"Deciphering Bitcoin's Value Through the Big Mac Index: An Economic Perspective"

Understanding the Big Mac Index

The Big Mac Index is an informal way to measure the purchasing power parity (PPP) between two fiat currencies. First introduced by The Economist in 1986, it compares the price of a Big Mac at McDonald's fast-food restaurants in different countries to assess how overvalued or undervalued currencies are relative to each other. The concept is based on the theory of purchasing power parity. According to this theory, exchange rates should move towards a level that would equalize the prices of an identical basket of goods and services in any two countries over the long term.

The Big Mac serves as the basket of goods because it is available in many countries and contains a standard set of ingredients. By comparing the prices of a Big Mac in different countries, converted into a base currency (usually the US dollar), one can gauge whether a currency is overvalued or undervalued relative to the dollar. For instance, if the price of a Big Mac in the US is higher than in another country, that country's currency is considered undervalued, and vice versa.

As of early 2024, the Big Mac Index indicates that the Ukrainian hryvnia is undervalued by about 50% relative to the US dollar. A Big Mac costs 110 UAH ($2.9) in Ukraine compared to $5.69 in the US. The index suggests that the hryvnia should theoretically trade at around 19.3 UAH per dollar, instead of around 40 UAH per dollar. However, it's important not to take this index too seriously or expect such a strengthening of the hryvnia. It simplifies economic realities, ignoring local factors such as labor costs and rent, and does not account for product standardization in different countries. It is mostly seen as a humorous illustration of purchasing power rather than an accurate currency valuation tool. Experts argue it cannot fully capture all aspects of the global economy or replace more comprehensive analysis.

Applying It to Bitcoin

Traditionally, the index is used exclusively for fiat currencies. However, inventive Bitcoin enthusiasts have modified it to try to measure the purchasing power of the leading digital asset, coining a slightly modified name – the Bit Mac.

What does this modified index measure? The Bit Mac shows how many burgers one can buy with one Bitcoin. Its main advantage over more common measurements in US dollars is the analysis in real terms: that is, in a specific product with typical characteristics.

In other words, the US dollar (like other fiat currencies) steadily depreciates, and fewer goods and services can be purchased with it over time. Therefore, for BTC holders, it may be of interest not just the ability of Bitcoin to grow relative to fiat and inflationary currencies, but also its dynamics relative to real-sector products.

Currently, one can buy over 11,000 burgers with one Bitcoin at the current rate of the asset and American prices for a Big Mac. In Ukraine, one can purchase nearly 22,000 burgers for 1 BTC.

Moreover, Bitcoin shows a value dynamic tens of times higher than other goods and services. To achieve such profitability in the traditional financial sector, investors have to take significant risks. Meanwhile, all Bitcoiners need to do is figure out responsible private key storage. All other crises or cataclysms pose no financial threat.

Practical Conclusions

The Big Mac Index once again vividly illustrates that Bitcoin is the hardest money on the planet and the best means of preserving value. In this way, one can not only protect against inflation but also achieve stable growth in the purchasing power of one's savings in real terms.

Bitcoin newcomers should only be mentally prepared for short-term volatility, which can be caused by a variety of factors. However, analyzing long-term trends and using a logarithmic, rather than linear, graph can help understand the general trend.

After experiencing at least one full four-year cycle, you will likely be much less concerned: both due to significant increases in real wealth and purchasing power and due to a better understanding of the nature of Bitcoin and its pricing.