{"id":8780,"date":"2023-05-15T05:08:04","date_gmt":"2023-05-15T09:08:04","guid":{"rendered":"https:\/\/ifintechworld.com\/news\/why-warren-buffett-never-bought-bitcoin-fundamental-value-for-cryptocurrency\/"},"modified":"2023-05-15T05:08:05","modified_gmt":"2023-05-15T09:08:05","slug":"why-warren-buffett-never-bought-bitcoin-fundamental-value-for-cryptocurrency","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=8780","title":{"rendered":"Why Warren Buffett Never Bought Bitcoin: Fundamental Value For Cryptocurrency"},"content":{"rendered":"
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Overview<\/h2>\n

Legendary value investor Warren Buffett has been outspoken regarding his distaste for Bitcoin. Telling investors nearly a decade ago that he doesn\u2019t believe it to be a \u2018store of value\u2019 or a \u2018reliable means of exchange\u2019, he has made clear that it doesn\u2019t even fulfill the definition of a currency. <\/span>This year he referred to it as a \u2018gambling token\u2019 unworthy of serious fundamental investors.<\/span><\/p>\n

Yet, time has proven the worth of these digital currencies. While highly volatile, Bitcoin and Ethereum have maintained threshold levels of value while also continuing to act as a means of exchange. At this point it is fair to assert that Buffett may not be entirely correct regarding these instruments.<\/p>\n

While I do agree with Buffett in that Bitcoin and digital currencies in general cannot be looked at through a traditional value lens, I think it is evident at this point that they have some level of fundamental value if we are to consider them as currencies.<\/span><\/p>\n

I will note that It is important for us to consider cryptocurrencies as currencies specifically. They are decidedly not like owning stocks; owning cryptocurrencies does not represent a fractional claim on a company\u2019s cash flows like owning shares of stock does.<\/p>\n

Rather, cryptocurrencies should be evaluated on the basis of their value as currencies: to what extent they provide for, and are used for, exchanging value. Since we have readily available metrics for this we can work towards establishing a fundamental valuation methodology for cryptocurrencies.<\/p>\n

This article will outline these metrics and compare Bitcoin and Ethereum on this basis.<\/p>\n

Currency Fundamentals For Cryptocurrencies<\/h2>\n

A currency\u2019s worth is established from the set of transactions that it supports. In macroeconomics there is an established body of theory around this. The more \u2018demand\u2019 (total transactions) for a currency, the higher the value of it. At constant levels of currency supply, more transaction volume implies a higher value for a given currency. A second-order demand effect would be countries holding certain currencies in reserve so that they can transact in those currencies in the future.<\/p>\n

Fiat currencies\u2019 value are then derived from both the size of a country\u2019s economy as well as the international transaction volume for its respective currency. The total of domestic and international transaction volume forms the total demand for a given currency. A good example of this in the real world would be the large global levels of Dollar-denominated debt as well as Dollar-denominated energy trading; these are well understood to represent fundamental underpinnings to the Dollar\u2019s uniquely high value.<\/p>\n

With that being said we can establish a fundamental supply and demand metric, along with a relative valuation, for Bitcoin and Ethereum.<\/p>\n

The demand here is the level of transactions occurring \u2018on-chain\u2019, as in directly using the blockchain network for like-kind exchange. This metric doesn\u2019t take into consideration secondary market demand for these two cryptocurrencies, namely crypto-to-fiat conversions. While these secondary market forces are undoubtedly a material price driver, this goes beyond the scope of functioning as a currency per se <\/em>and won\u2019t play into our fundamental analysis this time around.<\/p>\n

The supply here is of course the actual quantity of cryptocurrency outstanding.<\/p>\n

<\/span><\/p>\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n\n
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Date<\/strong><\/p>\n<\/td>\n

