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Title: A revised Revalin Equation for bitcoin Fundemental Price Post by: Peter Lambert on October 22, 2011, 03:32:31 PM Revalin has proposed a formula for the fundemental USD price of a bitcoin:
I've been talking fundamentals for a while, and here's my formula: Fundamental price = A * B / (C - D) A = USD-value of goods and services purchased per day in BTC B = Number of days buyers and sellers hold the coins before and after a transaction C = Number of coins in circulation D = Number of coins hoarded by (speculators/early adopters/whatever) While this equation makes sense, the variable D is unsatisfying to me. Therefore I would like to propose a slightly modified equation: P(USD/BTC) = V * T / (A - S + I - L) Where P(USD/BTC) = Price of a bitcoin in USD/BTC V = Value of goods and services purchased for BTC, in USD T = Time buyers and sellers hold bitcoin, in days A = Total bitcoins S = average bitcoin savings of each person I = bitcoin investments L = lost bitcoins I would like this discussion to address the validity of the equation, and how it can be estimated. If I understand correctly, any bitcoin investment will have a corresponding bitcoin savings. For example, if Ben gives Joe one bitcoin, then Joe holds one bitcoin of I and Ben holds one bitcoin of S. So investing with bitcoins does not affect the money supply, since an increase in S and I cancel each other. So to increase the value of P (the USD price of bitcoins), we should focus on increasing V, the value of goods and services traded in bitcoins. Title: Re: A revised Revalin Equation for bitcoin Fundemental Price Post by: Revalin on October 22, 2011, 09:57:16 PM I agree with your conclusion: the only way to grow Pf is to grow the economy. I'm personally not interested in growing Pf, but I do want to see the economy grow. I would rather this happen with inflation: grow the market cap / total value store with an increasing number of coins and keep the Pf stable, but that's really a topic for altcoins.
Yes, the B and D terms in my original formula are a little fuzzy, since they incorporate several different elements in a nontransparent way. It makes it easier to initially understand at the expense of being messy when you want to apply it in detail. I think breaking them out is worthwhile. Where does S belong, in D or A*B? Which way is right? Well, what are savings? An attempt to store value? A casual investment in the future? Avoidance of friction? I don't have a simple answer to that. In the current market I don't think anyone has savings that last more than a week. I think people who hold their coins longer than that pretty universally consider them an investment. Thus, I rolled S into A*B - the coins are still in circulation and intended to be spent on goods even if those goods are not yet selected. At present, that's just taking a slightly broader picture of required value store. In the future, I think you're right to roll it into D. In practical terms, it works either way: in A*B it slightly stabilizes Pf; in D it tracks the market quicker. I'm not sure why you put a + between the S and I. Here are the two ways I'd write it: Pf = V * T / (A - S - I - L) Pf = V * T / (A - (S + I + L) ) A bit more background for those who didn't read the original thread: Much more detail on how this model works: https://bitcointalk.org/index.php?topic=42514.msg579137#msg579137 Explanations for my guesses for the variables: https://bitcointalk.org/index.php?topic=42514.msg579196#msg579196 |