To the Moon? Time to Grow Up, Bitcoin
Michael J. Casey is chairman of CoinDesk’s advisory board and a senior advisor of blockchain research at MIT’s Digital Currency Initiative.
In this opinion piece, part of a weekly series of columns, Casey suggests that bitcoin’s price might be in a bubble and that curtailing the mania around it would be good for the technology’s future.
This is not “normal.”
Of course, not being normal is part of bitcoin’s appeal. Bitcoin has redefined money and created the hitherto non-existent concept of a scarce digital asset. It’s hard to hold it to the standards of “normal” assets.
But as someone who spent decades watching financial markets go through repeated patterns of exuberance and retrenchment, I’m quite uneasy with bitcoin’s latest runup. A 20% gain over the weekend left it up 60% over two weeks and up an eye-popping 900% year-to-date.
Record-breaking gains are irrelevant in isolation. The important question is “compared to what?” And the search for an apples-to-apples comparison is especially tricky for an asset class whose binary set of outcomes might lie in an all-or-nothing range of $0 to $1 million.
Cryptocurrencies don’t have any real precedent from which to establish benchmarks. That makes them hard to value.
But being hard to value doesn’t get us off the hook. Investors must at least try to assign numbers to the assets they buy. And any rational assessment of something’s value must, by definition, compare it to the value of something else. Value is an inherently relative concept.
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