Bitcoin’s Value: A Bubble or the Future?

Bloomberg View columnist Justin Fox poses a question that continues to resurface: “What’s the Value of Bitcoin?”

While this inquiry is far from new, it remains relevant as Bitcoin’s market value fluctuates wildly.

To answer this, Fox first defines a bubble:

“If you follow the Investopedia definition that a bubble ‘is created by a surge in asset prices unwarranted by the fundamentals of the asset,’ there’s the unsettling reality that this particular asset has no fundamentals.”

However, this argument applies to other forms of currency as well. Gold and the U.S. dollar and many other investments lack traditional fundamentals, yet they retain value as widely accepted means of exchange. Bitcoin advocates argue that it functions similarly, but the majority of Bitcoin transactions are speculative people trading Bitcoin rather than using it for goods and services.

Efforts to value Bitcoin have been ongoing. In 2013, Bank of America Merrill Lynch currency strategist David Woo attempted to calculate a fair value. He estimated Bitcoin could account for 20% of global e-commerce, requiring a market value of $5 billion. Adding in the market cap of major money transfer companies and silver reserves, he landed at an estimated value of $15 billion. Today, Bitcoin’s market value has surged to $315 billion, challenging its viability as a currency. Fox recalls the first Bitcoin transaction in 2010—10,000 Bitcoins for two Papa John’s pizzas. At current prices, that many Bitcoins could buy over 16 million pizzas.

So, what does this mean for investors? Historically, Bitcoin has functioned poorly as a currency, but with a finite supply of 21 million coins, its short-term value remains speculative. Whether Bitcoin investors are right or we’re witnessing the beginning of the end remains to be seen.

Bitcoin and Beyond: Unconventional Investments

Some have found creative ways to profit from Bitcoin without direct investment. The Danish hockey team, Rungsted Seier Capital, has taken a unique approach—embracing Bitcoin for branding and marketing purposes. Whether Bitcoin continues to soar or crashes to zero, they can frame their decision as visionary or ironic.

However, Danish hockey player Nikolaj Rosenthal took things a step further, opting to receive his salary in Bitcoin. While his exact salary is unclear, if we assume $100,000 annually, he will currently receive about 5.21 Bitcoins. If Bitcoin’s value climbs 30% next year, his earnings would be worth $130,000. Conversely, if Bitcoin reverts to Woo’s estimated $15 billion valuation, his salary could drop to just $5,000. His team has assured him he can convert back to traditional currency if Bitcoin crashes—but that removes much of the excitement from the gamble.

The Fiduciary Standard and Investment Transparency

Taking a break from Bitcoin, let’s turn to the fiduciary standard—a topic that recently regained attention. Until last week.

One significant improvement in financial regulation has been the reduction of Real Estate Investment Trust (REIT) commissions. Previously, non-traded REITs were notorious for high commissions (around 7%), reducing investor returns. With no public trading market, investment firms could report an REIT’s value as $100,000 even when its actual resale value was closer to $80,000.

The SEC initially pushed for greater transparency but ultimately backed down due to industry pressure. Enter the Department of Labor, which has now capped REIT commissions at 3%, leading to a sharp decline in broker sales. While real estate remains a viable investment, brokers seem far less enthusiastic about it without hefty commissions.

As always, conflicts of interest persist in broker-dealer sales models. For unbiased advice, investors should work with a true fiduciary—one who prioritizes their clients’ best interests over sales incentives.

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• The Yield Curve Is Flatter! Remind Me Why I Care
• Tax Changes Are Coming Next Year, but You Can Plan for Them Now
• Fueling the Bull Market
• Index Funds Rule the World, But Should They Rule You?
• Must-Reads of 2017: From Finance to Extinction
• Your Brain Can Only Take So Much Focus

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