[Economic discovery] What is the fair value of a currency? (see first post)

[pablomp]

Hello,

May I share with you an article I have published that explains the Currencies Fair Value rational model I've been working on. I was able to discover the price of a monetized currency pair in terms of another without using any market data at all. Only intrinsic variables and rational models based on the praxeological axioms. When I mean I was able to discover such a thing, I mean that with my model anyone can arrive to a number that matches (with some random noise) the price of a monetized currency pair. I hope you enjoy it and find it useful. You may also download it in PDF format, the link is at the end of the article:

https://steemit.com/bitcoin/@pablomp/cryptocurrencies-what-is-the-fair-value-of-a-currency

Please, feel free to ask me any questions you may have.

 

UPDATE:

The model is now live in coinfairvalue.com!!

Check out the announcement post:

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

[RodeoX]

In my opinion the only price is the price someone is willing to pay. I see all sorts of valuations from "bitcoin has no value" to "bitcoin is actually worth millions". But when you go to sell, that's when you get your answer.

At the time of writing this the average price across a bunch of exchanges is $2548.98 USD. I would think that is about as close as you can discern. 

[pablomp]

In my opinion the only price is the price someone is willing to pay. I see all sorts of valuations from "bitcoin has no value" to "bitcoin is actually worth millions". But when you go to sell, that's when you get your answer.

At the time of writing this the average price across a bunch of exchanges is $2548.98 USD. I would think that is about as close as you can discern. 

@RodeoX If you read the article, you will see that the fair value I calculate, without making any use of market data at all, coincides with the actual price with a small error. And that is because the fair value of currencies is not an intrinsic fair value, but a compounded one. And its composition, in the case of a monetized currency, is a collection of present variables has more weight than the collection of future speculative variables.

[odolvlobo]

I haven't finished reading it, but I have suggestions on what I have read so far:

From now on, I will work with the following hypotheses:

I think a better term is assumptions.

Therefore, using the Total Discounted Supply Theory of Money, the following expression holds true:

At this point, the TDSTM has not been stated -- only how it differs from QTM. It might be helpful to state it plainly beforehand so that the reader can see how the expression is true. But as I look more, I see that it is actually QTM in the relational form that you have developed.

[RodeoX]

In my opinion the only price is the price someone is willing to pay. I see all sorts of valuations from "bitcoin has no value" to "bitcoin is actually worth millions". But when you go to sell, that's when you get your answer.

At the time of writing this the average price across a bunch of exchanges is $2548.98 USD. I would think that is about as close as you can discern. 

@RodeoX If you read the article, you will see that the fair value I calculate, without making any use of market data at all, coincides with the actual price with a small error. And that is because the fair value of currencies is not an intrinsic fair value, but a compounded one. And its composition, in the case of a monetized currency, is a collection of present variables has more weight than the collection of future speculative variables.

That is quite interesting. You may be on to something then. 
I find it hard to come up with valid numbers because so much of the BTC economy is speculative. One can come close to predicting the supply needs of say a payment processor like bitpay. But trying to get into the heads of people all over the world who may sell or buy more tomorrow... that is where I give up.

[Hydrogen]

the fair value I calculate, without making any use of market data at all, coincides with the actual price with a small error. And that is because the fair value of currencies is not an intrinsic fair value, but a compounded one. And its composition, in the case of a monetized currency, is a collection of present variables has more weight than the collection of future speculative variables.

Current variables having more weight than future projected variables may be similar to economists using brownian motion in an attempt to model market forces which cannot be accounted for: https://en.wikipedia.org/wiki/Brownian_model_of_financial_markets

They're damaged control oriented and attempt to mitigate forces which cannot be measured.

[GreenBits]

Excellent article man. I'm going to reread this over a drink after I post this, I want to digest the minute details (I grind fine but slowly ) My mind melted a bit when I read the 'sum of' sign, LOL

Most of the currencies out there are floating currencies, which means the markets dictates their value. Even if there are fixed rate currencies, they are pegged to some major, like the USD, so anyway, the market will dictate their fate.

