Disclosure statement The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and bitcoin organization disclosed no relevant affiliations beyond their academic appointment. Anglia Ruskin University and Trinity College Dublin provide funding as members of The Conversation UK. The Conversation UK receives funding from Hefce, Hefcw, SAGE, SFC, RCUK, The Nuffield Foundation, The Ogden Trust, The Royal Society, The Wellcome Trust, Esmée Fairbairn Foundation and The Alliance for Useful Evidence, as well as sixty five university members.
This huge spike in value has many asking if it is a bubble or if the high price today is here to stay. Finance defines a bubble as a situation where the price of an asset diverges systematically from its fundamentals. Like any asset, Bitcoin has some fundamental value, even if only a hope value, or a value arising from scarcity. So there are reasons to hold it. But our research does show that it is experiencing a bubble right now. We looked at measures, which represent the key theoretical and computational components of how cyrptocurrencies are priced.
New Bitcoin is created by a process of mining units called blocks. So the first measure we examined relates to mining difficulty. It calculates how difficult it is to find a new block relative to the past. Bitcoin mining affects the cryptocurrency’s values. This is the speed at which a computer operates when mining.
The faster you can do this, the better chance you have of finding the next block and receiving payment. This relates to how large the chain is at any given time, with larger chains taking longer to mine than shorter ones. And lastly we looked at the volume of transactions conducted. Any asset, in particular any currency, which is more widely used will be more valuable than one which is used less frequently.