A 'Base' Price of Bitcoin at US$180,000

[BobK71]

I'm trying to do a quantitative estimation of Bitcoin's 'fair' value based on some simple but compelling assumptions:

- Bitcoin plays the same role as gold.  Assume its total market capitalization will be the same as gold, i.e. it shares the confidence of savers and central banks equally with gold.
- Gold is currently at $1200/ounce.  Assume no further (effective) devaluations of fiat currencies against gold.
- Assume there are 300 ounces of gold for every bitcoin in existence.
- Since 1btc is trading roughly equal to 1oz of gold today, the total market capitalization of Bitcoin is 1/300 that of gold.  Assume the market cap of Bitcoin is negligible today in the non-state money category.
- Since (by assumption) gold has to share the global non-state asset role equally with Bitcoin, its value should be roughly cut in half, i.e. to $600/ounce.
- Since 1btc is 300 times rarer than 1oz of gold, and the total market cap of the two are equal (by assumption,) 1btc should be worth 300 X $600 = $180000.

Note, this is based on the conservative assumption that fiat currencies will stop being devalued against gold, even in this crazy world, but also the aggressive assumption that Bitcoin will rise to the same trustworthiness as gold.  But, I believe these are good assumptions for a simple, quantitatively-arrived, baseline price level.

For background info, see my other posts:

An Honest Introduction to Money

A Brief History of Modern Money

100 Men on An Island

Trump Claims Whole Economy Is Rigged

The Real Story of Gold

Dissecting the Parasitocracy

Terrorism, Conflict and the Money System

[Edited for a correction of relative gold and Bitcoin quantities]

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[LoyceV]

- Assume there are 30 ounces of gold for every bitcoin in existence.

Let me poke at this assumption: Bitcoin is clearly capped at 21 million, while up to the year 2011 171,300 tonnes of gold (6 billion ounces) had been mined. That would mean 10 times more gold per Bitcoin than your assumption.

[BobK71]

- Assume there are 30 ounces of gold for every bitcoin in existence.

Let me poke at this assumption: Bitcoin is clearly capped at 21 million, while up to the year 2011 171,300 tonnes of gold (6 billion ounces) had been mined. That would mean 10 times more gold per Bitcoin than your assumption.

Thank you for the correction.  Then my Bitcoin price would be $180,000.  (Corrected my post.)

[TeaPanda]

You can't just assume the BTC market cap will be at the same market cap of Gold. 2 different markets, makes no sense if you see it like that

[Iranus]

You can't just assume the BTC market cap will be at the same market cap of Gold. 2 different markets, makes no sense if you see it like that

True.  Bitcoin is quite a complicated asset due to its use as a currency and the fact that it is not backed up by anything physical.  Its purpose will never be exactly the same as gold and rightly so - it is not a stable store of value so much as an investment (and a currency).

The assumptions you make in this post are also quite weak.  Even if Bitcoin was being used as a stable asset, that wouldn't inherently result in gold prices matching it by any means - gold prices might well fall well below in that scenario, or stay high due to its sentimental value.

[BobK71]

You can't just assume the BTC market cap will be at the same market cap of Gold. 2 different markets, makes no sense if you see it like that

For sure, your caution is justified, in a general sense.

But as I mentioned, if you want a simple, baseline estimate of Bitcoin's value, these assumptions are a good place to start.  If the assumptions need to be tweaked, their simplicity makes it easy to change the parameters and get a rough idea how that will change Bitcoin's 'fair' value.

[TeaPanda]

You can't just assume the BTC market cap will be at the same market cap of Gold. 2 different markets, makes no sense if you see it like that

For sure, your caution is justified, in a general sense.

