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Author Topic: [Economic discovery] What is the fair value of a currency? (see first post)  (Read 1605 times)
pablomp
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July 04, 2017, 06:32:52 AM
 #41

It is a vicious circle. Without control of the currency does not have a stable exchange rate and is not credible, and if the government controls the currency, it is not credible because of distrust of the control.
Since the traders that is the buyers and sellers control the value of bitcoin and no other third party can dominate it's value. Therefore nobody other than the traders can control the value of bitcoin. In this way bitcoin will always remain a secure option for/as a currency with fair value always.

That is not true. In a monetized currency, the number of trades made by forex traders is negligible with regard to the number of trades made by the currency users for goods and services. They are these trades, the later, who dictate the fate of the currency price. Not too long time ago there weren't forex markets and currencies had their price.

If in the future, any cryptocurrency becomes monetized, its trades in the exchange won't have anything to do with price movements whatsoever. And that's what we need and what we want. That will be the time when the prices of cryptocurrencies will be stable. You can learn about it by reading the article I published, which I posted at the start of this thread.
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July 04, 2017, 07:12:07 AM
 #42

i have a different opinion on this one, for me a fair value is the one that allow miners to have their profit, any value that is below this threshold is not a fair value for the currency

also the one that say that the fair value is the one that the investors are willing to pay, could be true but it doesn't take into account the heavy fluctuations

the average that investors are willing to pay could be considered better as a fair value

The fair value of a currency (any currency) doesn't have absolutely anything to do with the cost of keeping the ledgers, neither with the cost of creating the money, nor with the cost of transferring the money. It just doesn't have anything to do with that.

I recommend you to read the article.

i know but here it's different, without he miners you don't have bitcoin, therefore if they don't have they minimum profit, you don't have a currency, which make me think by logic that the fair value can't be lower than the one needed for them to have their profit

you can't compare it with fiat for example where there is no mining, and probably you can't compare it with gold either where mining is not that important, beacuse you can make gold from nowhere artificially
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July 04, 2017, 07:32:37 AM
 #43

i have a different opinion on this one, for me a fair value is the one that allow miners to have their profit, any value that is below this threshold is not a fair value for the currency

also the one that say that the fair value is the one that the investors are willing to pay, could be true but it doesn't take into account the heavy fluctuations

the average that investors are willing to pay could be considered better as a fair value

The fair value of a currency (any currency) doesn't have absolutely anything to do with the cost of keeping the ledgers, neither with the cost of creating the money, nor with the cost of transferring the money. It just doesn't have anything to do with that.

I recommend you to read the article.

i know but here it's different, without he miners you don't have bitcoin, therefore if they don't have they minimum profit, you don't have a currency, which make me think by logic that the fair value can't be lower than the one needed for them to have their profit

you can't compare it with fiat for example where there is no mining, and probably you can't compare it with gold either where mining is not that important, beacuse you can make gold from nowhere artificially

That's also not true. If the price of bitcoin dropped, for instance, to 1 USD, miners would charge more BTC for adding transactions to the blockchain. Mining is a service which is payed in bitcoin units, as well as any other service that could be payed with BTC. Mining business profit doesn't have anything to do with the bitcoin price. But if you still don't believe it, you can read the article posted at the beginning of the thread.
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July 04, 2017, 09:58:52 AM
 #44

We can't provide a fair value to a currency. It is calculated and provided based on the backing commodity. When it comes to bitcoin also the same. The value is purely on the market demand to the supply available. So the price is fluctuatory and I hope anything above $5000 is good.

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Amph
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July 04, 2017, 10:22:01 AM
 #45

i have a different opinion on this one, for me a fair value is the one that allow miners to have their profit, any value that is below this threshold is not a fair value for the currency

also the one that say that the fair value is the one that the investors are willing to pay, could be true but it doesn't take into account the heavy fluctuations

the average that investors are willing to pay could be considered better as a fair value

The fair value of a currency (any currency) doesn't have absolutely anything to do with the cost of keeping the ledgers, neither with the cost of creating the money, nor with the cost of transferring the money. It just doesn't have anything to do with that.

