Wednesday, January 10, 2018

Brian Romanchuk — Bitcoin Valuation Part I: The Wrong Answers

The rise of Bitcoin (and other crypto-currencies) appears that it will have a negative net effect for most law-abiding citizens, but it has provided us with a rather wonderful teaching opportunity. It underlines the weaknesses of existing analytical techniques. (I discussed Bitcoin in a previous article, but I used it to take a sideswipe at DSGE models, and I didn't bother giving the correct answer.)
Due to article length, this article will discuss incorrect valuation techniques. Part II will give the correct methodology....
Bond Economics
Bitcoin Valuation Part I: The Wrong Answers
Brian Romanchuk


Clint Ballinger said...

My take on this Of Bitcoins and Balance Sheets: The Real Lesson From Bitcoin

Neil Wilson said...

You're missing the other side of the equation.

Taxes create demand for a currency, but it is how hard it is to get hold of that currency that determines its value.

If I tax you $20, but I don't spend $20 then the value is infinite (or whatever you are prepared to do to avoid being jailed by my goons).

Banks are nothing more than agents of the state. They lend money under certain prescribed conditions - conditions dictated by the state in exchange for the banks being allowed to peg their liabilities to the state's liabilities.

You can consolidate the commercial banks into the central bank for analysis purposes and have the central bank lend to everybody. Repayments are then just taxes, and interest payments on deposits, etc. are welfare cheques.