BITCOIN BUBBLES AND A MONETARY MEASURE OF FUNDAMENTAL VALUE

Abstract

Several papers estimate the time series properties of bitcoin prices. However, to know that bubbles occur, an estimate of fundamental value is needed. Few estimates of bitcoin’s fundamental price exist, and these are either statistical in nature or based on questionable economic theory. This paper calculates the non-bubble dollar price of bitcoin using a modification to the quantity theory of money, and it is estimated to be about $54.00. At the November 2021 peak market price of bitcoin, the bubble component was more than 99%. Even at end-August 2023 after bitcoin prices had more than halved, the bubble component was still more than 99%.