Valuing BTC using a macro framework
I am sure you are all vaguely aware of Bitcoin (BTC), which was initially something of fringe
interest to a few of us.
For those of you who don’t know, Bitcoin is a digital peer-to-peer currency that functions
without the intermediation of any central authority.
Complex but cool
The maths behind it is so complex and robust that it is well beyond my intellectual abilities to
understand it. But those super-geeks who understand its creation and function, swear by its
clever complexity and robustness. Let me suffice with the Wikipedia description:
Bitcoin is called a cryptocurrency since it is decentralized and uses cryptography to prevent
double-spending, a significant challenge inherent to digital currencies. Once validated, every
individual transaction is permanently recorded in a public ledger known as the blockchain.
The calculations required to authenticate Bitcoin transactions are completed using a network
of private computers often specially tailored to this task. As of May 2013, the Bitcoin network
processing power "exceeds the combined processing strength of the top 500 most powerful
supercomputers". The operators of these computers, known as "miners", are rewarded with
transaction fees and newly minted bitcoins. However, new bitcoins are created at an ever-
decreasing rate. Once 21 million bitcoins are distributed, issuance will cease. As of August
2013, approximately 11.5 million bitcoins were in circulation.
Got it? OK, neither have I. But neither do I understand how QE positively changes the outlook
for the world’s debt-laden economies, so I must be a super-simpleton!
It is because it is
The point is, not how it is created but that it has been created and stands up to the most
rigorous testing and analysis. And to me that means that is has a chance of surviving as the
medium of exchange for the cyberworld and potentially the real world too.
The rebel’s currency
In essence, Bitcoin’s success is due to the fact that the man in the street understands that
central banks and governments are going to take their money via confiscation or default or
devaluation and it is their way of voting against it and them (since gold is not easily
exchangeable for them).
This is the 99% sticking their fingers up at the authorities and saying we don’t need you or