Bitcoin’s price soared $500 in 24 hours this week. Such moves continue to make observers scratch their heads over how to determine the crypto’s value.
Still that’s not stopping them from trying. At the Wall Street Journal's D.Live Conference in Hong Kong this week, Ripple’s CTO and others from the crypto community weighed in on the issue.
Also, two friends came up with a valuation over two bottles of wine.
The question becomes, is there any method to the madness when it comes to trying to find out Bitcoin’s valuation?
Let’s discuss.
Volatility and valuations
At the Journal’s conference, Ripple’s chief technology officer Stefan Thomas said Bitcoin’s recent volatile price action reflects the challenge that investors face in trying to value the asset.
According to the Journal, he said:
“People are trying to figure out how to value these things so the volatility is the result of people dealing with a completely new asset category. The whole space is moving together. A lot of people aren’t differentiating between the different assets and the different companies that they have.”
Also weighing in on the subject at the conference was Elizabeth Rossiello, the founder and CEO of Bitpesa. Instead of seeing the volatility as a negative for the space, she sees it as a positive because it means that there is more liquidity coming into the space.
She reportedly said at the conference:
“When I tell a VC in Palo Alto that we’re working in frontier markets, the eyebrows come off [his] head.”
The Journal noted that both Thomas and Rossiello expressed cautious skepticism about the prospect of cryptos being regulated.
Valuing Bitcoin over wine
If trying to make heads or tails of Bitcoin’s valuation sober is leading you nowhere, break out a bottle of wine or two.
That’s what two economists/friends did, according to a Bloomberg report. Savvas Savouri, a partner at a London hedge fund and Richard Jackman, professor emeritus at the London School of Economics enjoyed a three-course meal and two bottles of wine while calculating the fair value of one Bitcoin to be $200.
Then, once sober a day or so later, the pair realized they were one decimal place out, and determined that $20 was the right price for a virtual currency.
In honor of the wine they were drinking, the pair named their theory Côtes du Rhône.
The hilarious wine story includes this quote from Savouri:
“It’s how we get our best ideas. It’s the lubricant.”
Given the theory was crafted in a somewhat drunken state, we won’t detail it for you here. One clear conclusion that was pointed out is worth noting. Bloomberg noted that for Savouri:
“…the easiest way to understand the efflorescence of theories and valuations being bandied about is to opt for a simple, overarching one: the greater fool theory. It says that one fool buys in the hope that there’s an ever-bigger sucker willing to pay more.”
Savouri said:
“The problem is that we don’t breed fools geometrically.”
This article appeared first on Cryptovest