Value As A Currency Or Value As An Investment
Before we try to value a bitcoin we would need to define it as a currency or as an investment. Its use as a means of payment with some merchants can lead us to see the bitcoin as a currency not tied to a country and without central bank.
Bitcoins are usually measured in terms of their exchange rate to the Japanese Yen and US dollar as these two currencies remain the main currencies for which bitcoins are exchanged.
We will now try to value bitcoins as a currency using the minimal-value approach.
All major currencies have a central bank that monitors the exchange rate of their currency respective to other currencies and mostly to the dollar. Contrary to most traded currencies, bitcoin does not have a central bank or an entity monitoring its exchange rate. Therefore, bitcoin exchange rate to the dollar or to the Japanese yen could theoretically go down to zero.
As some academics and practitioners would qualify it bitcoin cannot be considered as a currency but as an investment. In finance, we would measure an investments intrinsic value as the sum of future revenues it generates . Bitcoins do not generate any present or future revenues. Therefore, as an investment and using a minimal value approach bitcoins have a zero minimal value.
Where To Buy Bitcoin
As the most popular cryptocurrency, Bitcoin can be bought on a number of exchanges. You can usually buy Bitcoin from USD, or you can use other world currencies and alternative cryptocurrencies to exchange for Bitcoin.
Some of the most popular exchanges include Coinbase, Binance, Kraken, Bitfinex, Huobi, KuCoin and OKEx. The different kinds of exchanges may cater to the needs of different types of users. It is recommended that users research different exchanges before signing up and buying Bitcoin.
As the SEC “kicks the can” on traditional Bitcoin ETFs, the Bitcoin futures equivalent is gearing up for likely approval, says Bloomberg’s Eric Balchunas.
The DeFi sector is not undergoing the dynamic shift toward layer-two adoption alone NFTs are following suit.
The new policies recommended by the IMF aim to curb down the financial risks associated with global crypto adoption.
Sentiment breaks out from extreme fear along with Bitcoin price action as expectations call for only a modest correction before fresh gains.
Bitcoins energy consumption and its dependency on climate-damaging fossil fuels has raised debates from both inside and outside the blockchain community.
How Much Was 1 Bitcoin Worth In 2012
Bitcoin Price during 2012
Bitcoin had a relatively flat 2012, trading within a $0.50 range of $5.00 for the first half of the year.
It then reached its yearly peak at the end of December, hitting a high of $13.45.
In November 2012, Bitcoin underwent its first ever halving. This dropped the block reward from 50 BTC to 25 BTC.
2012 also saw the creation of the influential Bitcoin Foundation by Gavin Andresen, Jon Matonis, Patrick Murck, Charlie Shrem, and Peter Vessenes. The Foundation’s goal is to “accelerate the global growth of Bitcoin through standardization, protection, and promotion of the open source protocol”.
WordPress became the first major company to begin accepting Bitcoin for payment in 2012. The online content management system provider did this in response to PayPal’s censorship.
PayPal alone blocks access from over 60 countries, and many credit card companies have similar restrictions. Some are blocked for political reasons, some because of higher fraud rates, and some for other financial reasons. Whatever the reason, we donât think an individual blogger from Haiti, Ethiopia, or Kenya should have diminished access to the blogosphere because of payment issues they canât control. Our goal is to enable people, not block them.â
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How Much Is Bitcoin Worth
We will calculate the total value of Bitcoin first because that is the easy part. According to CoinMarketCap, the value of all the bitcoins in the world was $742.3 billion as of July 29, 2021. For comparison, Forbes estimated the net worth of Amazon founder Jeff Bezos at $205.7 billion. That makes the market cap of Bitcoin nearly four times larger than Bezos’ fortune.
El Salvador made Bitcoin legal tender on June 9, 2021. It is the first country to do so. The cryptocurrency can be used for any transaction where the business can accept it. The U.S. dollar continues to be El Salvadors primary currency.
Could The Price Of Bitcoin Ever Go Down To Zero
The growing institutional adoption of Bitcoin, despite its extreme volatility, puts it in the mainstream of financial systems. What are the chances that its price could ever drop to zero and instigate a collapse of the digital economic system it has created?
Some people consider Bitcoin a bubble, a fad, like the Tulip mania and the South Sea bubble. According to them, someday soon, people will stop buying Bitcoin, and it will silently slide into oblivion unnoticed.
On the other side are Crypto enthusiasts, who say Bitcoin is here to stay. They compare it to the internet bubble that saw value destruction, but everyone appreciates its vast disruptive potential.
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Digital Alternative To Gold
People have preferred gold because its indestructible nature made it unique, and it was considered a great store of value. Unlike other assets, gold has managed to beat inflation over the years, and its limited supply makes it even more valuable. Bitcoin carries all the qualities of gold, but its easier to store and transfer than gold.
