In brief
- A famous metric has made its way to Bitcoin.
- The Big Mac Index is a proxy for working out how far a currency will go in different countries.
- A Big Mac, on average, will buy around 4,500 Big Macs.
The Economist left an indelible mark on finance in 1986 when it published a tongue-in-cheek financial measure: the Big Mac Index. Now, that metric has come to Bitcoin.
The metric, claimed The Economist, serves as a helpful benchmark for the worth of currencies around the world, also known as the “purchasing power parity” of a currency, or PPP.
That’s because each MacDonald’s burger is identical, no matter which country you visit. But the price changes; with $5, you might be able to buy one Big Mac in the US or two in Mexico. Since each MacDonald’s burger is the same all around the world, a dollar, therefore, appears to go farther in Mexico.
In 2015, tokenized debt securities platform BitBond created software that does the same thing for Bitcoin, called the Bitcoin Purchasing Power Index. It tells you how many Big Mac burgers one Bitcoin will buy you.
There’s a global Bitcoin PPI, which tells you “how many Big Mac burgers you can buy with one bitcoin on average globally,” according to the site. At Bitcoin’s current price, $10,619, that’s 4,456 Big Macs (or 2.5 million calories).
The Bitcoin PPI also calculates local exchange rates to work out how far a single Bitcoin will stretch in a country. In Denmark, a Bitcoin will buy you 2,873 Big Macs. In Mexico, it'll buy you 4,433 Big Macs.
The PPI also calculates volatility for the global PPI. This year, volatility was highest in April amid the uncertainty caused by the pandemic. During this year’s bull run, Bitcoin was stable while decentralized finance coins—those that powered decentralized lending protocols, stablecoins and exchanges, boomed.
Bitcoin, finally, has a use case.
Disclaimer
The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.