How does Bitcoin have a monetary value

What is a Bitcoin actually worth?

Bitcoin and other cryptocurrencies are currently enjoying great popularity. This applies both to the currencies themselves and to media interest. The appreciation of Bitcoin is sensation enough to produce reports for weeks. With the media interest, one question remains unanswered: What is Bitcoin actually worth?

Bitcoins have a rate against other currencies. For example, a bitcoin is worth $ 2,900. In this respect, the question seems superfluous. However, it should not be forgotten that bitcoins are ultimately a currency and the value of each currency can be measured. More precisely: the fair value.

Currency rates fluctuate. There is a reason for these fluctuations. Movements in the euro / dollar currency pair are roughly highly correlated to the real interest rate differentials in the currency areas. In fact, it's more than correlation. It's causality. Practically every exchange rate relationship can be explained by interest rate differentials. There is no interest on bitcoins. How should one determine the fair value there?

Gold is also a currency that pays no interest. The value is measured primarily on the level of real interest rates. If real interest rates fall, the price of gold rises. That has always been true. You don't have to strive for a long analysis to see that bitcoins and gold are not moving in parallel. The Bitcoin rate seems to have little to do with real interest rates.

Slowly you run out of ideas for the evaluation. Even so, Bitcoins are currently being traded like crazy. The daily transaction volume is increasing rapidly. Bitcoins worth around $ 1 billion a day now change hands. That is 2-2.5% of the total value of all bitcoins. For comparison: the world's gold inventory is worth about 7.6 trillion. The London Bullion Market trades between 25 and 30 billion per month. If you break that down to a day, you get 0.02% of the total. Globally, of course, more is traded, but even if it is ten times as much worldwide, the value remains modest at 0.2%.

An important component of the value of Bitcoins is the tradability and transferability. High volumes can be traded or transferred relatively quickly. This is also still relatively cheap. Chart 2 shows the fees as a proportion of the transaction value. 0.1-0.2% of the transaction value is not free, but if you wanted to transfer the same amount by bank transfer, the costs are most likely higher.

If you transfer 1,000 euros from one continent to another, 4% fees can be incurred. The costs are below 1% via PayPal and the costs can also be below 0.5% via other payment and transfer apps such as Transferwise. In comparison, Bitcoins are still cheap.

Bitcoins are not only cheap, but also relatively fast. Although the volume and the number of transactions are increasing (Figure 3), the transfer remains swift. It usually takes between 10 and 20 minutes for a transfer to take place. It doesn't take a few seconds, but it's practically unbeatable.

The amount and volume that the network can currently handle alone results in many advantages and a high value for Bitcoins. It can hardly be faster, cheaper and safer. As long as it stays that way, bitcoins have a great future. It remains to be seen whether this is all worth around $ 3,000 per Bitcoin.

Clemens Schmale

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