After the recent spikes in “Bitcoin” prices to over $11,000 “per coin”, many people have been asking “where” the price of a non-tangible asset comes from.
The simple answer is a rampant secondary market. For those who don’t know, a “secondary market” is basically a place such as eBay or Amazon, where you can buy commodities, securities and assets from other people, not the main source.
In the case of “financial” markets, a secondary market is basically a place where stock-certificate-holders and other secondary owners of assets will go to offer their assets for someone else to buy. Whilst there’s nothing wrong with them, the issue (especially with the likes of the new “crypto” markets) is lack of regulation has lead to rampant speculation.
Have no doubt about it. The “crypto” currency market is a bubble. It’s a bubble for the simple reason that “crypto” currencies hold no value of their own. They don’t produce revenue and are not tied to any specific asset that will give them some sort of tradeable figure that can be swapped for food. Stocks, shares, bonds all have this. Bitcoin doesn’t.
It’s this reason why you need to be VERY careful about the “bitcoin” idiots telling everybody else to buy. It’s like the gold rush, with everybody spreading the “good news” that they’re off to find their own gold… little do they realize that it’s results which count, not hype.
What we’re witnessing is mass delusion. But don’t worry, it’s not uncommon – if you don’t believe the importance of this – how people can be deluded en mass – just look at the university / higher education system.
TRILLIONS of dollars in debt for people to get “degrees” in crazy topics, just so they can get a job working in the warehouse of some e-commerce website.
Don’t believe everything you read and don’t believe anything until substantive & verifiable proof has been revealed. Don’t buy “just because everybody is doing it” and don’t think you can beat the market… because you won’t. Bitcoin is almost on “SCAM” level and most people are going to dive head first into it.
The “price” of Bitcoin is determined by how much “the other guy” is willing to pay.
In other words, there’s no central way to calculate the “price” of a “coin”… not like how a company’s “stock” price is calculated anyway.
Whilst it’s illegal to “fix” the price of an asset, stock prices are basically determined by how much “return” the stock would likely return on particular capital over a certain amount of time.
For example, if you bought $10m worth of a particular stock, the astute money manager is going to examine how much return that $10m will yield in the form of dividends and appreciation. They’ll also consider potential growth of the company as to determine an appropriate “price” to pay for a part of the business.
This typically sets the price at a stable level. Whilst it doesn’t mean that it’s a valid price, the available information & returns allow “investors” to consider the underlying “value” of the asset, hence giving them the ability to determine a valid price.
Unfortunately, this all goes out of the window with Bitcoin.
Bitcoin, and other “crypto” currencies, don’t hold any “intrinsic” value of their own. They don’t have any yield, don’t pay dividends and are not backed by any larger body. Their price is based solely on what others will pay for them.
As such, you have to appreciate that in order for the price of a “coin” to grow, the perception that it will be a profitable purchase needs to be real. IE whoever is “buying” the coin needs to feel that they can “flip” it for more money to someone else.
This is what’s happening with the “crypto” market right now. People think that since someone else will “want to buy” their coins, they’re willing to pay a higher price for them.
There is no other predicator of the price other than the hearsay and speculation that another “rally” is around the corner. The only winners from the “Bitcoin” craze have been the ones who bought it at $200… who are now safely able to sell their coins for $10,000+.
The people who buy at $10,000 are going to make very little profit on them… unless of course, the whole thing is “predicted” to grow to $100,000+ per coin (which is where much of the hype has come from)…
In terms of the coins being priced internationally – there have been a number of reports that trading in Japan and S.Korea saw the price of “Bitcoin” hit over $11,000 or $12,000.
If you’re wondering how “international” pricing works, the base line is this – the only way to “buy” a “Bitcoin” (or other “crypto” currency) right now is through a “digital asset exchange”.
Digital asset exchanges are localized ways to buy “digital assets” from other people. As explained, since the entire market is “secondary”, you can only buy coins through other people selling theirs. Find out more on this website.
As such, when it comes to “international” selling/buying, there are actually very few options… at least options that are actually worth the time of day and are not risky.
Localized digital asset exchanges typically only work within certain jurisdictions. For example, “Gemini” – the digital exchange created by the “Winkelvoss” twins (of Facebook fame) only operates in 45 of the 50 states presently.
This is partly due to their insistence on having their exchange “regulated” by several official bodies, as well as wanting to avoid the tarred brush used to paint other “unregulated” exchanges as borderline scams.
Coinbase – the largest digital asset (“crypto”) exchange – presently operates in 32 countries, which is partly why the majority of buyers of “crypto” currency have used it.
Nonetheless, if you’re in the likes of Japan etc, the reason why the price spikes in certain areas is because of how the “supply” of particular “coins” works…
Digital asset exchanges (which is where the “price” of crypto currency is calculated) work by allowing local people to “deposit” “coins” for sale in their exchange. People then come to the exchange looking to “buy” various coins. The price is agreed and the exchange transfers the “coin” for fiat currency (USD etc). The seller then receives their money and goes about their day.
In order to actually buy a “coin”, you need to have someone willing (or able) to sell one.
If you don’t have access to someone locally (as is the case in Japan currently), the price will increase. This is how the “international” nature of the price of each “coin” works.
Whilst this article is not meant for financial or legal advice, the reality is that it’s almost impossible to talk about “crypto” without discussing whether it’s “worth it” to put “money” into a few coins.
Even a small amount of money ($3,000+) used to “buy” a small number of Bitcoins (you don’t even need to buy a whole one), *could* rise in price enough for you to see a decent profit. Unfortunately, this is where problems arise.
As discussed, the only way a crypto “coin” has its price increased is by somebody else attributing a higher price to it. Without this, the coins would be almost worthless.
As such, when considering whether to “invest” or not (it’s more a speculative gamble than an investment), you need to consider that in order for you to see any returns, the other guy has to be willing to buy the “coins” for more. Get started Here.
So whilst the going is good (IE everyone is “making money”), the price will rise. Unfortunately, this won’t last and being honest, the majority of money managers etc have already stated a number of times that they will not touch “Bitcoin” at all.
This suggests that the long term future of the “market” is still underground, which leaves it open to volatility and risk.