Bitcoin Investors Lied to Themselves to Justify Mania’s Prices
The cryptocurrency boom found value where there wasn’t any.
Every crypto enthusiast had a method for justifying Bitcoin’s ever-climbing price in 2017. They badly needed one: Bitcoins don’t pay interest like bonds or generate profits like companies, so it takes some mental gymnastics to come up with a valuation measure. For example, some say its price should be based on the value of the transactions moving through the network.
It’s worth remembering that this isn’t the first time investors reached for new ways of calculating value. Remember “cash earnings”? During the dot-com boom of the 1990s, investors and analysts focused on a company’s operating cash flow per share, or other alternative measures, when conventional earnings didn’t give them the answers they were looking for.