“Investors Carried Out Mental Gymnastics to Justify Bitcoin Prices” – Bloomberg Editor-in-Chief

December 17, 2018
Matt Winkler

Bloomberg co-founder and former Editor-in-Chief, Matt Winkler has likened speculation-driven bitcoin price movements to the dotcom boom of the mid to late 1990s, comparing the excuses given by investors for irrational market optimism at that time to the reasons given by modern day cryptocurrency speculators.

Speaking to Emily Chang on Bloomberg Technology, Winkler explained that cryptocurrency investors have attempted to use non-traditional methods to ascertain and justify optimistic valuations for digital assets, which according to him is actually nothing new.

Bitcoin Market Compared With Dotcom Crash

Referring to a valuation metric used in the dotcom boom called ‘Cash Earnings’ – essentially an estimate of future revenues and profits for companies that sometimes did not even have a finished product – Winkler revealed that use of flawed arithmetic to arrive at a desired outcome is in now way new or unique to the crypto market.

In his words:

So [with regard to] Cash Earnings and Bitcoin, there is a comparison that I think is valid, which is that where people can’t find standard ways to measure value otherwise known as intrinsic worth, they do all kinds of mental gymnastics to do that. Bitcoin is a really good example of how everybody tried so hard to justify what it was doing when the closer they looked they couldn’t find it – even Warren Buffet said its a joke. So we’ve been in this picture before and I think the dotcom bubble that burst in 200 is a good example.

Asked whether bitcoin will recover unlike most dotcom stocks 2 decades ago, Winkler stated that while he is not clairvoyant, it is possible to reasonably predict future price movements by looking at the fundamentals and arriving at a roughly scientific picture of how much value it provides versus demand, and thus how much it should be valued at in the marketplace.

According to Winkler, the current state of volatility in the crypto market is a sign of “noise”, which means that the market is having difficulty finding the signal that indicates exactly how the assets should be valued. This situation he said, is going to persist and even intensify in the immediate future as the “noise” gets louder with increased cryptocurrency market activity taking place alongside regulatory ambiguity and a measure of existential doubt over the future of he asset class.

Winkler rounded up his interview by pitching his tent with the “blockchain over bitcoin” camp, stating that the utility of the blockchain as a tool that people can use is in itself a definite and identifiable intrinsic value. This point of view is one that is shared by a number of prominent market voices. Earlier in December CCN reported that Morgan Creek CEO Anthony Pompliano stated that the  use as the world’s most secure transaction settlement layer means that it “cannot be worth zero.”

Featured image from Shutterstock. Matt Winkler photograph from Twitter.

Last modified (UTC): December 17, 2018 23:06

David Hundeyin @DavidHundeyin

I am a busy Nigerian writer, journalist and writer with an interest in tech and finance. When I'm not contributing to CCN and traveling around Africa, you can catch me contributing to CNN Africa, or in the writers room at 'The Other News', Nigeria's weekly answer to 'The Daily Show' with nearly 2 million viewers. My work on 'The Other News' was featured in the New Yorker Magazine, and that was then cited in the Washington Post so I'm not sure that counts as a feature but I'll definitely mention it too! I have been nominated by the US State Department to take part in the 2019 Edward R. Murrow Program for journalists under the International Visitors Leadership Program. I also like hamsters. You can reach me on Twitter at _David_Hundeyin