I recommend you to read the article.

i know but here it's different, without he miners you don't have bitcoin, therefore if they don't have they minimum profit, you don't have a currency, which make me think by logic that the fair value can't be lower than the one needed for them to have their profit

you can't compare it with fiat for example where there is no mining, and probably you can't compare it with gold either where mining is not that important, beacuse you can make gold from nowhere artificially

That's also not true. If the price of bitcoin dropped, for instance, to 1 USD, miners would charge more BTC for adding transactions to the blockchain. Mining is a service which is payed in bitcoin units, as well as any other service that could be payed with BTC. Mining business profit doesn't have anything to do with the bitcoin price. But if you still don't believe it, you can read the article posted at the beginning of the thread.

miners don't control fee at all, it's the user that decide, they just prioritize the transaction, but they must prioritize some transaction if they want to earn from fee, if they don't prioritize any because they think the fee should be higher, they would get nothing out of it, which is worse

here mining is a crucial part of the bitcoin ecosystem, it's not somethigng that you can leave behind, there is no bitcoin without mining, and fee alone is not enough to sustain the network, and i don't think investors are willing to pay 3x or 4x higher than the current fee which is already very high

also if the value go to $1 like you said, the fee would also suffer from that
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July 04, 2017, 10:46:11 AM
 #46

i have a different opinion on this one, for me a fair value is the one that allow miners to have their profit, any value that is below this threshold is not a fair value for the currency

also the one that say that the fair value is the one that the investors are willing to pay, could be true but it doesn't take into account the heavy fluctuations

the average that investors are willing to pay could be considered better as a fair value

The fair value of a currency (any currency) doesn't have absolutely anything to do with the cost of keeping the ledgers, neither with the cost of creating the money, nor with the cost of transferring the money. It just doesn't have anything to do with that.

I recommend you to read the article.

i know but here it's different, without he miners you don't have bitcoin, therefore if they don't have they minimum profit, you don't have a currency, which make me think by logic that the fair value can't be lower than the one needed for them to have their profit

you can't compare it with fiat for example where there is no mining, and probably you can't compare it with gold either where mining is not that important, beacuse you can make gold from nowhere artificially

That's also not true. If the price of bitcoin dropped, for instance, to 1 USD, miners would charge more BTC for adding transactions to the blockchain. Mining is a service which is payed in bitcoin units, as well as any other service that could be payed with BTC. Mining business profit doesn't have anything to do with the bitcoin price. But if you still don't believe it, you can read the article posted at the beginning of the thread.

miners don't control fee at all, it's the user that decide, they just prioritize the transaction, but they must prioritize some transaction if they want to earn from fee, if they don't prioritize any because they think the fee should be higher, they would get nothing out of it, which is worse

here mining is a crucial part of the bitcoin ecosystem, it's not somethigng that you can leave behind, there is no bitcoin without mining, and fee alone is not enough to sustain the network, and i don't think investors are willing to pay 3x or 4x higher than the current fee which is already very high

also if the value go to $1 like you said, the fee would also suffer from that

Fee is set in a market. What the users are willing to pay against what the miners are willing to charge. Both set the price of the fee.

If the price of BTC drops to 1 USD, then the fee will be multiplied by 2620 (at current BTC price in USD). It will be the same fee in USD, not cheaper, neither more expensive, the same.

Nonetheless, this doesn't have anything to do with the title of the topic. What it is presented in this topic is an economic discovery that allows you to find the price of a currency without relying on any market data at all. If you find time to read it, I am sure you'll enjoy it and appreciate it as much as I do.
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July 04, 2017, 10:52:36 AM
 #47

We can't provide a fair value to a currency. It is calculated and provided based on the backing commodity. When it comes to bitcoin also the same. The value is purely on the market demand to the supply available. So the price is fluctuatory and I hope anything above $5000 is good.

