What is Bitcoin Fair Value?

Bitcoin’s (BTC) descent toward $20,000 is no surprise to me. As you may or may not know, I’m one of the naive dinosaurs who still believes any cryptocurrency cannot ever become money unless it is centrally backed by a sovereign entity. With volatility Year-to-Date now at well over 50%, the market clearly has arrived at the same conclusion.

So what is Bitcoin’s ‘fair value’?

Well, if you were to ask J.P. Morgan, their Bitcoin “strategist” Nikolaos Panigirtzoglou stated back in May that Bitcoin’s fair value was US$38,000 – a call that now appears to be woefully wrong-footed. ““The past month’s crypto market correction looks more like capitulation relative to last January/February, and going forward, we see upside for Bitcoin and crypto markets more generally,” he said on May 29th, 2022.

Kind of ironic, considering JP Morgan CEO Jamie Dimon has consistently categorized Bitcoin as “worthless” (October 11, 2021). “I’m not a bitcoin supporter. I don’t care about bitcoin. I have no interest in it,” he said last year. “On the other hand, clients are interested, and I don’t tell clients what to do.”

Last week, the bank said that “Bitcoin’s recent slide has left the digital token well below its fair price, giving the cryptocurrency significant upside”.

So JP Morgan seems to be applying a prediction of the future “fair value” of Bitcoin.

Fair Value, in the investing context, means the price at which a buyer and seller arrive at for the transaction value of the asset in question.

So fair value, then, is the price at which the asset is trading at any given moment.

Purely from this point of view, the price at which Bitcoin is trading is fair value.

But what about from the perspective of fair value in the accounting context?

According to the definition of fair value as described in Generally Accepted Accounting Practices (GAAP) and International Financial Reporting Standards (IFRS), “Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Ah! The definition is the same. Thus, the Fair Value price of Bitcoin is the price at which it is trading.

Can Bitcoin Go to Zero?

So under what circumstances, assuming the larger financial institutions are incapable of engineering a floor of support under the first and most valuable crypto, might Bitcoin go to zero?

Well, consider that the value destruction of just this year’s price collapse from $68,000 to (now) below $24,000, there is going to be a very sudden ramp-up in regulation of Bitcoin that could have a profoundly chilling effect on speculators’ willingness to bet on the crypto.

Also, considering that Central Bank Digital Currencies are imminent, it is inconceivable that sovereign centrally operated (and more importantly, backed) currencies could be deemed superior to any crypto, considering none of them are backed by anything.

Even the so-called “stablecoins” like Tether and Terra have now been proven to be largely fraudulent in their representations of being backed by US dollars.

So what will happen if Bitcoin is deemed a security, and new rules geared to protecting investors from the massive losses being experienced today dictate that Bitcoin is not allowed to be used as legal tender?

What would be the point of holding it at all?

History will remember Bitcoin as an ambitious experiment that proved, unequivocally, that no currency can survive that is not both centrally operated and financially backed by a sovereign currency.

James West

Editor and Publisher

James West founded Midas Letter in 2008 and has since been covering the best of Canadian and US small cap companies. He covers global economics, monetary policy, geopolitical evolution, political corruption, commodities, cannabis and cryptocurrencies. As an active market participant, James is not a journalist and is invariably discussing markets...
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