Monday, September 4, 2017

Financial Thinking and Bitcoin Valuation

There is a fabulous article by Andy Kessler, "The Bitcoin Valuation Bubble," that came out in the August 28, 2017 Wall Street Journal.  Within this article you get two views of valuations for Bitcoin.  In one case Mr. Kessler models Bitcoin as a competitor to credit cards and he derives a value of $100 per Bitcoin.  Then he models Bitcoin as a software service and, using Salesforce as a comparison, he derives a value of $300 per Bitcoin.  Today a Bitcoin is selling for $4485.51, which is why Bitcoin looks like a bubble.

I recommend Mr. Kessler's article, also available on his own website, as an exposition on financial thinking.  I had to think hard on whether to refer to his thoughts as financial analysis, economic analysis, or accounting valuation.  I think it is best described as financial analysis.  Mr. Kessler started as an electrical engineer, which might be why his analysis seems so logical.

We in America need to think more astutely about economics and finance.  Mr. Kessler's article is a great starting point.