I am sure you haven't read the article presented in the first post of this topic.
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July 10, 2017, 08:11:37 AM
 #48

i have a different opinion on this one, for me a fair value is the one that allow miners to have their profit, any value that is below this threshold is not a fair value for the currency

also the one that say that the fair value is the one that the investors are willing to pay, could be true but it doesn't take into account the heavy fluctuations

the average that investors are willing to pay could be considered better as a fair value

The fair value of a currency (any currency) doesn't have absolutely anything to do with the cost of keeping the ledgers, neither with the cost of creating the money, nor with the cost of transferring the money. It just doesn't have anything to do with that.

I recommend you to read the article.

i know but here it's different, without he miners you don't have bitcoin, therefore if they don't have they minimum profit, you don't have a currency, which make me think by logic that the fair value can't be lower than the one needed for them to have their profit

you can't compare it with fiat for example where there is no mining, and probably you can't compare it with gold either where mining is not that important, beacuse you can make gold from nowhere artificially

That's also not true. If the price of bitcoin dropped, for instance, to 1 USD, miners would charge more BTC for adding transactions to the blockchain. Mining is a service which is payed in bitcoin units, as well as any other service that could be payed with BTC. Mining business profit doesn't have anything to do with the bitcoin price. But if you still don't believe it, you can read the article posted at the beginning of the thread.

miners don't control fee at all, it's the user that decide, they just prioritize the transaction, but they must prioritize some transaction if they want to earn from fee, if they don't prioritize any because they think the fee should be higher, they would get nothing out of it, which is worse

here mining is a crucial part of the bitcoin ecosystem, it's not somethigng that you can leave behind, there is no bitcoin without mining, and fee alone is not enough to sustain the network, and i don't think investors are willing to pay 3x or 4x higher than the current fee which is already very high

also if the value go to $1 like you said, the fee would also suffer from that

Fee is set in a market. What the users are willing to pay against what the miners are willing to charge. Both set the price of the fee.

If the price of BTC drops to 1 USD, then the fee will be multiplied by 2620 (at current BTC price in USD). It will be the same fee in USD, not cheaper, neither more expensive, the same.

Nonetheless, this doesn't have anything to do with the title of the topic. What it is presented in this topic is an economic discovery that allows you to find the price of a currency without relying on any market data at all. If you find time to read it, I am sure you'll enjoy it and appreciate it as much as I do.

fee will not be multiplied automatically, if none is willing to pay that fee, the miners will simply accept less fee and lose money because they can not sustain the minign activity with a value of 1 usd

again miners don't charge anything, they just pick the highest fee transaction to earn more, if the highest is 1 usd they can't do anything to force the users to pay more
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July 22, 2017, 09:24:00 AM
 #49

The fair value of a currency is. When you trade it then you will know what the fair value. Because the value of the currency is floating and can not be mentioned at the level of kewajaranya. I myself am not an expert in this field. But i can mention it. I think the answer is if it is bitcoin. Do the sale then you will know the result. Bitcoin itself has a value that is not fixed. So what could be the answer to your question is. The need for very mathematical calculations. Of course there will be experts in this case. Try to find out to those who better understand about this. That's if you want more details. Because I only give an answer but not based on market analysis. Especially in the trade market





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July 22, 2017, 03:04:09 PM
 #50

The fair value of a currency is. When you trade it then you will know what the fair value. Because the value of the currency is floating and can not be mentioned at the level of kewajaranya. I myself am not an expert in this field. But i can mention it. I think the answer is if it is bitcoin. Do the sale then you will know the result. Bitcoin itself has a value that is not fixed. So what could be the answer to your question is. The need for very mathematical calculations. Of course there will be experts in this case. Try to find out to those who better understand about this. That's if you want more details. Because I only give an answer but not based on market analysis. Especially in the trade market

I am not asking what the fair value of a currency is, I am answering it. You can find the answer in the first post of this topic. I am sure you will be surprised Wink
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July 29, 2017, 09:53:02 PM
 #51

Here you have the BTC/USD fair value and price. Beware that, as I said, I made a simplification in the USD intrinsic variable M: the total USD supply remains remains constant in the future. I have to modify my Python SW in order to extrapolate current USD supply function and use the TDSTM properly.