Bitcoin, to be honest, is purely borne on speculation and manipulation. It doesn't take a very big whale to make a splash on any of these exchanges, as evidenced by the frequency and severity of 'fat finger' errors. The majority of btc traders are novice traders; the volatile reflects this. The price is simply what the majority wants it to be. The value doesn't reflect the cost of production, that is, miner power and maintenance. The lack of a basis of valuation (they are non physical assets, don't correlate to real world assets) makes this essentially monetized knowledge. You can't put a price on knowledge, hence, this.

Serious question, does Steem generate a decent income stream? People were making bank posting fucking recipes,  this is a goddamned thesis and you only have 1.50?

Support this man people. He cares, obviously

[franco123]

Now this is a good subject.

Fair value of a currency is affected by different factors. But as a FOREX trader, I know how different currencies affect another. If you look into the graphs of the currency prices, these currencies are actually affected by economic performance of a country and it's nearby countries. The trading of countries, may it be consumer goods or raw material products, affects the countries fair value currency.

If you observe the movement of the currency of different countries, you will see that they are changing continent by continent. If Japan Yen for example is decreasing in fair value, most probably, the Chinese Yuan and the Philippine Peso are also decreasing. This is because the trading business of the nearby countries are probably weakening. Or another reason is that the relationship ties of these countries have conflicts thus making its international businesses weak.

[bitcoinbox]

A fair value is the price people are willing to pay to own the currency. That's it, simple as that.

[buwaytress]

Interesting definitely, but I'll admit I'm not academic enough to make use of it. If I understand correctly from comments, you use this model on DASH and find that it's priced way below its fair value - therefore a calculated investment. You also mention hypothesis, so why not gather evidence now, from DASH and a basket of others priced below fair value?

I have to disagree about "fair value being what people are willing to pay". If that were so, fair value of BTC is ~$2,500 on average on exchanges, ~$2,700 in India and ~$3,000++ in some countries? Fair value is not highest bid.

[anneiS_02]

In my opinion, the fair price of a currency is a rough idea of what that currency is actually worth.The process is quite simple, if you need to know the fair value of a currency what you need to do is tune into the market via the news and analysis.

[pablomp]

I haven't finished reading it, but I have suggestions on what I have read so far:

From now on, I will work with the following hypotheses:

I think a better term is assumptions.

Therefore, using the Total Discounted Supply Theory of Money, the following expression holds true:

At this point, the TDSTM has not been stated -- only how it differs from QTM. It might be helpful to state it plainly beforehand so that the reader can see how the expression is true. But as I look more, I see that it is actually QTM in the relational form that you have developed.

Hello odolvlobo,

I'll give it a look, thank you 

[pablomp]

In my opinion the only price is the price someone is willing to pay. I see all sorts of valuations from "bitcoin has no value" to "bitcoin is actually worth millions". But when you go to sell, that's when you get your answer.

At the time of writing this the average price across a bunch of exchanges is $2548.98 USD. I would think that is about as close as you can discern. 

@RodeoX If you read the article, you will see that the fair value I calculate, without making any use of market data at all, coincides with the actual price with a small error. And that is because the fair value of currencies is not an intrinsic fair value, but a compounded one. And its composition, in the case of a monetized currency, is a collection of present variables has more weight than the collection of future speculative variables.

That is quite interesting. You may be on to something then. 
I find it hard to come up with valid numbers because so much of the BTC economy is speculative. One can come close to predicting the supply needs of say a payment processor like bitpay. But trying to get into the heads of people all over the world who may sell or buy more tomorrow... that is where I give up.

I've omitted the bitcoin against usd fair value chart because in my current Python software I am using a simplification for the case of fiat money. Because nobody knows what the future supply of a fiat currency will be, my current simplification in the software is to assume that the fiat money supply is not increased any more. I am going to change it for an extrapolation of the past supply function. Anyways I will show you BTC/USD in a minute in this thread

[pablomp]

the fair value I calculate, without making any use of market data at all, coincides with the actual price with a small error. And that is because the fair value of currencies is not an intrinsic fair value, but a compounded one. And its composition, in the case of a monetized currency, is a collection of present variables has more weight than the collection of future speculative variables.

