The Federal Reserve Bank of San Francisco published a report on last Thursday discussing the state of crypto market with emphasis on volatility of the bitcoin price. It also covers the topic of bitcoin classification – should it be classified, whether as a currency, security, or commodity.
Author of the publication is Joost van der Burgt, fintech policy advisor at the Federal Reserve’s San Francisco branch, underpins what many other analysts already noted: that bitcoin has the properties of all three asset classes.
He additionally, points out interesting conclusions that tend to fit bitcoin in one category over the other.
The author also discusses historical evidence that implies bitcoin is in a bubble, without strong claims whether it is or not.
Burgt also zooms in at bitcoin possible use as a real-world currency and unsurprisingly concludes that bitcoin has no inherent value that combined with its volatility makes it unusable as an exchange medium.
“…the exchange rate between two currencies can be regarded as a broad measure of the prices of one country’s goods and services relative to another country. When looking at the Bitcoin ‘exchange rate,’ this category of determinants seems to be inapplicable – there is no current native Bitcoin economy with native Bitcoin prices for goods and services.”
Bitcoin fits better, although not by much, the definition of a security, according to the author. Bitcoin doesn’t generate interest, dividends or capital gains and that makes it different to securities.
Finally, author finds bitcoin to best suit the store of value classification, much like gold and oil. Though Burgt argues bitcoin has no intrinsic value, he mentions mining as a process that does provide some value to bitcoin, and he sets it to approximately $1800 per coin.
“Although Bitcoins do not possess any real intrinsic value, from a commodity valuation perspective, we can estimate a hypothetical value based on its production costs. Recent estimates regarding the energy involved in mining a single Bitcoin by professional energy-efficient mining rigs put it at about $1,800 when mined in China (where 80% of the currently mined Bitcoins originate).
The author’s evaluation of $1,800 is much lower than bitcoin’s current price. Author uses that as another argument to his claim that bitcoin is a bubble but, fair play to him, he also did reference the John McAfee’s $1 million bitcoin price prediction as a counterpoint to his statements.
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