As you can see, fair value is dropping and it is the underlying cause for the current market price stagnation.

Thank you @pablomp great analysis, very helpful.
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July 30, 2017, 10:10:31 PM
 #52

Are you saying that Dash and Litecoin are fairly valued and that Bitcoin is overvalued? Currently i pay my rent with Bitcoin, I pay my email provider with Bitcoin and I can order food from hundreds of restaurants from my countries biggest food delivery service with bitcoin. I can almost fully live off Bitcoin.

I cant do anything with Dash and Litecoin.

Are you sure your analysis is correct?
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September 26, 2017, 03:54:26 PM
 #53

Are you saying that Dash and Litecoin are fairly valued and that Bitcoin is overvalued? Currently i pay my rent with Bitcoin, I pay my email provider with Bitcoin and I can order food from hundreds of restaurants from my countries biggest food delivery service with bitcoin. I can almost fully live off Bitcoin.

I cant do anything with Dash and Litecoin.

Are you sure your analysis is correct?

I am not the author of the article, but pablomp bases his price calculation on the amount of real transactions that are done.

That you can pay things with Bitcoin (your rent? That's interesting ... ) does not mean that many people are doing that. Only if more people would really transact, the fair value - according to pablomp's formula - would go up. But transaction volume hasn't gone up much since 2016 - price has quadrupled!

Now for the case of Dash and Litecoin, my understanding is this: They are, according to the author, "fairly valued" if the price is measured in Bitcoin, not necessarily if it is measured in USD. However, as Bitcoin is overvalued against the USD - again according to pablomp's theory - that means that Dash and Litecoin are also overvalued, because their transaction volume only is justifying its price when comparing it to Bitcoin's transaction volume, but compared to the USD it would be much smaller.

@pablomp: If you can and are still here, it would be interesting if you do the same exercise comparing Dash and LTC against the USD.

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September 26, 2017, 04:18:05 PM
 #54

Are you saying that Dash and Litecoin are fairly valued and that Bitcoin is overvalued? Currently i pay my rent with Bitcoin, I pay my email provider with Bitcoin and I can order food from hundreds of restaurants from my countries biggest food delivery service with bitcoin. I can almost fully live off Bitcoin.

I cant do anything with Dash and Litecoin.

Are you sure your analysis is correct?

I am not the author of the article, but pablomp bases his price calculation on the amount of real transactions that are done.

That you can pay things with Bitcoin (your rent? That's interesting ... ) does not mean that many people are doing that. Only if more people would really transact, the fair value - according to pablomp's formula - would go up. But transaction volume hasn't gone up much since 2016 - price has quadrupled!

Now for the case of Dash and Litecoin, my understanding is this: They are, according to the author, "fairly valued" if the price is measured in Bitcoin, not necessarily if it is measured in USD. However, as Bitcoin is overvalued against the USD - again according to pablomp's theory - that means that Dash and Litecoin are also overvalued, because their transaction volume only is justifying its price when comparing it to Bitcoin's transaction volume, but compared to the USD it would be much smaller.

@pablomp: If you can and are still here, it would be interesting if you do the same exercise comparing Dash and LTC against the USD.


Hello!

You are absolutely right @d5000, all of them have a strong speculative positive bias against USD. Here are the updated charts. Notice that since the Chinese banning, Litecoin started to develop a speculative down bias against BTC. But it will eventually go back to fair value against BTC, as soon as the speculative trades go from pessimistic to neutral again.











I see you have reached a good understanding of the article Smiley
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September 26, 2017, 04:27:03 PM
 #55

As you can see, bitcoin transactions trend and thus, its fair value trend, is not justifying the crazy latest price movements (speculative trades). Most of the cryptocurrencies trades for fiat are being speculative and not utilitarian. When a currency is a currency, speculative trades are negligible, so their prices converges to fair value almost exactly. Also, you can have the case where speculative trades in a currency pair are not biased (neutral). In this case, the price also goes to fair value.

