WHAT IS THE FUNDAMENTAL VALUE OF A BITCOIN

A bubble may have occurred in the market for the virtual currency called Bitcoin. Bitcoin was introduced by a group of software developers in 2009. Where it is accepted, it can be transferred from one person to another as payment for goods and services. Unlike other currencies it is not controlled by a single entity such as a central bank, but instead is "mined" by individuals who are willing to lend their computing power to verify and record Bitcoin transactions in the public ledger. At the start of 2013, a Bitcoin could be purchased for about $13. At its peak on 4 December 2013 the same coin was trading at $1,147. It then lost more than half its value in two weeks. These and subsequent price swings are shown in Figure 11.20 'The value of Bitcoin 2013-2015'. 1,200 900 Bitcoin price ($) 600 300 0 Jan 13 May 13 Sep 13 Jan 14 May 14 Sep 14 Jan 15 May 15 Date Use the models in this section, and the arguments for and against the existence of bubbles, to provide an account of the data in Figure 11.20