As Bitcoin price remains above $7,000, analysts discuss whether the cryptocurrency is overvalued or undervalued at that mark.
After dropping from its all-time high last December, Bitcoin has managed to bounce back a bit over the last month. The world’s number one cryptocurrency danced around the $6,500 mark for the first few weeks of August, but it has since hit $7,000 over the last five days. Several analysts view the $7,000 level as an important psychological barrier, and there are differing opinions on whether BTC is overvalued or undervalued at that price.
$7K Bitcoin Price: Undervalued
Forbes posted an interesting look at this question. Three different economic models were used to determine the intrinsic value of Bitcoin. The models used were the Hayes’ model, Market model, and the Wheatley model.
The Market model and Hayes’ model determined that the true value of Bitcoin was $8,335 and $8,778, respectively. An important factor for these models was the supply factor of BTC. As the number of mineable bitcoins continues to fall, the growth of the market will slow down.
Global Blockchain CEO Shidan Gouran is one analyst who is bullish on Bitcoin price breaking the $7,000 barrier. He says:
What this means for the present is that motion is already happening. Because it costs about $6,000 to mine a Bitcoin, it couldn’t go too much lower than that. If no one sees any value in it, it will naturally only command its ‘hard value’ price of about that much. But as we can see, people clearly do see value in it. For example, the efforts to legalize a Bitcoin ETF are persisting.
Further, story after story is hitting the news about big-name institutions taking steps to trade Bitcoin. While the idea of these big-time uses of Bitcoin were nothing more than a fantasy about a year ago, the signs are actually starting to emerge that it’s going to happen. So undoubtedly, this is stimulating demand to some degree.
The Overvalued Argument
On the flipside, there are those who consider Bitcoin to be overvalued at $7,000. The Wheatley model pegs the proper value of BTC at a measly $1,080. (Imagine the despair that would erupt if Bitcoin fell to that price.) The reason for this model’s low value is that it focuses on how much the virtual currency is used, the demand side of economics. As most people are not using Bitcoin to buy a cup of coffee and are instead hodling on to it in hopes of rising in value, the Wheatley model dings the base value of the crypto.
Clement Thibault, a senior analyst at Investing.com, is one who isn’t impressed by Bitcoin hitting $7,000. He says:
$7,000 is a level we’ve seen before so I don’t regard it as a particularly noteworthy milestone. Psychologically, there might be something to it for speculators but the price is completely disconnected from any meaningful fundamentals.
If the level was the result of an event, development, or adoption, that would be something more substantial — but at this point, we’re trying to invent a narrative to explain the price action when there’s nothing to explain.
Both sides have valid reasons for their viewpoint. However, the current stability shown by Bitcoin does count for something.
Plus, no matter how you slice a $7,000 Bitcoin price as being overvalued or undervalued, the reality is that the world of finance is getting their hands messy in the cryptocurrency ecosystem. Institutional investors from Wall Street are starting to pour some big bucks into Bitcoin. Then there’s the ongoing promise of a Bitcoin ETF being approved by the SEC. One could argue over or under all day long, but it’s obvious that the financial bigwigs are seeing value in Bitcoin and are taking action.
What do you think about Bitcoin hitting $7,000? Let us know in the comments below.
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