P/E Ratio Analysis Suggests Bitcoin is Not in a Bubble

coindispatch on June 10, 2017

In an article published by Market Watch on Thursday, ARK Invest’s blockchain analyst Chris Burniske explained why the “rally still has room to grow,” the publication wrote. Burniske used a modified price-to-earnings (P/E) ratio method which he helped develop.

“The reason I call it a P/E ratio is because when I think about what a P/E signifies for equities, it is basically the function of market cap and earnings,” he said. “The earnings are the underlying utility—the cash flow of the company.”

On a stock, a P/E ratio of 50 would be pricey. But I don’t know if it should be considered pricey for bitcoin…It looks to be in a comfortable range, it isn’t an outlier and right now the broad takeaway I have is that it doesn’t look like we’re due for a mean revision.

From it, he derived a healthy outlook. “Bitcoin’s ‘P/E ratio’ looks at the digital currency’s network value—the number of outstanding bitcoins multiplied by price,” he calculated. “This figure is currently $44.69 billion—against its daily transaction volume,” the article explained. Burniske’s metric currently gives bitcoin a P/E ratio of roughly 50.