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. Instead it is 'mined' by individuals who 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. On 4 December 2013 it 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.

Figure 11.20The value of Bitcoin (2013-2021).

Coindesk.com. 2021.Bitcoin News, Prices, Charts, Guides & AnalysisandBitcoincharts.Both accessed February 2021.

Use the models in this section, and the arguments for and against the existence of bubbles