Bitcoin Foundational Series

As Bitcoin enters its second decade, it is opportune to reflect on its transformation from a monetary thought experiment, the first recorded transactional use being to buy pizza, into a fully-fledged financial ecosystem that has garnered significant interest, both from retail and institutional investors.

Valuing Bitcoin can be a challenge as, due to its abstract nature, there is “nothing to relate it to.” However, by shifting the lens through which we view Bitcoin, we can arrive at compelling theories through Metcalfe’s law, Stock-to-Flow, cost of production, market sizing and relating it to a technology start-up. Taken together, the following valuation models can be useful, though individually insufficient. Each model hosts criticisms, accommodating for improvements and adaptations.

Bitcoin has been garnering significant attention as it begins to be adopted by a wider range of investors. The investor base is starting to shift from retail investors to large institutions. Naturally, questions regarding its volatility and legitimacy as an investment opportunity will arise.

The growing popularity and adoption of Bitcoin as an asset class is leading many to consider an allocation of bitcoin within their portfolios and self-managed super funds.

The unprecedented influx of demand for digital-asset investments has exposed limitations in Australia’s existing regulatory framework. As ASIC, AUSTRAC and the ATO work to implement an appropriate regulatory framework for these new assets, rapid investment continues into a space which is absent of significant regulatory oversight.

At Monochrome Asset Management, we are committed to providing the financial advice community with research that can help advisers improve their communication of digital assets with their clients.