What is the P/E ratio of Bitcoin?

(written by lawrence krubner, however indented passages are often quotes). You can contact lawrence at: lawrence@krubner.com, or follow me on Twitter.

There is no P/E ratio for Bitcoin, because Bitcoin has no revenue. Bitcoin has no fundamental value. I’m a bit surprised that it caught on at all, since there is no foundation under its value. Buying Bitcoin is therefore the ultimate expression of the speculative spirit. Which apparently is bigger than I knew.

There are three main activities that contribute to the value of Bitcoin and other alt-coins:

1.) crime — this is certainly the bulk of all activity that happens through the alt-coins. I’m including all the Chinese who are trying to do an end run around their government’s controls on capital movement.

2.) aesthetic expression — I’m mostly thinking of Libertarians who think of Bitcoin as an expression of their politics. For them, buying an alt-coin is like buying a t-shirt that celebrates marijuana.

3.) gambling — buying and selling when there is nothing like a P/E ratio to offer some guidance about the price means that price movements will appear to be totally random, so this is just like playing dice.

The value of Bitcoin might drop to $0. It might also go to $250,000, or a $1 million. There is no limit on its value, because there is nothing like a P/E ratio to set any limit.

I am surprised that anyone might get serious about it. Unlike Blackjack, or even Poker, there is no way to gain skill at Bitcoin. Next month it might go up 50% or down 50%, and you have no way to know. If you want to gamble, I would think that surely there are other forms of gambling that are more satisfying?

Crime provides crucial support for the alt-coins. The aesthetic value will fade with time, and the gambling will only be attractive when the price seems to be going up, but there will always be crime and it will always need something like alt-coins. So perhaps the alt-coins can survive with that as their foundation.

But I have to wonder if even crime offers enough of a foundation for the alt-coins. The big problem is that it is so easy to create new alt-coins. They can’t pretend to be a store of value when any criminal group in the world can print more alt-coins, simply by launching a new alt-coin. Even for criminals facing a hard problem, like how to get money out of China, they surely worry about a mechanism where they might suddenly lose 30% of their money? Or does that seem like a reasonable fee to pay to get around the government restrictions?

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