What Is Bitcoin Really Worth? Don’t Even Ask.

Dabbling in Bitcoin lies somewhere between gambling and investing.

After all, true investing requires a rational appraisal of an asset’s value and that is simply not possible at present with Bitcoin. Real understanding of the economic issues underlying the cryptocurrency is almost nonexistent.

It is not just that very few people really comprehend the technology behind Bitcoin. It is that no one can attach objective probabilities to the various possible outcomes of the current Bitcoin enthusiasm.

How can we even start estimating the fundamental value of Bitcoin, with its astonishing market value of more than $275 billion? Any attempt will soon sound silly.

Let’s try for just a moment. It is possible to imagine a future in which Bitcoin eventually replaces some fraction of money as we know it today. Suppose that happens soon. Note that one measure of the United States money supply, M1, is today worth more than $3.6 trillion.

But don’t get too excited.

Will Bitcoin really replace a large fraction of conventional money? There are reasons to be skeptical. Bitcoin is vastly more volatile than conventional money and relatively few people trust it as a store of value. Even if that hurdle is crossed, how much cryptocurrency will people need?