness, much like Tulips did in Holland. While some people liken Bitcoin to the tulip bubble, I liken it to the creation of the first currencies. Sure, there has been hype around Bitcoin, but it’s normal for new tech (see Gartner’s hype cycle above). Now, if you consider that hype cycles are lived out, can you consider that Bitcoins are like cowrie shells in the Maldives or wheat in Egypt when they were first used? Under and overvalued until people agreed to currency value?
The value of the currency was determined by the communities that used it; the value of currency was determined by their sentiment and trust that the currency being used was real and truly valuable. Sentiments and trust made the value of currencies work, and it’s the same with Bitcoin. The cycle will complete and a more stable currency will emerge. But that’s not the reason why I believe that Bitcoin is undervalued.
I believe that Bitcoin is undervalued because it is Bitcoin that birthed:
- A currency that can enable current inhibited business activity due to previous inability to access information or due to high intermediary costs
- The blockchain, a technology that will unlock a global market of 3.2 Billion by 2021 by disrupting industries that have both data and transactions (e.g. finance, asset management, insurance, international payments, governments, IoT, healthcare, donations, crowdfunding, energy)
- An option of shift in power from a system that requires middlemen (and middlewomen) to one that’s decentralized, scales trade at an unprecedented level, and works on technology that embeds trust in a digital democracy (through transparency and permanency of records)
Also, I believe that Bitcoin’s and the blockchains limitations will be addressed. I believe that Bitcoin and blockchain will:
- Drive adoption growth rates
- Mature and instill trust (e.g. clear its name from hacks and negative associations like the Silk Road)
- Attract people into the field and produce the expertise required to materialize its sustainability and growth
- Benefit from governance systems that alleviate hurdles for decentralized tech
- Invite energy consumption solutions to address high electricity consumption
- Allow for ease of use, management, and querying
If you believe, as I do, that Bitcoin’s utility will continue and that the limitations of blockchain will be addressed, then you can trust that Bitcoin today is undervalued.
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About Author: Lolita Taub is a TEDx speaker and keynote, a World Economic Forum Global Shaper, an artificial intelligence enthusiast, and an enterprise tech professional and investor at Portfolia. She holds 9 years of enterprise B2B software-hardware-and-services sales experience at IBM, Cisco Systems, and in Silicon Valley. Lolita has been recognized for her work on Forbes, Inc.com, The Huffington Post, Entrepreneur.com, and Los Angeles Times, among other publications.
Follow Lolita on Twitter @lolitataub and connect with her here.