\n

BTC Volume<\/strong><\/p>\n<\/td>\n

\n

ETH Volume<\/strong><\/p>\n<\/td>\n<\/tr>\n

\n

4\/11\/23<\/p>\n<\/td>\n

\n

.385 M<\/p>\n<\/td>\n

\n

1.085 M<\/p>\n<\/td>\n<\/tr>\n

\n

4\/12\/23<\/p>\n<\/td>\n

\n

.338 M<\/p>\n<\/td>\n

\n

1.022 M<\/p>\n<\/td>\n<\/tr>\n

\n

4\/13\/23<\/p>\n<\/td>\n

\n

.332 M<\/p>\n<\/td>\n

\n

1.095 M<\/p>\n<\/td>\n<\/tr>\n

\n

4\/14\/23<\/p>\n<\/td>\n

\n

.316 M<\/p>\n<\/td>\n

\n

1.166 M<\/p>\n<\/td>\n<\/tr>\n

\n

4\/15\/23<\/p>\n<\/td>\n

\n

.276 M<\/p>\n<\/td>\n

\n

1.056 M<\/p>\n<\/td>\n<\/tr>\n

\n

4\/16\/23<\/p>\n<\/td>\n

\n

.232 M<\/p>\n<\/td>\n

\n

.854 M<\/p>\n<\/td>\n<\/tr>\n

\n

4\/17\/23<\/p>\n<\/td>\n

\n

.316 M<\/p>\n<\/td>\n

\n

1.012 M<\/p>\n<\/td>\n<\/tr>\n

\n

4\/18\/23<\/p>\n<\/td>\n

\n

.313 M<\/p>\n<\/td>\n

\n

1.070 M<\/p>\n<\/td>\n<\/tr>\n

\n

4\/19\/23<\/p>\n<\/td>\n

\n

.302 M<\/p>\n<\/td>\n

\n

1.085 M<\/p>\n<\/td>\n<\/tr>\n

\n

4\/20\/23<\/p>\n<\/td>\n

\n

.297 M<\/p>\n<\/td>\n

\n

1.074 M<\/p>\n<\/td>\n<\/tr>\n

\n

4\/21\/23<\/p>\n<\/td>\n

\n

.352 M<\/p>\n<\/td>\n

\n

1.010 M<\/p>\n<\/td>\n<\/tr>\n

\n

4\/22\/23<\/p>\n<\/td>\n

\n

.355 M<\/p>\n<\/td>\n

\n

.862 M<\/p>\n<\/td>\n<\/tr>\n

\n

4\/23\/23<\/p>\n<\/td>\n

\n

.433 M<\/p>\n<\/td>\n

\n

.868 M<\/p>\n<\/td>\n<\/tr>\n

\n

4\/24\/23<\/p>\n<\/td>\n

\n

.360 M<\/p>\n<\/td>\n

\n

.941 M<\/p>\n<\/td>\n<\/tr>\n

\n

4\/25\/23<\/p>\n<\/td>\n

\n

.370 M<\/p>\n<\/td>\n

\n

.976 M<\/p>\n<\/td>\n<\/tr>\n

\n

4\/26\/23<\/p>\n<\/td>\n

\n

.436 M<\/p>\n<\/td>\n

\n

.978 M<\/p>\n<\/td>\n<\/tr>\n

\n

4\/27\/23<\/p>\n<\/td>\n

\n

.419 M<\/p>\n<\/td>\n

\n

.939 M<\/p>\n<\/td>\n<\/tr>\n

\n

4\/28\/23<\/p>\n<\/td>\n

\n

.484 M<\/p>\n<\/td>\n

\n

.988 M<\/p>\n<\/td>\n<\/tr>\n

\n

4\/29\/23<\/p>\n<\/td>\n

\n

.486 M<\/p>\n<\/td>\n

\n

.887 M<\/p>\n<\/td>\n<\/tr>\n

\n

4\/30\/23<\/p>\n<\/td>\n

\n

.569 M<\/p>\n<\/td>\n

\n

.975 M<\/p>\n<\/td>\n<\/tr>\n

\n

5\/1\/23<\/p>\n<\/td>\n

\n

.682 M<\/p>\n<\/td>\n

\n

1.102 M<\/p>\n<\/td>\n<\/tr>\n

\n

5\/2\/23<\/p>\n<\/td>\n

\n

.458 M<\/p>\n<\/td>\n

\n

1.128 M<\/p>\n<\/td>\n<\/tr>\n

\n

5\/3\/23<\/p>\n<\/td>\n

\n

.490 M<\/p>\n<\/td>\n

\n

1.117 M<\/p>\n<\/td>\n<\/tr>\n

\n

5\/4\/23<\/p>\n<\/td>\n

\n

.491 M<\/p>\n<\/td>\n

\n

1.110 M<\/p>\n<\/td>\n<\/tr>\n

\n

5\/5\/23<\/p>\n<\/td>\n

\n

.411 M<\/p>\n<\/td>\n

\n

1.209 M<\/p>\n<\/td>\n<\/tr>\n

\n

5\/6\/23<\/p>\n<\/td>\n

\n

.601 M<\/p>\n<\/td>\n

\n

1.146 M<\/p>\n<\/td>\n<\/tr>\n

\n

5\/7\/23<\/p>\n<\/td>\n

\n

.608 M<\/p>\n<\/td>\n

\n

1.101 M<\/p>\n<\/td>\n<\/tr>\n

\n

5\/8\/23<\/p>\n<\/td>\n

\n

.575 M<\/p>\n<\/td>\n

\n

1.146 M<\/p>\n<\/td>\n<\/tr>\n

\n

5\/9\/23<\/p>\n<\/td>\n

\n

.598 M<\/p>\n<\/td>\n

\n

1.127 M<\/p>\n<\/td>\n<\/tr>\n

\n

5\/10\/23<\/p>\n<\/td>\n

\n

.672 M<\/p>\n<\/td>\n

\n

1.086 M<\/p>\n<\/td>\n<\/tr>\n

\n

5\/11\/23<\/p>\n<\/td>\n

\n

.547 M<\/p>\n<\/td>\n

\n

1.100 M<\/p>\n<\/td>\n<\/tr>\n<\/table>\n

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