Attempt to find current value of btc

[mrpetem]

I wanted to open up some discussion on determining the true value of a bitcoin. Rather than just taking a stab in the dark guess at what we want or think it should be, I propose we try to justify a true value. Of course this will be changing as time goes on.

I will kick it off and try to show methods to find a value, please jump in and tell me what I am missing or should include...
My thinking and assumptions are based on limited experience with the bitcoin market, and I dont have the time or wish to study it in-depth at the moment...


Ok first we need to know who the market participators are:

As far as I can tell we have:

• Miners
• Day Traders
• Investors
• Manipulators (mtgox, bitcoin owners)
• Illegitamate traders (money launderers, drug dealers)

Now we should try to see what price each participator wants from bitcoin.

The miners (significant) have invested a lot of up-front money to buy equipment. They are also paying running costs and will have some down time. So we need to find the current average cost to generate 1 bitcoin. (I am hoping some more informed members can jump in and help with some figures).
Then lets say that because of the uncertainty of bitcoin atm, miners are probably looking to pay off their original outlay in say 2 months.
Then we should take into consideration future difficulty increases withing this 2 month period and the affect this will have on the cost of generating a single bitcoin.
Put all this together and this will give us a base figure for what they would need bitcoin to sell at in usd.

Now miners will have a considerable affect on the price, since if the current price is less than this base figure, they will most likely not sell and hold onto their bitcoins. This will push price higher as there is reduced supply. So if we can get as accurate as possible on the miners than we can have some idea of where price is heading.

This process need to be done for each participator to give even more bias towards a direction and price.

I will come back to this if there is some interest in what I am trying to do here, but hopefully it has given a platform to take this further.

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[Stephen Gornick]

Ok first we need to know who the market participators are:

How about those whose wallet has a balance because they received a payment and either haven't spent the funds or haven't sent them to an exchange.

Where do they fit in your list?

[Alex Beckenham]

I wanted to open up some discussion on determining the true value of a bitcoin.

http://mtgox.com

[mrpetem]

Ok first we need to know who the market participators are:

How about those whose wallet has a balance because they received a payment and either haven't spent the funds or sent them to an exchange.

Where do they fit in your list?

Good point, but would there be a significant number of these participents? If there is then perhaps another catagory is required. I think perhaps just look at participants that would have significant effect on the market.

[mrpetem]

I wanted to open up some discussion on determining the true value of a bitcoin.

http://mtgox.com

Well, the whole point of this is to determine where the future price will be at. You can just take a stab in the dark and go on what you just 'think' will happen or you can try to use some quantafiable method of determining where price is likely to go. But thanks for your belittling response.

[mrpetem]

Ultimatly what this boils down to is trying to find:

What affects the price = Supply and Demand
What affects Supply = Miners
What affects Demand = Speculators
What affects Miners = Running costs
What affects Speculators = ....

If you can find these answers you will have a better idea of where price is heading.

[mrpetem]

Here are some good questions:

What is the current average cost to generate 1 bitcoin?
What is the average ROI miners look for?
What avg time do miners look to recover start up costs?
What will the cost to generate a bitcoin be over that period?

[Vandroiy]

Hmm. Two things to consider:

First, speculators aren't some kind of force of nature that brings in money. If they *think* they price will drop, their support can vanish instantly and they might sell off everything. And that, again, depends on their mindsets and prospects.

Second, the cost to generate BTC is not relevant. Miners will always cost exactly the price of the current inflation rate and have to sort out how much profit they make in the process among themselves. Their past before they spend the coins is not relevant for price estimation within Bitcoin markets. Think of miners as a black box producing 7200 BTC inflation a day.

Other than that, I like they way you approach this. You'll be surprised to get a value far lower than the current one if you pull this through though, and that's natural.

[Shuffle]

What affects Supply = nothing, its always ~300 btc/h
What affects Miners = difficulty

Fixed

[mrpetem]

Interesting Vandrioy, I will have to read your comment again when I have more time.

Shuffle, when you say nothing affects the supply its always 300 btc/h, do you not consider that miners will not actually release the bitcoins if price is not attractive enough for them? For example say it is costing $5 per bitcoin for the miners, and they want to clear $10 profit but price is at $10 dont uo think they will wait til it reaches $15 before selling. Therefor supply will be limited...

 When I said what affects miners, I meant what affects the cost of running their mining opperation.

[Babylon]

why are drug dealer illegitimate?

