When Will Bitcoin Be Overvalued?

You really have to stretch your imagination to infer what the intrinsic value of bitcoin is,’ former Fed chairman Alan Greenspan said.

And if I’m honest, I’d have to agree. How do you value bitcoin?

bitcoin price rise

Source: Coin Desk

If you believe bitcoin will be the next gold, then you might take a percentage of the US$7 trillion gold market and add that onto bitcoin.

For example, say at least 10% of the money in gold moves to bitcoin. That’s US$700 billion. At the moment, the bitcoin market is worth US$165 billion. Thus, by our crude estimates, bitcoin still has more than 324% to climb.

Or what if you think bitcoin will be the new global currency. Then you might not use the gold market but look at the global supply of money — M2.

In 2016, the value of M2 was more than US$13 trillion. Let’s say around 15%, or US$1.92 trillion, of M2 money flows into bitcoin.

As you can see, the ‘value’ of bitcoin is only limited by arbitrary assumptions.

This is why I don’t like to look at bitcoin as an investment. Sure, you can make some amazing returns with a buy and hold strategy.

Bitcoin Price Continues to Rise

At the moment, bitcoin has continued to rise despite bans and bad press. But who knows when this gravy train will stop.

There is a huge amount of risk holding bitcoin.

Bitcoin already struggles to maintain its original purpose, a medium of exchange. Transaction costs are far above what they use to be. And no one wants to trade their rapidly climbing bitcoins for ordinary goods anyway.

How possible is it that bitcoin will become the next gold? It’s a long shot. Convincing conservative investors to put their money in something extremely volatile will be an extremely tough sell.

Where Does That Leave Bitcoin?

Right now…I have no idea.

For bitcoin to become the next anything, it needs to gain ever more traction. That’s not to say you can’t make amazing returns on bitcoin or other cryptos. Why do you think so many small hedge funds are rushing into the space?

But proceed with caution. If you are going to jump in, do so with money you’re willing to lose.


Härje Ronngard,

Junior Analyst, Money Morning

PS: Want to find out more about the secret world of bitcoin? Click here.

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