How Much Money Is In The Us
According to the Federal Reserve Bank of St. Louis, the M1 Money Supply, or the total amount of money in the U.S., was $12.8 trillion in 2020.
Investing in cryptocurrencies and other initial coin offerings is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Because each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author does not own cryptocurrency.
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But First: A Quick Backstory
Bitcoin was invented in 2009 by a person who called himself Satoshi Nakamoto. His stated goal was to create “a new electronic cash system” that was “completely decentralized with no server or central authority.” After cultivating the concept and technology, in 2011, Nakamoto turned over the source code and domains to others in the bitcoin community, and subsequently vanished.
It’s actually a little more complicated than that.
Pure Store Of Value: Percent Of Net Worth
Lastly, lets compare Bitcoin value to gold value.
As the years go by, cryptocurrency adoption and payment rates are not really increasing by much. Not many businesses accept them and most people dont seem to care about paying with them. Bitcoins usage in particular has shifted more towards being a store of value and a network that allows users to transmit value, rather than as a day-to-day medium of exchange.
Similarly, people buy gold not because they want to spend with it, but because they know it has permanent storage value for its utility. So, lets assume Bitcoin has shifted to that status, and that it never takes off as an actual form of payment but instead just serves as a store of value for some people. Since Satoshi released the blockchain technology to all, Bitcoin has no unique claim to the underlying technology. Instead, it merely relies on network effects as the first mover in the cryptocurrency space, and money tends to be a winner take all game.
The world has about $400 trillion in wealth if translated to U.S. dollars. This consists mainly of stocks, bonds, real estate, business equity, and cash.
All the gold in the world is worth maybe $10 trillion, based on the World Gold Councils estimate of how much gold has been mined and what the per-ounce price is. In other words, maybe 2-3% of global net worth consists of gold.
If Bitcoin only achieves 10% as much global value as gold , then each bitcoin would be worth about $50,000
Stock to Flow
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How Much Was 1 Bitcoin Worth In 2009
In the very early days of Bitcoin, there were no exchanges that look anything like the offerings today. But there was at least one exchange established in the first year since Bitcoin’s inception.
The BitcoinTalk forum went online in late 2009 and soon enough one regular proposed the idea of an exchange where people could buy and sell Bitcoins for fiat currency. Keep in mind that this was when the block reward was 50 BTC and there were very few people mining.
The BitcoinTalk forum member NewLibertyStandard set up New Liberty Standard Exchange, and another forum user – Sirius – sent him 5050 BTC in exchange for $5.02 through PayPal. This puts the first recorded price at which Bitcoin exchanged hands at $0.00099/BTC.
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The total value of the cryptocurrency market shot past $3 trillion Monday morning as the price of bitcoin and other major cryptos rose in a bull market.
The sectors overall market cap rose by about 3.6 percent in the past 24 hours, pushing it above $3 trillion for the first time Monday morning, according to pricing data from CoinGecko.
The price of bitcoin swelled by more than 6 percent over the same period and was last seen trading at $65,931 per coin, just shy of its all-time high, which it notched last month.
At the same time, Ethereum, the second-largest cryptocurrency in the world, powered higher to a new all-time high above $4,700 per coin. The digital coin was up more than 2.5 percent over the past 24 hours.
The third- and fourth-biggest tokens, Binance Coin and Solana, fell over the past 24 hours but have posted huge rallies of more than 20 percent over the past week.
But the crypto industry is notoriously volatile, which is arguably much of the appeal for speculators who hope to predict massive price run-ups.
Last month, when bitcoin approached similar price levels, it quickly fell back a few thousand dollars per coin.
And before that, in April, the price of bitcoin reached close to its current price before seeing a major correction that slashed its value in half before it came roaring back.
Other smaller cryptocurrencies pose an even greater risk to investors. Many have seen extremely volatile price moves doubling or having their value halved in a day at times.
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Alistair Milne Will Repurchase It
Ultimately, entrepreneur and Bitcoin investor Alistair Milne will come to the rescue, who in July 2020 placed an order on the Bitfinex crypto exchange to buy 18.52 million BTCs in case it drops to $0.01. It seems unrealistic, taking into account the current value of BTC. By the way, what is the current market value of Bitcoin? Well, at the time of this writing, BTC costs $57,484.52. Still, Milne promised that Bitcoin would never fully depreciate.
Bitcoin’s Origin Early Growth And Evolution
Bitcoin is based on the ideas laid out in a 2008 whitepaper titled Bitcoin: A Peer-to-Peer Electronic Cash System.
The paper detailed methods for “allowing any two willing parties to transact directly with each other without the need for a trusted third party.” The technologies deployed solved the ‘double spend’ problem, enabling scarcity in the digital environment for the first time.
