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Author Topic: Lowball Bitcoin price prediction as a money transmitter in comparison to Paypal  (Read 1462 times)
r0ach
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November 10, 2015, 08:22:59 PM
 #1

Disclaimer - Yes, I'm aware it's possible for Bitcoin to go to $250k - $1million a coin under ideal circumstances and all that, but I'm trying solely to estimate when and how it will be virtually guaranteed to pass Paypal in a normal, logical market:

Bitcoin supposedly needs 20 meg blocks to do paypal # of transactions per day.  If Bitcoin market cap was equal to paypal, it would be around $3100 a coin at the moment.  Since bitcoin is currently 1/20th of paypal TPS (transactions per second), but market cap is 1/10th of paypal, it appears there's currently a 2x markup in cap for the decentralized aspect of Bitcoin.  You will find very few people willing to store their life savings on Paypal, yet many people actually do with Bitcoin (Roger Ver is one I think), so this 2x markup in value makes sense due to the always open, basically zero downtime, permisionless utility it provides, and is likely to increase much higher.

Having said that, If you're to assume sole value of the network is determined by transaction processing capability relative to it's competitors with only a 2x markup for decentralization, then with 10 meg blocks, Paypal market cap and $3100 coins are in reach by normal market forces.  It seems the free market has decided this 2x markup for decentralization as a current fair price, but as Bitcoin gains in acceptance and network effect, I believe that markup variable will grow larger due to acting as a store of value amongst other things.

Due to the Chinese network infrastructure, they seem to be trying to veto any blocks larger than 4 megs currently.  I think the Hong Kong block scaling meeting will end up with something like 4-5 meg blocks fork as a current compromise, then with a baked in change to 8-10 meg blocks 2-4 years out without a fork.  I believe by the time the halving occurs in 8 months, we'll have 4 meg blocks or higher, and following this reasoning, making Bitcoin capable of hitting $1600 without a bubble since 78% will have already been mined with 4% inflation.

If a 4 meg fork is acquired, and 8 meg or higher blocks are further baked into a future date without an additional fork, it might be able to surpass that before the date comes, hitting something like $3000 during the 12.5 block reward period.  The current 2x markup for decentralization may also increase higher at any time, but it's definitely not going lower as trust in banks degrades more.  People like Mircea Popescu seem to depend entirely on this markup raising for Bitcoin price appreciation, but I think it's far more effective to leverage both attributes as long as it's not detrimental (as in fatal) for the system.

TLDR = Normal market forces without a bubble can easily take Bitcoin to 5x current market cap ($1600 per coin) with a 4 meg block size during the 12.5 block reward period, and just as easily 10x current market cap ($3100 a coin) if 8-10 meg blocks are incorpated to activate at a future date without an additional fork.  These are prices factoring in Bitcoin mostly as a money transmitter and not a store of value.  Other factors such as store of value and speculation can drive it much higher like seen with gold as mentioned in this thread:

https://bitcointalk.org/index.php?topic=1235466.0

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November 10, 2015, 08:41:33 PM
 #2

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If you're to assume sole value of the network is determined by transaction processing capability relative to it's competitors with a 2x markup for decentralization

Did you hit your head on something?

That is nonsense.

I suggest you delete this thread seeing as only a few people have so far read it.


"I believe this will be the ultimate fate of Bitcoin, to be the "high-powered money" that serves as a reserve currency for banks that issue their own digital cash." Hal Finney, Dec. 2010
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November 10, 2015, 08:43:17 PM
 #3

It is something confusing for me to understand this what are talking there anyway as i picked from your thread that now price would be at $1600 so it would be amazing. Kiss

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brg444
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November 10, 2015, 08:46:12 PM
 #4

Centralized payment system can process infinite amount of transactions if it pleases them.

Bitcoin is not engineeringly built to compete in terms of transaction capability.

If you have not yet figured this out you have no chance at succeeding to project Bitcoin's value, much less make an "accurate Bitcoin price prediction"

"I believe this will be the ultimate fate of Bitcoin, to be the "high-powered money" that serves as a reserve currency for banks that issue their own digital cash." Hal Finney, Dec. 2010
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November 10, 2015, 08:54:25 PM
 #5

Quote
If you're to assume sole value of the network is determined by transaction processing capability relative to it's competitors with a 2x markup for decentralization

Did you hit your head on something?

That is nonsense.

I suggest you delete this thread seeing as only a few people have so far read it.



Whatever you think of it, the free market has currently only given Bitcoin a 2x markup in value for the decentralized aspect in comparison to Paypal transaction processing at the moment.  You can argue it's due to current block reward inflation or whatever else, and will change in the future, but that's how it is right now.

If I click your post history, they're all anti larger block posts, so not exactly surprising you try to claim TPS doesn't matter, when load ability obviously factors into price.  Without having to type for an hour of why small blocks are a bad idea, just click DeathandTaxes link who has already done it:

https://bitcointalk.org/index.php?topic=946236.0

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November 10, 2015, 08:57:16 PM
 #6

You would think a Hero member knows that the bitcoin block size is currently capped at one megabyte and that limit is hard coded into the Bitcoin Core client. A hard fork is required for any increase past 1 MB.

