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December 16, 2013, 01:34:32 PM |
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Hello,
I want to use this thread for a short analysis of some bitcoin valuation data. It would be useful to have a central repository for such information, i.e. how bitcoin compare to other currencies, an analysis of adoption, etc.
Most of the press is focused on the price per Bitcoin. A much more sensible metric to use is the market capitalization. If we use the USD as a reference the market cap in USD is coins in existence * USD/BTC exchange rate.
Marketcap as of 12/16/2013 (rounded): marketcap_BTCUSD = #coins * #BTC/USD = 12*10^6 * 800 = 9.6B$.
This is very roughly 1% of the money supply (M0) of the EU or US, or perhaps 0.05% of global money supply. Would be nice to have the exact data, but this is hard to measure anyway. However this only part of the picture. Because we know how the number of coins increase, we can calculate the value with the number of coins in existence in the future at current market price, roughly as 21*10^6 * 800 = 16.8B$. One can discount that value to today, so that the implied market price is somewhere above the actual market cap. This metric is not very useful as the volatility of the price dominates the value equation.
If one would attempt to do a full valuation, one has two tools - comparable valuation and absolute valuation.
The comparable valuation would estimate the value of existing payment and banking infrastructure and compare that to the value of Bitcoin. This gives a very rough indication of potential value if one thinks that flows from the traditional network will continue to go the Bitcoin network. If one does this analysis and assumes Bitcoin continues on its existing growth path one quickly arrives values of 100-1000x of current prices. This ignores possible of issues of scale.
An absolute valuation is very hard to do. This would mean we would have to have some insight in total adoption over say 30-50 years and discount that value back to today. With such rate of change this is essentially impossible.
This kind of analysis overlooks a very different outcome, namely that of alternative Cryptocurrencies emerging. Assume at some point there would be an alternative, so that Bitcoin can not be backforked to implement the features. Then we might see even faster adoption rates, because all the infrastructure has been build. In theory at least Bitcoin could then lose some value rather quickly. This depends on how much lock-in effects it creates. If 50% of Bitcoin users would decide to use AltCoin-X could all infrastructure be reused? One would assume that those involved in Bitcoin have a strong incentive not let that happen. But then one can imagine a forked infrastructure which is more open to other forks, and thereby more valuable. I believe most of this is at this point very unclear, as no serious Alt-Coins have emerged. At least that seems to be the rough consensus, and the valuations support that thesis, up to now.
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