Bitcoin Investors Lied to Themselves to Justify Mania’s Prices

(Bloomberg Businessweek) -- Every crypto enthusiast had a method for justifying Bitcoin’s ever-climbing price in 2017. They badly needed one: Bitcoins don’t pay interest like bonds or generate profits like companies, so it takes some mental gymnastics to come up with a valuation measure. For example, some say its price should be based on the value of the transactions moving through the network. 

It’s worth remembering that this isn’t the first time investors reached for new ways of calculating value. Remember “cash earnings”? During the dot-com boom of the 1990s, investors and analysts focused on a company’s operating cash flow per share, or other alternative measures, when conventional earnings didn’t give them the answers they were looking for.

This set up investors for a fall. From 2000 through 2007, the Nasdaq—home to many of the companies that benefited from the new thinking about value—tumbled more than 30 percent. Manias are notorious for discovering intrinsic value where there isn’t any. —With Shin Pei

To contact the editor responsible for this story: Pat Regnier at pregnier3@bloomberg.net, Max Chafkin

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