Le Token: where is the worth of BTC?
Marcos!, email@example.com, June 5th 2018
Not long ago someone gave me a poker chip. I believe it was some days after another one gifted me a Bitcoin, the coined one you can actually touch in real life as a representation of the real ones in the digital realm. I enjoy carrying them around to professional and deeply serious meetings to make my standpoint clear on my view on the value of BTC.
But first, let us recall that money serves as a medium of exchange, as a unit of account and as a store of value. These are the three functions or services that money provides. Bitcoin has been analysed from that perspective with more questions than answers. I will propose another lenses to analyse the value of this innovative cryptocurrency. Remember price and value differ. Price is given by the interaction of supply and demand, a hype on the demand side can start a bubble process and a hype on the supply side can lead to major sale offs. We will try to discover if there is worth in Bitcoin.
Thus, I propose the following formula which can easily be expanded,
BTC = ∫ (Trust, Interest Groups, Substitute & Complementary goods, Production Cost, Technology, …)
The value of Bitcoin depends on this many variables and much more, variables that also deeply affect valuation of fiduciary money. Let us briefly analyse them one by one.
Trust: trust in a particular currency is crucial in its valuation. Trust depends on many other variables and would require statistical proof to recognize which variables are more important. However, the level of trust inspired by a currency, the institution that coined it and the progress of the society that uses it will raise or dump its valuation. Bitcoin is gaining trust.
Interest groups: Stakeholders or interest groups related to a particular currency will influence its valuation. This is true for every currency be it crypto or fiat. The larger the interest groups vested and interested in a steady or rising value, the higher the odds it will finally rise. In Bitcoin, among the larger interest groups we find miners who are committed to sell the best they can the crypto they received as a reward. Additionally, there is a huge network of entrepreneurs that have developed and are developing a Bitcoin environment. All those vested interests are for certain searching for raises in its price.
Substitute and Complementary goods: As any asset, its price depends on complementary and substitute goods. In this case substitutes or competitors range from the dollar, the euro, the yen, and even new Altcoins competing for Bitcoin’s position. If the general public prefers the substitutes, BTC price will tend to decrease. Furthermore, when taking into account the traits of the new generations and their preference for a greater degree of freedom, demographic trends can mark the birth of a new age in currency technology and traits.
Production Cost: Think of a common day coin … which is the limit of its value? It should be something around the cost of materials employed and the cost of production. Now let us dive into the psychology or financial choices of a BTC miner. Let us imagine that the cost of production in China based on energy consumption is around 3,000 USD, would you sell beneath the cost of production? … And you still have to factor in other costs. Thus, production cost would seem to be a price under which it would be difficult to find big whale sale off.
Technology: The technology used to print currency is an important factor with implications to its value. Under the hood of the BlockChain backing up Bitcoin are thousands of nodes and miners that have heavily invested in machinery and technology.
Once you factor in the impact of time passing by all this static analysis may fade away.
Coming back to my serious meetings, the poker chip and my coined BTC: I would typically explain that the value of BTC is the same as the token or poker chip. Let us imagine we are at a poker table, though I am personally not in favour of gambling. The value of my token depends on the players sitting at the table and furthermore if money is flowing into the table or if it is fleeing elsewhere. In a nutshell, my token is worth a portion of what is at stake on the table.
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