I don’t necessarily agree with the title, but Mr. Cochrane does a very nice job of outlining reasons for people’s willingness to buy Bitcoin and thereby justify its price:
- Greater Fool Theory (Ponzi Scheme)— I just need to get the next person to buy it at a higher price;
- Convenience Yield— There are reasons that Bitcoin has value. Facilitating illegal activities like tax evasion or the drug trade are two examples identified in the article;
- Speculation— There are people who knowingly invest understanding that there is a buck to be made. I confess, I do not possess the subtle understanding of economics to differentiate this from the Greater Fool Theory; and
- A restricted supply— This is, to me, the linchpin of today’s valuation. There are more people (explained by the three previous bullet points) who want Bitcoin than the supply can meet. This makes the price go up.
The article is worth reading– see link below. It provides a rational explanation of the potential motivations (some rational, some not) for investors willingness to (at least in the short run) continue to pay the high price the product currently enjoys. It may not make you feel better about Bitcoin, but it does help to make you understand why the price is where it is—and more importantly why it is not likely to stay there.