BitVal: Measuring Bitcoin Based On Money Laundering
With bitcoin skyrocketing in price and looking to break $3,000 if the current trajectory holds, how much is too much? What is one bitcoin really worth? BitVal, a beta metric, tries to put a valuation measure on the cryptocurrency in a way that makes logical sense.
For stocks, this value is typically derived from the earnings of the underlying firm or company, which is where the price-earnings ratio (P/E) comes from. Since bitcoin is a currency and not a stock, this kind of measurement obviously would not work.
Even using standard measures of currencies (comparing a currency to other currencies in the geographical region) would not work, as bitcoin is a global currency, being used everywhere all the time. So the traditional Purchasing Power Parity approach is no good either, leading BitVal’s anonymous creator to base their valuation anchor of bitcoin from the amount of money laundering occurring at any given time.
The chart below shows the value of bitcoin based on the BitVal metric, suggesting an average value of just $64.81 for BTC-USD, a far cry from the cryptocurrency’s current price, which exceeds $2400.
To the writer, it seems that this is a faulty metric. Coins like monero are much more suitable for markets like AlphaBay; even ether is being implemented by some vendors. Faster transaction and confirmation times coupled with more advanced security implementations makes altcoins an increasingly popular choice.
Bitcoin will remain at home in these websites for a long time due to its brand recognition and availability, but many users will see it as a legacy type of payment, and opt in favor of the currencies mentioned above.
As time passes by, this metric will become more and more inaccurate, as marketplaces will begin to rely more heavily on privacy-centric coins instead of bitcoin.
The whole act of gathering statistics and data surrounding money laundering is no easy task either, further muddying the waters. Bitval even states that, “…since such money laundering obviously falls outside of the regulatory apparatus there are no good statistics on it.” Regulations like AML and KYC definitely do not make BitVal’s job any easier.
It would probably be more accurate to capture the share of bitcoin transaction that make up the total transactions in the virtual economy or the e-commerce sector. Even though bitcoin got its first break as a currency for the Dark Net, the BitVal measure fails to account for its maturation and adoption among non-criminals for easy, low-cost online purchases and travellers looking to avoid fees for international purchases; for instance, acceptance by heavyweights such as Microsoft and Expedia.com, as well as a recent wave of adoption across Japan.
As time passes, it is likely BitVal will iron out the details, and provide us with a unique way to value the price of bitcoin. Supply and demand will still remain king, but as more countries try to regulate the decentralized currency, BitVal will be one of many metrics attempting to measure the value of the revolutionary asset that is bitcoin.