The listed author of the paper is Satoshi Nakamoto, a presumed pseudonym for a person or group whose true identity remains a mystery. Nakamoto released the first open-source Bitcoin software client on January 9th, 2009, and anyone who installed the client could begin using Bitcoin.
Initial growth of the Bitcoin network was driven primarily by its utility as a novel method for transacting value in the digital world. Early proponents were, by and large, ‘cypherpunks’ – individuals who advocated the use of strong cryptography and privacy-enhancing technologies as a route to social and political change. However, speculation as to the future value of Bitcoin soon became a significant driver of adoption.
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What Determines The Price Of Bitcoin
As Bitcoin prices surge in the global markets, the speculation of it being a bubble has also popped up! But we are not sure if it really is a bubble but this tweet very well shows what it is.
Bitcoin isn’t a bubble, it’s the pin.
Keeping the sarcasm aside for a moment, people all around the world have started asking themselves questions.
What drives the Bitcoin price?
What determines the value of Bitcoin?
These are some hard questions that naturally arise but are often go unanswered or at best are vaguely answered.
That is why, in this article, I will try to explain the last question What determines the value of Bitcoin which will ultimately also answer the other two questions.
Is The Bitcoin The New Gold
Some assets do not generate revenues, the best known unproductive asset being gold. Bitcoin has frequently been compared to gold given that it cannot be considered as a currency but like an investment that generates no revenues. Using our minimal-value approach, we can assume that gold has a minimal market value due to its industrial use. Indeed, the value as an industrial good of gold would become the minimal value even if it would have no value as a financial investment. Again, bitcoin at this stage does not have any industrial use and could not pretend to such minimal value.
That said, to avoid a totally biased view of the bitcoin, we could argue on one potential value for it as an investment finance methods see a value in diversification. For asset managers with large investment portfolios, one value of bitcoin could therefore come from the fact that bitcoin is not fully correlated to financial markets.
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What Determines The Value Of Bitcoin
Bitcoins, as well as all cryptocurrencies at large, are digital money at the end of the day.
Bitcoins, as well as all cryptocurrencies at large, are digital money at the end of the day. While they dont function in the same manner as fiat currency, they are still tied to some rules of economics. Demand and Supply, which are the two governing forces that regulate the prices of many day to day commodities, also have a major impact on the price of Bitcoins.
The concepts of economics that apply to fiat currency dont necessarily apply to Bitcoins. However, there are some concepts which overlap. The best way to understand how the price of Bitcoins is determined by comparing it to a real world commodity is by comparing it with Gold.
While Bitcoins are an alternative to fiat currency, they are best comparable with Gold. This is because Bitcoins too, like Gold are exhaustive. Eventually there will be a day when all the gold under the surface of the earth will be mined and exhausted. Similarly, Bitcoins too, are finite in number and one day Bitcoins too, will be exhausted. While one cannot accurately predict how much gold is yet to be mined, we know for sure that there are 21 Million Bitcoins in all, out of which 16 Million have been mined.
Distributed & Decentralized P2p Node Network
Bitcoin is by far the most distributed and decentralized project until this moment in the history of humanity.
It has more than 20,000 computers or nodes securing the network where they maintain an independent copy of the Bitcoins blockchain or ledger so that no one can double spend.
Also, Bitcoin doesnt have any single point of failures because there are no central servers. You can see it like a BitTorrent which is only peer-to-peer which is why it is not possible to stop it.
This features also gives Bitcoin a tag of censorship-resistant money unlike the fiat money of all the countries that can be manipulated at any time. This gives a unique value to Bitcoin.
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What Gives Bitcoin Its Value How Is Bitcoin Valued
How does this translate to the world of cryptocurrency, andnamely Bitcoin? Looking at it from a distance, Bitcoin is nothing more than anoverhyped hodge-podge of various technologies from the 90s that some nerds areusing to trick young and naïve individuals out of their value. But have youever stopped to wonder how real your money actually is and what is theintrinsic value of your average fiat currency?
In the olden days when the concept of money was implemented to improve the way people exchanged goods, it certainly had intrinsic value. Before money existed, people relied on goods-for-goods exchange, where one side would provide a certain good and in return would receive the good they wanted.
Lets just say that if you were a potato grower who wanted to enrich his palette with some tomatoes, you had to find a tomato producer who was willing to accept your potatoes in exchange for his goods. Introducing money, the ultimate universal good, into the mix, made commerce/trade quicker, more practical and ultimately led to creation of the economy as we know it today.
This intrinsic value of fiat money seems to be lost today, as the thing seems to more often than not stand in the path of creating a truly global, free economy of the future. Every country has its own national currency, currency which is often times backed by nothing other than the government forcing it as the states legal tender.