Thursday, 27 February 2020

Finding The Value Of Bitcoin: A New Model Places It At $29,000

-A back-of-the-envelope calculation values Bitcoin at $16,000.
-A more detailed approach to "model" the price of Bitcoin yields a value of $29,000.

-As a corollary, Bitcoin is worth more to the holder in a highly developed, technologically progressive country than an emerging market country (or a repressed one that bans it).

Investments that hold Bitcoin, such as Bitcoin Investment Trust or the upcoming Winklevoss Bitcoin Trust ETF, are trading at a deep discount.

My recent search to find the intrinsic, or fair, value of Bitcoin via the internet was not really proving to be very useful. True investment professionals really don't find any value in Bitcoin and will tell you it has no value whatsoever. They liken it to a commodity and compare it to tulip bulb mania. Some Bitcoin mavens will blurt out an inflated value - such as between $50,000 to $100,000 - without providing the reasoning for these numbers. Still others predict a value of $1 million! One day, I decided to figure out such a value on my own by taking a scientific-based approach rather than one based on irrational exuberance.

The initial approach I took was a rather simple one. Figuring that holders of Bitcoin will be most likely to spend their Bitcoin in a retail setting (at places such as Microsoft (NASDAQ:MSFT), Expedia (NASDAQ:EXPE), Newegg, etc.), I took to the internet to find the dollar value of worldwide retail sales in 2017. It turns out that this number is around $27 trillion. Surmising that worldwide only 1 percent of all people currently hold Bitcoin, finding 1 percent of $27 trillion yields $270 billion. This means we can expect a maximum of $270 billion to be transacted with the cryptocurrency. Taking things one step further and dividing this number by the current number of bitcoins in circulation (16,769,000), one arrives at a fair value of Bitcoin of around $16,000.

However, this approach is rather rudimentary. What it fails to recognize is that while 1% of the population holds Bitcoin worldwide, in the US it is more like 15%. In technologically progressive countries like Japan, it is much more - in fact, one can go about his or her daily business and pay for things in Bitcoin (with perhaps a majority of the population paying for things in Bitcoin!).

Legal disclaimer: The insight, recommendations and analysis presented here are based on corporate filings, current events, interviews, corporate press releases, and what we've learned as financial journalists. They are presented for the purposes of general information only. These may contain errors and we make no promises as to the accuracy or usefulness of the information we present. You should not make any investment decision based solely on what you read here.

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