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November 10, 2015, 08:59:16 PM
 #7

You would think a Hero member knows that the bitcoin block size is currently capped at one megabyte and that limit is hard coded into the Bitcoin Core client. A hard fork is required for any increase past 1 MB.

No shit?  Why do you think my original post talks about the Hong Kong block scaling meeting where I estimate they will likely come up with a 4 meg compromise fork and possibly bake in a higher number for 2-4 years afterwards?

https://scalingbitcoin.org/hongkong2015/

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November 10, 2015, 09:20:33 PM
 #8

I'm not sure about the relation you are suggesting between block size and price determination. In the end it's the market that determines the price, so you
could easily have 10x the amount of transactions that paypal has, but if that capacity is not used - it probably won't be a variable important for price estimation.
On the other hand, if one would say that nr. of transactions matches pp, then it would make a difference, because it would suggest that user base grew, interest is growing, and ofc price goes up.
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November 10, 2015, 09:24:05 PM
 #9

I'm not sure about the relation you are suggesting between block size and price determination. In the end it's the market that determines the price, so you
could easily have 10x the amount of transactions that paypal has, but if that capacity is not used - it probably won't be a variable important for price estimation.
On the other hand, if one would say that nr. of transactions matches pp, then it would make a difference, because it would suggest that user base grew, interest is growing, and ofc price goes up.

The original post is mostly concerned about WHEN and HOW Bitcoin can match or pass Paypal's market cap of around 50 billion.  Most people currently don't see Paypal as a store of value since it involves both counterparty risk and investment into fiat confetti.  If Bitcoin were to reach Paypal market cap with 1 meg blocks, sentiment towards Bitcoin as a store of value would have to increase a good bit, which is entirely possible when the added value of decentralization is currently priced in very low.  

I'm hoping for more certainty than just praying for an increase.  On paper, as I mentioned in the original post, if Bitcoin can produce 1/2 of Paypal's TPS, then the market cap should at least equal Paypal's in time without hopes, dreams, or prayer required.

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November 10, 2015, 09:30:28 PM
 #10

I'm not sure about the relation you are suggesting between block size and price determination. In the end it's the market that determines the price, so you
could easily have 10x the amount of transactions that paypal has, but if that capacity is not used - it probably won't be a variable important for price estimation.
On the other hand, if one would say that nr. of transactions matches pp, then it would make a difference, because it would suggest that user base grew, interest is growing, and ofc price goes up.

The original post is mostly concerned about WHEN and HOW Bitcoin can match or pass Paypal market cap/value of around 50 billion.

Bitcoin is money, attempting to compare or make correlation with a private company's market cap based on their transaction capabilities is quite farfetched to say the least.

"I believe this will be the ultimate fate of Bitcoin, to be the "high-powered money" that serves as a reserve currency for banks that issue their own digital cash." Hal Finney, Dec. 2010
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November 10, 2015, 10:02:51 PM
 #11

Bitcoin is money, attempting to compare or make correlation with a private company's market cap based on their transaction capabilities is quite farfetched to say the least.

Gold is also money, yet it's inherent high friction in use and lack of granularity means that nobody actually uses it for anything.  It's just stuffed into bank vaults as a "reserve".  The market deemed gold was an invalid form of currency and needed something with less friction and higher granularity so gold IOUs were born, thus leading to fractional reserve.  This puts a glass ceiling on the value of gold no matter who is trying to manipulate it up or down.  Gold creates and spawns layers of trust based systems due to these inherent weakness discussed.  

For Bitcoin to pass whatever glass ceilings it has, it probably needs at least enough TPS to process all of the world's large, high value transactions such as houses, cars, yachts, etc.

At 7 TPS, you can do 604,800 transactions per day (probably closer to 500k in reality but whatever).  

There are 14,000 houses and 43,000 cars sold per day in the US.  1 meg blocks are probably too small, or dangerously close to maxing out if handling all of the world's house and car transactions.  We don't need to scale to gigantic blocks, but something like 8-10 meg blocks is probably what it needs to scale to for being a major player in the world where most things of several thousands of dollars in value are done on-chain.  This is an achievable goal without things like the Lightning network existing.

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Meuh6879
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November 11, 2015, 12:04:07 AM
 #12

and ... a spreadsheet for the form.


backup : http://imagizer.imageshack.us/a/img907/1327/2NKTRm.png

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November 11, 2015, 02:11:53 AM
 #13

R0ach, there are some things that I don't agree with in the analysis, but honestly, I think there is at least a kernal of logic in it...in fact, a lot more logic than many of the posts that claim CCMF prices of $250K-$1mm just because somebody thinks it is really cool and they say so.

Ultimately, I believe bitcoin derives its value from its ability to be used as a medium of transfer and also its ability to be used as a store of value. In other words, it probably SHOULD be examined as an element of money supply, or some part of global M0, M1 and/or M2.  I used to use M2, but lately I've thought it was more like M0 plus M1. 

