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What is the P/E ratio of Bitcoin? There is none. So there is no rational basis for any price. $1 is as valid as $1 million. There is no traditional way to analy

What is the P/E ratio of Bitcoin? There is none. So there is no rational basis for any price. $1 is as valid as $1 million. There is no traditional way to analyze this investment and figure out its real worth. To the limited extent that Bitcoin helps Chinese citizens out-maneuver the capital controls that the Chinese government has tried to enforce, then it could be analyzed as a shadow of the Chinese currency, but since the action is illegal, the data is dark. Thus Bitcoin, and other crypto currencies, are the world's most opaque investment.

21 9y ago
> There is no traditional way to analyze this investment and figure out its real worth. Is that bitcoin's problem or a traditional economists problem? Behavioral economics does have frameworks for thinking about bitcoin price, but then again, behavioral finance is not traditional and highly controversial. For once, it dispenses with the myth of the rational investor (homo economicus)
- lalaland1125 9y ago
  > Behavioral economics does have frameworks for thinking about bitcoin price, but then again, behavioral finance is not traditional and highly controversial. So, how does behavioral economics supply a price for Bitcoin?
gfodor 9y ago
What's the "rational basis" for a specific value of the P/E ratio? There are many stocks that belong to companies that have no mechanisms in place nor could they be reasonably expected to introduce mechanisms to directly return profits to shareholders. These stocks have the same form of "intrinsic value" as gold or Bitcoin: whatever the hell the next person is willing to pay for it. Pretending that an underlying asset that doesn't throw off any yield or return of capital is somehow more rationally valuable than another doesn't make sense.
- FabHK 9y ago
  Glad you asked. P/E ratios can be anchored (with expected earnings growth and a risk premium) to interest rates. Whether stocks pay dividends or not is not terribly relevant, see Modigliani-Miller. Thus, share prices are rationally anchored to economic reality. Of course, there's a lot of estimation involved, and people can get it wrong for a while, individually or collectively.
- svachalek 9y ago
  Even if a stock does not return dividends, it still represents a share of ownership in the company. It has a real value to anyone who might want to purchase a controlling share in the company, value in reasonable proportion to the profit or profit potential of the company. From that perspective, taking control of Bitcoin may have a measurable monetary value but as I understand the system the value isn't in the coins, it's in the miners.
- roywiggins 9y ago
  Buy enough of the company stock and you own the company. You can't do that with Bitcoin.
- imtringued 9y ago
  >Pretending that an underlying asset that doesn't throw off any yield or return of capital is somehow more rationally valuable than another doesn't make sense. Lets say I have a company with 1 billion dollar worth of assets and a 100 million dollar profit per year. I have issued 100 million shares during IP. How much is a single share worth? At the very least $10. Next year I have a 1.1 billion dollar company. How much is a single share worth? At the very least $11. You have 1000 shares worth $11000. I can now either pay the profit out as dividend or not. Your shares will be worth less by exactly the amount that was paid out. Your 1000 shares will be worth $10000 and you will have $1000 in cash or alternatively I don't pay out a dividend and you still have 1000 shares worth $11000. Where did that growth come from? With a company it's easy to answer. They sold more of their existing products. Released a new product. Reduced costs through technology. We have more stuff now. Investing in a stock helps a company indirectly even if stock buybacks never happen. The company receives better lending conditions from banks. What about cryptocurrency? A currency shouldn't move in price at all. Where did that growth come from? From other people. Nothing new was created. Existing wealth merely gets redistributed.
m3kw9 9y ago
Bitcoin isn’t a stock that has earnings. They are more like gold or silver. The usefulness + scarcity should determine its price. Right now people are buying because other people are buying, and a whole lot o hype
- GenericsMotors 9y ago
  Even gold has some real-world usefulness that can drive demand as it's used in electronics manufacturing.

21 9y ago

> There is no traditional way to analyze this investment and figure out its real worth. Is that bitcoin's problem or a traditional economists problem? Behavioral economics does have frameworks for thinking about bitcoin price, but then again, behavioral finance is not traditional and highly controversial. For once, it dispenses with the myth of the rational investor (homo economicus)

lalaland1125 9y ago
> Behavioral economics does have frameworks for thinking about bitcoin price, but then again, behavioral finance is not traditional and highly controversial. So, how does behavioral economics supply a price for Bitcoin?

gfodor 9y ago

What's the "rational basis" for a specific value of the P/E ratio? There are many stocks that belong to companies that have no mechanisms in place nor could they be reasonably expected to introduce mechanisms to directly return profits to shareholders. These stocks have the same form of "intrinsic value" as gold or Bitcoin: whatever the hell the next person is willing to pay for it. Pretending that an underlying asset that doesn't throw off any yield or return of capital is somehow more rationally valuable than another doesn't make sense.

FabHK 9y ago
Glad you asked. P/E ratios can be anchored (with expected earnings growth and a risk premium) to interest rates. Whether stocks pay dividends or not is not terribly relevant, see Modigliani-Miller. Thus, share prices are rationally anchored to economic reality. Of course, there's a lot of estimation involved, and people can get it wrong for a while, individually or collectively.
svachalek 9y ago
Even if a stock does not return dividends, it still represents a share of ownership in the company. It has a real value to anyone who might want to purchase a controlling share in the company, value in reasonable proportion to the profit or profit potential of the company. From that perspective, taking control of Bitcoin may have a measurable monetary value but as I understand the system the value isn't in the coins, it's in the miners.
roywiggins 9y ago
Buy enough of the company stock and you own the company. You can't do that with Bitcoin.
imtringued 9y ago
>Pretending that an underlying asset that doesn't throw off any yield or return of capital is somehow more rationally valuable than another doesn't make sense. Lets say I have a company with 1 billion dollar worth of assets and a 100 million dollar profit per year. I have issued 100 million shares during IP. How much is a single share worth? At the very least $10. Next year I have a 1.1 billion dollar company. How much is a single share worth? At the very least $11. You have 1000 shares worth $11000. I can now either pay the profit out as dividend or not. Your shares will be worth less by exactly the amount that was paid out. Your 1000 shares will be worth $10000 and you will have $1000 in cash or alternatively I don't pay out a dividend and you still have 1000 shares worth $11000. Where did that growth come from? With a company it's easy to answer. They sold more of their existing products. Released a new product. Reduced costs through technology. We have more stuff now. Investing in a stock helps a company indirectly even if stock buybacks never happen. The company receives better lending conditions from banks. What about cryptocurrency? A currency shouldn't move in price at all. Where did that growth come from? From other people. Nothing new was created. Existing wealth merely gets redistributed.

m3kw9 9y ago

Bitcoin isn’t a stock that has earnings. They are more like gold or silver. The usefulness + scarcity should determine its price. Right now people are buying because other people are buying, and a whole lot o hype

GenericsMotors 9y ago
Even gold has some real-world usefulness that can drive demand as it's used in electronics manufacturing.