There has been a lot of talk about how to price bitcoin and we set out here to explore what bitcoin's price might look like in the event it achieves some level of widespread adoption. In this article, we seek to lay a framework for calculating a medium to long term value for bitcoin, and to empower the reader to make their own projections on the value of bitcoin.
Haven't filed your taxes yet because you don't know how to declare your virtual currency? Our first assumption is that bitcoin will derive its value both from its use as a medium of exchange and as a store of value. As a footnote to this assumption, it should be stated that bitcoin's utility as a store of value is dependent on its utility as a medium of exchange. We base this in turn on the assumption that for something to be used as a store of value it needs to have some intrinsic value, and if bitcoin does not achieve success as a medium of exchange, it will have no practical utility and thus no intrinsic value and won't be appealing as a store of value.
Our second assumption is that the supply of bitcoin will approach 21 million as specified in the current protocol.
To give some context, the current supply of bitcoin is around The key part of this assumption is that the protocol will not be changed. Note that changing the protocol would require the concurrence of a majority of the computing power engaged in bitcoin mining. Our third assumption is that as bitcoin gains legitimacy, larger scale investors, and more adoption, its volatility will decrease to the point that volatility is not a concern that would discourage adoption.
Our fourth assumption is that the current value of bitcoin is largely driven by speculative interest. Bitcoin has exhibited characteristics of a bubble with drastic price run-ups and a craze of media attention in and But speculative interest in bitcoin, we assume, will decline as it achieves adoption.
And our fifth assumption is that the use of bitcoin will never involve fractional reserve banking and that all means of storing bitcoin will be fully backed by bitcoin. We will look at bitcoin as currency and bitcoin as a store of value. You are encouraged to form your own opinion for this projection and adjust the valuation accordingly.
The predominant medium of exchange is government backed money , and for our model we will focus solely on them. The money supply is often thought of as broken into different buckets, M0, M1 , M2 , and M3. M0 refers to currency in circulation.
M1 is M0 plus demand deposits like checking accounts. M2 is M1 plus savings accounts and small time deposits known as certificates of deposit in the US. M3 is M2 plus large time deposits and money market funds. Since M0 and M1 are readily accessible for use in commerce, we will consider these two buckets as medium of exchange, whereas M2 and M3 will be considered as money being used as a store of value.
Citing the DollarDaze blog , we see that M1 which includes M0 in was worth about 25 trillion US dollars, which will serve as our current world wide value of mediums of exchange. From the same DollarDaze blog, we see that M3 which includes all the other buckets minus M1 is worth about 45 trillion US dollars.
We will include this as a store of value that is comparable to bitcoin. To this, we will also add an estimate for the worldwide value of gold held as a store of value. While some may use jewelry as a store of value, for our model we will only consider gold bullion. Since there has recently been a deficit in the supply of silver and governments have been selling significant amounts of their silver bullion , we reason that most silver is being used in industry and not as a store of value, and will not include silver in our model.
Neither will we treat other precious metals or gemstones. In aggregate, our estimate for the global value of stores of value comparable to bitcoin, including savings accounts, small and large time deposits, money market funds, and gold bullion, come to That would be over 1, times the current price.
This is a rather simple long term model. And perhaps the biggest question it hinges on is how much adoption will bitcoin achieve? Coming up with a value for the current price of bitcoin would involve pricing in the risk of low adoption or failure of bitcoin as a currency, which could include being displaced by one or more other digital currencies. Models often consider the velocity of money, frequently arguing that since bitcoin can support transfers that take less than an hour, the velocity of money in the future bitcoin ecosystem will be higher than the current average velocity of money.
Another view on this though would be that velocity of money is not restricted by today's payment rails in any significant way and that its main determinant is the need or willingness of people to transact.
Therefore, the projected velocity of money could be treated as roughly equal to its current value. Another angle at modeling the price of bitcoin, and perhaps a useful one for the near to medium term, would be to look at specific industries or markets one thinks it could impact or disrupt and think about how much of that market could end up using bitcoin.
As mathematician George Box said, "All models are wrong, some are useful. From our thinking, it seems possible that bitcoin could eventually increase in price by orders of magnitude, but it all depends on bitcoin's level of adoption. The most important question is "Will people use bitcoin? Your Money. Personal Finance. Your Practice. Popular Courses. Login Newsletters. Bitcoin Guide to Bitcoin. Cryptocurrency Bitcoin. As part of our framework, we make several key assumptions.
The Bottom Line. Compare Investment Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. Related Articles. Economics What Is Money? Bitcoin How to Buy Bitcoin. Partner Links. Related Terms M3 M3 is a measure of money supply that includes M2, large time deposits, institutional money market funds and short-term repurchase agreements. Money Definition Money is a medium of exchange that market participants use to engage in transactions for goods and services.
Bitcoin Definition Bitcoin is a digital or virtual currency created in that uses peer-to-peer technology to facilitate instant payments. It follows the ideas set out in a whitepaper by the mysterious Satoshi Nakamoto, whose true identity has yet to be verified. Blockchain Explained A guide to help you understand what blockchain is and how it can be used by industries. Is Economics Really a Dismal Science? M1 Definition M1 is the money supply that encompasses physical currency and coin, demand deposits, traveler's checks, and other checkable deposits.