[ron]

Ultimatly what this boils down to is trying to find:

What affects the price = Supply and Demand
What affects Supply = Miners
What affects Demand = Speculators
What affects Miners = Running costs
What affects Speculators = ....

If you can find these answers you will have a better idea of where price is heading.

Didn't mention a single thing about the bitcoin economy and it's use as a currency which is why everyone's dumping when you boil it down.


It got the media attention and all the tech savy people thought they could get rich quickly and out smart everyone but jumping in and just got turned into a giant pump and dump.

[Stephen Gornick]

Ultimatly what this boils down to is trying to find:

What affects the price = Supply and Demand
What affects Supply = Miners
What affects Demand = Speculators
What affects Miners = Running costs
What affects Speculators = ....

If you can find these answers you will have a better idea of where price is heading.

Didn't mention a single thing about the bitcoin economy and it's use as a currency which is why everyone's dumping when you boil it down.


It got the media attention and all the tech savy people thought they could get rich quickly and out smart everyone but jumping in and just got turned into a giant pump and dump.

Transaction volume (# of transactions) has been over 10,000 transactions a day recently.  That is about 3X more per-day than the levels about a month ago.  That is among the metrics that will matter at lot more to the future market price (months and years from now) than the day-to-day swings between greed and fear that we've seen over the past couple of months.

[mrpetem]

Ultimatly what this boils down to is trying to find:

What affects the price = Supply and Demand
What affects Supply = Miners
What affects Demand = Speculators
What affects Miners = Running costs
What affects Speculators = ....

If you can find these answers you will have a better idea of where price is heading.

Didn't mention a single thing about the bitcoin economy and it's use as a currency which is why everyone's dumping when you boil it down.


It got the media attention and all the tech savy people thought they could get rich quickly and out smart everyone but jumping in and just got turned into a giant pump and dump.

Yes, bitcoins are missing an essential part of demand, that is its purpose or use. I have said before that the only value it offers is pure speculation at the moment (i think everyone realises this), bar just a handfull of sites accepting it as payment. When you consider the amount of supply being generated and the lack of demand I think we can support an arguement for price continuing to decline. But I dont believe it will be the end of it. It may take price to reach $5 before strong demand comes in, when it does it can perpetuate itself and develope into more demand, plus the fact of a declining price pushing miners 'out of business' or lack of new miners taking part or miners simply holding onto their bitcoins. This will reduce supply.

 Much more ups and downs to come I think. But a turnaround price would be good to know so you can invest at the right time.

[hello_good_sir]

When miners refuse to sell a low prices then we can safely categorize them as speculators.  They aren't really mining at that point.  Many have said it before: Miners do not affect supply.  Difficulty does not affect price.

[mrpetem]

Let me ask you then what is the difference between nobody mining and miners holding onto their bitcoins? To say miners do not affect supply simply because you wish to catagorize them differently does not make it logical.

 Maybe I should simplify this basic principle of how markets opporate for you:

I grow and sell apples. Today I decided not to go to the town market to sell my apples. So the other apple seller at the market had more buyers than usual, so he took advantage and increased the price of his apples. I still have my apples but did not take them to the market which increased the value of them at the market. BECAUSE THERE WAS A LACK OF SUPPLY.

 Now just because I decided to hold onto my apples, suddenly I become a 'speculator' and so I do not affect the market now... totally illogical you must realise..

[mrpetem]

In fact even if you do consider miners to be speculators, speculators also affect supply. Just like they affect demand.

[Alex Beckenham]

I wanted to open up some discussion on determining the true value of a bitcoin.

http://mtgox.com

Well, the whole point of this is to determine where the future price will be at. You can just take a stab in the dark and go on what you just 'think' will happen or you can try to use some quantafiable method of determining where price is likely to go. But thanks for your belittling response.

No problem.

If you need any further belittling responses, please let me know.

[killer2021]

Ultimatly what this boils down to is trying to find:

What affects the price = Supply and Demand
What affects Supply = Miners
What affects Demand = Speculators
What affects Miners = Running costs
What affects Speculators = ....

If you can find these answers you will have a better idea of where price is heading.

What affects speculators? Risk of loss. If a speculator loses too much they go bust.

Anyways, back to the OT. I think we need to think long term. BTC is going to be the future currency of the world. Right now the economy is still getting started. Eventually everything will be traded in btc.

[frutza]

I think 1 BTC = $1000, or 350 pounds of dreams, or an ounce of love 
And guess what: my guess is as good as yours 

In order to avoid my opinion and your monopolizing the market, we have MtGox