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Bitcoin theoretical valueWhat Is Bitcoin's Intrinsic Value?
If we assume a similar dynamic for say 10 million bitcoins 2 years from now? And all this assuming the deflation does not choke the velocity - which it will, bringing the actual volume down and with it the incentive for businesses to invest in bitcoin support. As I explained in another answer , we can not meaningfully use measures of dormancy from P2P currencies in Quantity Theory of Money comparisons relative to GDP or in Visa's case total Q over the period.
I also explained in that linked answer why it is unlikely that Bitcoin would obtain the same velocity multiple of 8 per quarter as with fiat. Expounding, in order to get that many round-trips per quarter, requires the network effects of a wide diversity of available goods and services which only comes with economies-of-scale.
So it is a chicken-and-egg dilemma. It should be noted the Quantity Theory of Money is probably not the main factor that will drive the Bitcoin's exchange price, because Bitcoin is predominantly a speculation system and subject to volatility manipulation.
In a speculative frenzy, the marketcap of Bitcoin could rise well above any realistic estimate of its Quantity Theory of Money value. Sign up to join this community.
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If you accept that assumption, then the next question is: how many of the total number of Bitcoins will be utilized daily to facilitate the assumed velocity? Active Oldest Votes. BubbleBoy BubbleBoy 31 1 1 bronze badge. Assuming your M1 comparison is accurate and holds at 'full' adoption as a transitional currency, this may indeed be a valid way to think about the problem.
The M1 velocity of 8 is for a quarter, not an entire year. See the " What is bitcoin velocity " section. And you forgot to divide by the velocity. Sign up or log in Sign up using Google. Sign up using Facebook. 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.
The Bottom Line. 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. Bitcoin Guide to Bitcoin. Cryptocurrency Bitcoin. Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation.
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