And speculative bubble it certainly is, as a non-negotiable, software-constrained supply runs headlong into greater-fool demand. As even greater fools displace the ones before, all participants, foolish or not, increase their focus on the central question of Bitcoin:. Strip away the drivers of extrinsic value, namely its greater-fool demand and its constrained supply, however, and what remains? Just as gold would retain its luster, malleability, and resistance to tarnishing, thus making it useful for numerous manufacturing and jewelry purposes regardless of its scarcity, one wonders what intrinsic value Bitcoin holds. You would think the answer would be obvious, but instead it is remarkably elusive.
Overvalued but Valued
But it finally dawned on me. And the best analogy I can think of is as follows: Bitcoin is like a brick. To build a house, you need bricks, and bricks cost money. The more scarce the bricks are, the more they cost. The greater the network effect, the more demand there is for bricks. Nothing demonstrated this more than Ethereum during the ICO craze.
ICOs were built on Ether. Ether was the brick. To participate in ICOs, you needed to buy Ether. Ether became scarce, and thus the brick became more expensive. ICOs died, and the bricks became less valuable. This is the best analogy I can come up. Complementing the value of Bitcoin in the services that can be offered and the benefits that it has and therefore is received by. Yes Bitcoin has intrinsic value He gets the attention of business leaders because of his advantages and this makes him get a great price.
Life is great and enjoy it. The intrinsic value of bitcoin makes many people seek to buy and that's because of their great privileges. Currently the community recognizes Bitcoin has grown quite strong, with large acceptance, the demand for it is not small. And with limited supply, not to mention the losses held by holders, the value of BTC will be able to go.
BTC also has many intrinsic values. The first is the need to transfer money, across borders with low costs. The need for exchange is a demand of Bitcoin in particular and cryptocurrencies in general. But as the value of BTC gradually became enormous due to many factors, Bitcoin's exchange demand gradually became a demand for exchange at the macro level, rather than the exchange in ordinary life.
It's only the enemies of cryptocurrency that would want people to believe, Bitcoin does not have any intrinsic value, but one does not need to look further to see that the algorithm that makes Bitcoin a very secured and tamper proof payment network is what give it intrinsic value. They are really some building block of a coin or blockchain in they helped. You did a good analysis and came up with a good anatomy. Well most other alts have math scarcity and potential utility.
Yet not every other alt has the same market cap as BTC. Network effect. BTC was the first one, so everyone wants the original, the one with history. Maybe it's more complicated than you say but it's a good way to explain how the cryptocurrency market works.
That had not crossed my mind, I will try to improve it. As you have explained to us, bitcoin does have intrinsic value thanks to its high innovation power, its power has been the basis of this new economy that has been forming in 11 years, however there are other factors that can make that Intrinsic value ends very easily as fake ICOS or pyramid systems applied to the crypto ecosystem.
Typically the built-in benefits from bitcoin will make a lot of us search to find and that is for their amazing protection under the law. The first is the need to move money, crosswise over outskirts with low expenses.
The requirement for trade is an interest of Bitcoin specifically and cryptographic forms of money when all is said in. Be that as it may, as the estimation of BTC bit by bit got colossal because of numerous elements, Bitcoin's trade request step by step turned into an interest for trade at the large scale level, as opposed to the trade in common life.
I hope Bitcoin value is more than gold. This year high bitcoin price is more than usd Its very good profit for bitcoin holder. Some when its price down some holder hold it and its price is again high. I you wanted to send money to someone and told me. Bought me a plane ticket. I got there, went to the persons house and gave him the money. I would also charge you for my time and the return ticket Well cryptocurrency is a prove of wealth that can be shared instantly.
No doubts as a matter of facts Bitcoin intrinsic value is due to higher increase in demands by people as the price in the market rises up most than goes down woefully. You need to be a member in order to leave a comment.
Sign up for a new account in our community. It's easy! Already have an account? Sign in. By SuzanDecember 9 in Crypto World. By yahyalOctober 11 in Crypto World. By funchy Started October 7. By epidemia Started September By Graham Started Just. By crockez Started November Crypto World. Search In. Easy explanation. Bitcoin HAS intrinsic value. Recommended Posts. Posted November 8. Share this post Link to post Share on other sites. Posted November Gold also benefits from the network effect.
Posted December 5. I would look at it this way. Posted December 7. Create an account or sign in to comment You need to be a member in order to leave a comment Create an account Sign up for a new account in our community.
Register a new account. Sign in Already have an account? Sign In Now. Go To Topic Listing. Can i sell my 1 LTC? Better way to improve clean knowledge about bitcoin? Which Wallet Are You Using? Counting post questions that alarm in every mind. Brainstorm Freebitco. Sir or madam please be calm I think it will be high from last week of December. I hope you will get big profit. Keep calm it is cryptocurrency. Yobit Withdrawal. It would be better to exchange your XRP with a cash that is set to withdraw.
I just removed dogecoin from yobit successfully and in 5 minutes. The yobit XRP topic may be in the process of being serviced. The most convenient multi-currency wallet for me personally is a trust vallet, it has a very convenient and simple design, its interface is as simple and intuitive as possible.
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