As it hits new highs, there is no shortage of bold predictions about Bitcoinreaching US$100,000or more.
If it gets above its previous high, it must keep going up.
There is also charting or technical analysis looking at graphs and seeing patterns in them.
There may be fancy terms such as resistance levels and Tenkan-Sen.
There is talk about fundamentals.
Lets examine this last idea.
Does Bitcoin have a fundamental value?
Think of an apple tree.
To an investor, its fundamental value is in the apples it produces.
40% off TNW Conference!
A standard measure used by investors is the price-to-earnings ratio.
In property, the fundamental value reflects the rent the investor earns (or the owner-occupier saves).
For a bond, the value depends on the interest it pays.
Gold has a fundamental value also, based on its use for jewelry, dental fillings, or electronics.
But this value is not why most people buy gold.
Fundamentals for cryptocurrencies
National currencies are different.
Their value is in being a trusted and accepted unit of exchange.
Most cryptocurrencies, such as Bitcoin, Ethereum, and Dogecoin are essentially privatefiat currencies.
They have no corresponding assets or returns.
This makes it hard to determine a fundamental value.
Theoretically, this could be possible.
Globally an estimated1.7 billion peoplelack access to banking services.
But Bitcoin has been spruiked as the future of payments since its invention in 2008.
It has made little progress.
There are at least two significant barriers.
First is the computational grunt needed to process payments.
Technology may overcome this.
The second obstacle is harder: the volatility of its price.
Digital currencies that can maintain a stable value are more likely to become payment instruments.
These include the existing stablecoins,Metas mooted Diemandcentral bank digital currencies, alreadyoperationalin some Caribbean economies.
But it is far from clear what benefits there are.
The laws forcing businesses to accept the cryptocurrency have also led to protests.
It does have this advantage over most of the altcoins.
Its supply, like gold, is (arguably) limited.
One tool used by crypto enthusiasts to compare Bitcoins scarcity with gold is called thestock-to-flow model.
The stock of Bitcoin is more than 50 times than the new coins mined annually.
But this does not explain why Bitcoins price halved earlier this year.
Nor does it have any theoretical basis in economics: prices dont depend just on supply.
This is not guaranteed.
And there is no limit to the number of cryptocurrency alternatives.
This credit card company once had 90% of the Australian market in the early 1980s.
It was defunct by 2006.
Before 2008 it was a bigger social networking site than Facebook.
But I doubt Bitcoin will be one of them.
