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The “real” value of crypto currencies

by | 18 Mar 2020

Let’s take a closer look at the question of the “real value” of cryptocurrencies, as this is absolutely legitimate. The price of a cryptocurrency can be found out quickly, e.g. on coinmarketcap.com or various exchanges or brokers.

There the current price of a coin is immediately visible. At Bitcoin (BTC) today (17.03.2020) for example about 5’200 Dollar.

But what is the exact value of a Bitcoin and how is it determined?

How can it be that some experts assume that one day Bitcoin will cost $500,000 or even up to $1,000,000, while others claim that Bitcoin will go to zero?

How we people value companies and objects has changed dramatically in recent years.

Let’s look at this in the following example:

Let’s take a closer look at Lufthansa, Facebook and their values.

Lufthansa employs over 130,000 people, has a huge infrastructure and “real values” such as airplanes etc. and its stock market value is around 5 billion dollars.

Facebook, on the other hand, currently employs only 44,000 people, three times less than Lufthansa, and does not own any goods or something “tangible”. Despite these facts, Facebook has a market value of over 400 billion dollars, eighty times higher than Lufthansa.

How is that possible?

Facebook profits and maintains its value, similar to cryptocurrencies (Bitcoin etc.), among other things through the so-called “network effect”. The number, the activities and the data of the users make the prices skyrocket, because these things are very valuable nowadays.

However, there is often headwind with new emerging technologies, such as block chain and crypto currencies. The most common examples published by media would be: Crypto currencies have no real value, they are only used for illegal activities etc.

Similar predictions have often been made in the past for other revolutionary technologies, such as:

“I believe in the horse. The automobile is a temporary phenomenon.”

– William II, the last German Emperor (1905)

“I think there’s a worldwide market for maybe five computers.”

– Thomas Watson, Chairman of IBM (1943)

“The Internet will have no more impact on the economy than the fax machine.”

– Paul Krugman, Nobel Prize winner and NY Times columnist (1998)

Bitcoin could therefore be measured by user choice and transactions taking place.

The price rises as the popularity, distribution and use of Bitcoin increases.

To identify a bubble, it is important to check whether the value has developed in the same way as the price. If, for example, the Bitcoin rises from $5,000 to $15,000 (3x) within 3 months, one has to ask oneself whether the value has also tripled in this time span.

Have there been three times as many users or transactions in the last three months?

Or is there the possibility of a greater adaptation, distribution and use in the future?

In the long term, sooner or later the price will always adjust to the value. These are appropriate questions for weighing up whether a price of a Bitcoin is currently justified or whether one has paid “too much”.