In the case of bitcoin, I don't like the fact that usage is declining. I can buy huge speculative biases only in cases where I think transactions will follow.
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September 26, 2017, 07:41:28 PM
 #56

Thanks pablomp! That confirms what I was suspecting ...

In the case of bitcoin, I don't like the fact that usage is declining. I can buy huge speculative biases only in cases where I think transactions will follow.

I think the declining usage you mention has to do with the spam attacks of early 2017 that drove up the transaction fees to much higher values than before (~5-10 cent to ~1-5 USD for fast transactions). Since this time, Bitcoin users (like me) simply avoid unnecessary transactions and try to bundle them - or even, for "small change", use centralized services that don't charge any fees (Bitstamp Grin ). That would explain the slightly declining usage, I don't think it's a real decline (=less interest) but even if the transaction amount was static, it doesn't explain the rally at all.

Many people that speculated on Segwit are waiting now for Lightning network to use BTC again as "digital cash", I think - LN would have to be tracked in your future updates too.

The LTC "undervaluation" against BTC is interesting. Maybe a good investment opportunity - or at least a hedge against the next Bitcoin crash Wink

pablomp
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September 27, 2017, 07:14:08 AM
 #57

Thanks pablomp! That confirms what I was suspecting ...

In the case of bitcoin, I don't like the fact that usage is declining. I can buy huge speculative biases only in cases where I think transactions will follow.

I think the declining usage you mention has to do with the spam attacks of early 2017 that drove up the transaction fees to much higher values than before (~5-10 cent to ~1-5 USD for fast transactions). Since this time, Bitcoin users (like me) simply avoid unnecessary transactions and try to bundle them - or even, for "small change", use centralized services that don't charge any fees (Bitstamp Grin ). That would explain the slightly declining usage, I don't think it's a real decline (=less interest) but even if the transaction amount was static, it doesn't explain the rally at all.

Many people that speculated on Segwit are waiting now for Lightning network to use BTC again as "digital cash", I think - LN would have to be tracked in your future updates too.

The LTC "undervaluation" against BTC is interesting. Maybe a good investment opportunity - or at least a hedge against the next Bitcoin crash Wink

Good point about the LN network! I could proceed either way:
  • Finding a source where to get the amount of transactions and commits per day happening within the LN network, so that I can add them up and subtract commits from the amount of transactions happening within the blockchain. BB_tx + LN_tx - LN_commits.
  • Finding usage statistics of the LN.

I wouldn't like to go with the second solution, because usage statistics are not precise, neither constant along time. Do you know if there will be explorers of transactions within the LN?

With regard to Litecoin being undervalued, I am following it closely. Either transactions can drop, or price can rise. Or even both at the same time! I guess transactions have easier to predict (more stable) trends. So chances are that price rises more than transactions fall. Anyways, there are several ways to cash out the gap with different risks involved (all of them subjected to the risk fiat loses value):
  • Buy LTC/BTC. Risks: BTC/fiat drops, transactions instead of price move to undo the gap, fiat loses value.
  • Market neutral: short BTC, long LTC. Risks: transactions instead of price move to undo the gap, fiat loses value. Market neutral transactions imply the use of derivatives, so one has to be careful not to leverage, otherwise the former would be amplified.

I have an actual market neutral trade open, so to try to cash out and, at the same time, avoid exposure to BTC/fiat.
pablomp
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May 29, 2018, 08:40:12 AM
 #58

After almost one year I've finally made the website that applies the fair value model to many cryptocurrencies! The announcement post is the following:

https://bitcointalk.org/index.php?topic=4329837.0

Tylev
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May 29, 2018, 10:39:33 PM
 #59

We are already purely mathematical way to earn money. Even if the price is set in a purely mathematical way, it is hardly useful at all in practice. Now even such digital money, which form its price practically only on the basis of supply and demand, is not completely perceived by the states, since they have greater volatility. Of course, if the new pricing model eliminates the volatility of the crypto currency and is acceptable, then perhaps this will be a good way out of the current situation.

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