I think your take is just a little bit simplistic in looking at market cap rather than en element of money supply, but I DO think the remittance market is critical for bitcoin.  If bitcoin can't excel as a decentralized, low-transaction-cost alternative in the remittance market, bitcoin is in trouble.  I also think it is a bit simplistic by not accounting for velocity...in other words, how many units of a currency have to be in circulation in order to fulfill the need for that currency (money supply)? 

I also like the chart that Meuh6879 posted right above this.  Very interesting.

I'd say $5000 is a bit higher than I have it in 2020, but it's within the range of possibility for certain.  If you discount that back to 2015 at a 35% cap rate (accounting for some significant risk), you've got a value today of $580.  If you believe that's true, when you can buy under $580, you should buy.  If you can sell over $580, you should sell.

As I mentioned, my value discounted back to present is lower.  I also have wider bands around my value to account for swing overshots.  But by my model, I'm buying under $280 and selling over $500.  In fact, I did sell some at $465-475 last week. 
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November 11, 2015, 04:19:48 AM
 #14

R0ach, there are some things that I don't agree with in the analysis, but honestly, I think there is at least a kernal of logic in it...in fact, a lot more logic than many of the posts that claim CCMF prices of $250K-$1mm just because somebody thinks it is really cool and they say so.

Yes, there's clearly going to be some arguments that correlation doesn't = causation with what I typed, and people claiming that Bitcoin and Paypal can't be compared at all, but when you're dealing with a black swan event and have no precedent, trying to correlate variables in the current market to future ramifications is better than nothing.

The key to linking things together is recognizing that the only two things that give currency value are network effect and rarity.  The network effect of Bitcoin is hugely affected by the number of transactions you can fit per block.  For example, if Bitcoin could only do 10 transactions per day, only someone that's mentally insane would argue that doesn't create a huge glass ceiling for network effect, the main place the currency derives value from.  TPS obviously does matter and keeping 1MB blocks is detrimental to price.  

My point stands from the original post, that raising block size will have a very positive effect on price assuming it won't collapse the system (it won't), and that with current correlation of market variables, Bitcoin could be expected to equal or pass Paypal with 8-10MB blocks.  However, it's entirely possible the 2x markup in value Bitcoin currently receives for decentralization over Paypal could become higher at any time, and maybe Bitcoin could beat Paypal with a lower TPS such as 4MB or 2MB blocks eventually.  You will just get there faster and have a much higher glass ceiling the more transactions you can process.

You don't have to fill the entire 8-10MB blocks tomorrow or anything to get the price bump.  The market just has to know it can do so if expected to in the future.  I also feel a glass ceiling will not be a problem for Bitcoin around 8-10MB blocks.  It's entirely possible it could go all the way to the "dream estimates" of $50k and $200k per coin there given time.  1MB blocks might have a problem holding all of the world's home and auto sales from the example I gave where the US alone would need 50k transactions per day for that and the network can probably do 500k-ish.  You need just a bit more, but not an exponential amount more breathing room in the block size to allow some more high value goods like boats, real estate purchases, etc.  With around 10x higher block size than current, we can fit a lot of that and really leverage the network effect more.


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brg444
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November 11, 2015, 05:50:03 AM
 #15

x-post

Bitcoin's network effect does not operate solely as a function of its transactional capacity.

It is impossible for Bitcoin to differentiate itself through its transaction throughput. Only its censorship resistance and decentralized nature makes it unique.

Seeing as a large majority of Bitcoin users are only interested in holding for the near future we have to assume this will be through of prospective adopters and therefore it is wrong to propose that Bitcoin's TPS put a glass ceiling on Bitcoin's network effect.


"I believe this will be the ultimate fate of Bitcoin, to be the "high-powered money" that serves as a reserve currency for banks that issue their own digital cash." Hal Finney, Dec. 2010
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November 11, 2015, 08:12:02 AM
 #16

Great posts, r0ach!

.

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November 12, 2015, 07:02:41 PM
 #17

Bitcoin's network effect does not operate solely as a function of its transactional capacity.

It is impossible for Bitcoin to differentiate itself through its transaction throughput. Only its censorship resistance and decentralized nature makes it unique.

Seeing as a large majority of Bitcoin users are only interested in holding for the near future we have to assume this will be through of prospective adopters and therefore it is wrong to propose that Bitcoin's TPS put a glass ceiling on Bitcoin's network effect.

Bitcoin is based on being a trust free system, and the lower the TPS is, the more heavy use of 3rd party intermediaries you need to function in day to day use.  Even with additional scaling provided by things like the lightning network, you still can't be priced out of the main chain for it to function.  With 1mb blocks, only transactions of probably something like $100k would be done on-chain.  Around 10mb blocks is probably the minimum needed to facilitate use by the general 1st world public without going through an intermediary.

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No maps for these territories


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December 05, 2015, 09:57:54 AM
 #18

Great posts, r0ach!
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