What’s the fundamental value of a bitcoin?

Jeff Cockrell | Dec 21, 2017

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Cboe Global Markets Inc. opened trading on futures contracts for the cryptocurrency bitcoin on December 10. A week later, CME Group Inc., owner of the Chicago Mercantile Exchange, did the same. These new derivatives, which some experts have suggested lend credibility to a little-understood asset, came on the heels of a banner year for bitcoin, whose price has risen more than 1700 percent in the past 12 months.

But despite the rapid upswing in bitcoin’s price, predicting the currency’s future may still prove a daunting task. Bitcoin is famously volatile—earlier this month, the price (as reported by the CoinDesk Bitcoin Price Index) dropped more than 21 percent in just over 48 hours before resuming its rise—and investors in bitcoin can’t rely on the sort of lengthy track record that other currencies have accrued to help them with their forecasts. Nobel laureate Robert Shiller of Yale argued in the New York Times that “[t]he results of a serious attempt to assess the value of Bitcoin can only be ambiguous.”

But can economists agree on at least a minimum fundamental value of bitcoin? Or on the best method for predicting bitcoin’s future price? To find out, Chicago Booth’s Initiative on Global Markets consulted its North American Economic Experts Panel. Only 4 percent of the panelists agreed that a bitcoin’s fundamental value is at least $1,000, but most of the panel didn’t rule it out: 56 percent of the panel was either uncertain or had no opinion. Just over a quarter of the panelists agreed that the “best forecast for the value of one bitcoin in 2 years is its current price,” with 19 percent disagreeing, though many of those who agreed cautioned that it still isn’t a very good predictor.

“The current value is such a noisy forecast as to be of virtually no use,” wrote Larry Samuelson of Yale.

Darrell Duffie, Stanford
“For many reasons, the market price does not reflect fundamental Bitcoin value, which in any case is mainly related to avoiding detection.”
Response: Uncertain

Eric Maskin, Harvard
“Bitcoin has a fundamental value of $0.”
Response: Strongly disagree

Robert Shimer, University of Chicago
“Bitcoin has no fundamental value. Its value comes from the belief that it has value.”
Response: Strongly disagree

David Autor, MIT
“But there is infinite variance around this forecast.”
Response: Agree

Kenneth Judd, Stanford
“Significant deviations from that prediction would imply that current holders are ignoring arbitrage opportunities.”
Response: Agree

Steve Kaplan, Chicago Booth
“Bitcoin will be valuable, but will be worth less than $17,000 in two years.”
Response: Strongly disagree