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What Should Bitcoin Be Worth?

The cryptocurrency feeding frenzy continues as you can now trade bitcoin futures. So much has been written about how bitcoin trading is like the tulip bulb frenzy in Holland centuries ago. But those who believe in bitcoin believe that the cryptocurrency will eventually replace currencies like the dollar, euro and yen. If you are interested in making money in cryptocurrencies or their futures contracts you need to have a basis on which to make your decisions. The question is what should bitcoin be worth? Investopedia poses the question, why do bitcoins have value.

Currency also provides a universal measurement for accounting purposes. For instance, without currency, it is difficult to compare companies that sell different goods. Currency is used as a store of value, which makes saving, investing and banking easier.

Some currencies, like gold, have value because they are useful as a commodity. Government fiat currencies, like the U.S. dollar, have value because governments grant them legal tender status and only accept taxes through them.

Bitcoins do not have value as a physical commodity like gold and are not widely accepted as legal tender like dollars.

Bitcoin has value to those who by them for the following reasons.

There are buyers and sellers of bitcoin making it possible to buy bitcoins with dollars and to buy dollars with bitcoins. For those in the bitcoin world bitcoin is an accepted currency.

Bit coin is also decentralized making it hard to tax and hard to trace. Ongoing criticism of bitcoin is that drug dealers use the cryptocurrency to move their ill-gotten profits.

For those worried about governments printing more money to pay their debts there is a limit to how fast bitcoins can be mined and there is a cap on the total number of bitcoins so inflation will not take away bitcoin value.

And bitcoin is being used as an investment because the price is rising.

And last of all the cryptocurrency world is a social network that feeds on itself.

But, What Should a Bitcoin Be Worth?

The Forex market shows us that the value of any currency is relative to the value of others. Thus one trades dollars for euros and Swiss francs for yen. The value of a nation’s currency is based on central bank monetary policy, the strength of national economy and the stability of its political system. None of these are factors with bitcoin. Bitcoin is valuable because people see its value going up and want to get in on the profits. The base value of bitcoin is probably somewhere above zero as there is a benefit to some of keeping their transactions private.

Although some have called bitcoin a fraud that is not the case. Bitcoin is an alternative way to hold wealth and hopefully for bitcoin enthusiasts, to buy things. But what should a bitcoin be worth? Anyone trading bitcoin may be making profits but what happens when one approaches retirement? Will bitcoin hold its value over the years or will the wild swings in value accelerate making it risky as a long term holder of wealth? Short term trading of bitcoin with money that you can afford to lose may be profitable but this is not a widows and orphans stock that you can buy and forget about in your old age or you will wake up to find that bitcoin is back at $1.

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