Currency valuation approaches
Standard valuation approaches are
not applicable to bitcoin
So let’s treat bitcoin as a currency. Again, it is difficult to identify mispricings.
Currency valuations are usually based on growth, interest rate or price
differences between currency pairs. None of these can be determined for
Growth rates are nationally based concepts. While the global GDP
growth rate might be used for bitcoin in the future, this approach appears
premature right now in the light of the still small overall number of bitcoin
It is also impossible to determine an appropriate interest rate level
for bitcoin. While there have been attempts to create money and credit markets
for cryptocurrencies such as bitcoin, the market volumes are small and do not
offer a reliable basis for valuation. And determining price differences runs into
similar problems. Due to the small number of bitcoin transactions it is not
possible to arrive at a sensible definition of a basket of goods, which is,
however, necessary for measuring prices.
Consequently, it is impossible to
calculate relative purchasing power parity, one of the most important measures
for long-term balanced exchange rates. Moreover, the bitcoin basket might be
quite different from the traditional consumer price basket.
Due to the high
transaction costs, it might consist mainly of expensive consumer goods, luxury
goods and real estate. This would make it difficult to compare the bitcoin basket
with traditional baskets, which form the basis for calculating purchasing power
parity. Hence, standard valuation approaches cannot be applied right now, and
it is uncertain whether they can be used in the future.