But as I mentioned, if you want a simple, baseline estimate of Bitcoin's value, these assumptions are a good place to start.  If the assumptions need to be tweaked, their simplicity makes it easy to change the parameters and get a rough idea how that will change Bitcoin's 'fair' value.

truth is, the value of it depends on the adoption and how well it translates into the mainstream markets. Gold is here to stay, BTC who knows. Might be worth 0, might be worth 10k$ in a couple years, we can't know for sure. But I do believe there is a use for BTC, I just don't think we will see anything close to 180k$

[BobK71]

Bitcoin is quite a complicated asset due to its use as a currency and the fact that it is not backed up by anything physical.  Its purpose will never be exactly the same as gold and rightly so - it is not a stable store of value so much as an investment (and a currency).

I think this must be a pretty common sentiment.  But what is money?  It's anything that's trusted as a good store of value (even the dollar has this quality, for most people in this world,) and has other monetary properties, like durability, fungibility, etc.

Though both Bitcoin and gold have these qualities, neither is really used as money in the modern age.  That is because the elites don't want them to be.

The real use of these two are as a store of value.  The unadvertised truth is that the elites generally suppress their values, but will be forced to devalue state-issued money against them at certain times of instability (and we know instability will always come due to the incentives in the modern system for the elites.)

Without this devaluation, the elites would have to either suffer more instability (since money will flow into these assets and out of the elite-issued ones,) or be forced to implement a higher level of financial repression.  They try to avoid too much of the latter, since the strength of their system depends to a large extent on the (fundamentally false) assumption by most people that capital markets are free, and that the elites' money and other assets have value because people really want them.

[suredoood]

You can't just assume the BTC market cap will be at the same market cap of Gold. 2 different markets, makes no sense if you see it like that

True.  Bitcoin is quite a complicated asset due to its use as a currency and the fact that it is not backed up by anything physical.  Its purpose will never be exactly the same as gold and rightly so - it is not a stable store of value so much as an investment (and a currency).

The assumptions you make in this post are also quite weak.  Even if Bitcoin was being used as a stable asset, that wouldn't inherently result in gold prices matching it by any means - gold prices might well fall well below in that scenario, or stay high due to its sentimental value.

I was about to say, the sentimental value of gold is probably what will keep it at such a high valuation compared to Bitcoin. Not to mention gold is not as risky because there is no private key that can be stolen.

[BobK71]

truth is, the value of it depends on the adoption and how well it translates into the mainstream markets. Gold is here to stay, BTC who knows. Might be worth 0, might be worth 10k$ in a couple years, we can't know for sure. But I do believe there is a use for BTC, I just don't think we will see anything close to 180k$

Absolutely, it's very complex and hard to predict.

My whole motivation is the simple observation that, based on quantities in existence, Bitcoin is cheap compared to gold.  How much cheaper?  Well, here is a crude first analysis.

[cpfreeplz]

There are a ton of different ways of looking at this but in the near future bitcoins aren't going to have the same market cap as gold. Everyone and their dog understands what gold is, how it works, why it's valuable and why to invest in it. Bitcoins are much more similar to investing in a brand new tech startup company. Just because the price of a unit is the same doesn't mean the market caps will ever be similar.

Did you know there are about 15 million millionaires in the world? Assuming there are 15 million people with 1 bitcoin each and other people have less, wouldn't it make sense that each bitcoin be worth $1 million? The math checks out, but it's not going to happen in our lifetime.

[TeaPanda]

truth is, the value of it depends on the adoption and how well it translates into the mainstream markets. Gold is here to stay, BTC who knows. Might be worth 0, might be worth 10k$ in a couple years, we can't know for sure. But I do believe there is a use for BTC, I just don't think we will see anything close to 180k$

Absolutely, it's very complex and hard to predict.

My whole motivation is the simple observation that, based on quantities in existence, Bitcoin is cheap compared to gold.  How much cheaper?  Well, here is a crude first analysis.

well, bitcoin right now isn't cheap, imo while gold already has a big established market, Bitcoin still doesn't, who knows if there might be a new cryptocurrency, one that might even be govern-issued (I know, i know, yuck).
My point being, bitcoin is not cheap since it isn't established (in a way).
How high can BTC go instead of how cheap it is compared to gold, should be the question since those 2 aren't the same thing at all