Dividend discount model

Bitcoin and Fundamentals

Bitcoin is all the rage, again. Last week, the price rose above $10,000 for the first time. Following a Friday announcement by the Commodity Futures Trading Commission, the Chicago Mercantile Exchange, the CBOE Futures Exchange, and the Cantor Exchange appear poised to launch Bitcoin futures or other derivatives contracts, with Nasdaq likely to follow. Portfolio advisers are encouraging cryptocurrency diversification. In London’s Metro, advertisements assure potential investors that “Crypto needn’t be cryptic.” And, as skyrocketing prices gain headlines, less sophisticated investors are diving in.

The danger is that investors will interpret the surging price itself (and the associated hullabaloo) as a sufficient signal to buy, fueling an asset price bubble (and, eventually, a painful crash).

No one can ever say with certainty when an asset price boom is a bubble. Nevertheless, it makes sense to ask what fundamental services Bitcoin provides. More specifically, have the prospects for those services improved sufficiently over the past year to warrant the 10-fold increase in price that has vaulted Bitcoin’s market capitalization into the range of the top 50 U.S. firms?

We strongly doubt it....

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Residential real estate in China: the delicate balance of supply and demand

When President Nixon and Chairman Mao shook hands in Beijing in 1972, only 17% of the 862 million Chinese lived in urban areas and the entire stock of housing was state owned. Today, more than half of China’s 1.4 billion residents live in cities, while 9 out of 10 households own their homes. Unsurprisingly, this housing revolution has brought with it a property price boom. Over the past decade, urban land prices have risen more than four-fold, with high flyers like Beijing surging by a factor of more than 10 (for the data, see here).

Will China follow the same path the U.S. took in the last decade? Will China’s boom turn into a bust?...

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