Current variables having more weight than future projected variables may be similar to economists using brownian motion in an attempt to model market forces which cannot be accounted for: https://en.wikipedia.org/wiki/Brownian_model_of_financial_markets

They're damaged control oriented and attempt to mitigate forces which cannot be measured.

The time value of money is a praxeological category which is plays a central role in the catallactics. In other words, it is a category of the human action. The brownian motion is a compounded model for the risk, it doesn't have anything to do with the time value of money.

[pablomp]

Excellent article man. I'm going to reread this over a drink after I post this, I want to digest the minute details (I grind fine but slowly ) My mind melted a bit when I read the 'sum of' sign, LOL

Most of the currencies out there are floating currencies, which means the markets dictates their value. Even if there are fixed rate currencies, they are pegged to some major, like the USD, so anyway, the market will dictate their fate.

Bitcoin, to be honest, is purely borne on speculation and manipulation. It doesn't take a very big whale to make a splash on any of these exchanges, as evidenced by the frequency and severity of 'fat finger' errors. The majority of btc traders are novice traders; the volatile reflects this. The price is simply what the majority wants it to be. The value doesn't reflect the cost of production, that is, miner power and maintenance. The lack of a basis of valuation (they are non physical assets, don't correlate to real world assets) makes this essentially monetized knowledge. You can't put a price on knowledge, hence, this.

Serious question, does Steem generate a decent income stream? People were making bank posting fucking recipes,  this is a goddamned thesis and you only have 1.50?

Support this man people. He cares, obviously

Thank you @GreenBits I am glad you liked it! It is true that the current fair value of BTC against USD ha a strong speculative positive component as you will see in the chart I am going to post (event if it is a simplified chart). The pair BTC/fiat is far from being monetized yet. Which is not the case for crypto/crypto pairs. Using my CFV model as a reasoning support, current BTC speculation is the following: BTC will have way more transactions in the futer than it has now and fiat supply will keep increasing in the future (a combination of these two factors).

With regard to the Steem reward, I am lucky that my intentions where not making money with Steemit I used Steemit because someone recommended it to me and because the article gets posted and timestamped in a blockchain. But you are right, I see a lot of rubbish in articles which are worth thousands.

Thank you for your feedback

[pablomp]

A fair value is the price people are willing to pay to own the currency. That's it, simple as that.

Not exactly. The fair value of a currency is the price that humans are actually paying (not willing to pay). You can model it if you understand the categories of the human action and human behaviour with regard to money

[pablomp]

Interesting definitely, but I'll admit I'm not academic enough to make use of it. If I understand correctly from comments, you use this model on DASH and find that it's priced way below its fair value - therefore a calculated investment. You also mention hypothesis, so why not gather evidence now, from DASH and a basket of others priced below fair value?

I have to disagree about "fair value being what people are willing to pay". If that were so, fair value of BTC is ~$2,500 on average on exchanges, ~$2,700 in India and ~$3,000++ in some countries? Fair value is not highest bid.

If you were to use the model as an investment tool, there would be two usage cases in my opinion:

• Finding currency pairs with a high speculation negative bias and buy them (similar to buying low P/E stocks).
• Speculating on the intrinsic variables of a currency pair and finding a speculative fair value. If current price is below your speculative fair value, buy them.

Beware that the first approach can only be used in currency pairs which are not monetized (such as BTC/fiat right now). Don't use it with BTC/crypto, because it is already monetized and won't work.

[pablomp]

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.

[pablomp]

I've inserted the [img] tag, but I am not able to get the images displayed directly instead of their link. Does anyone know how to do it?

[L00n3y]

Hello,

May I share wit you an article I have published that explains the Currencies Fair Value rational model I've been working on. I hope you enjoy it and find it useful. You may also download it in PDF format, the link is at the end of the article:

https://steemit.com/bitcoin/@pablomp/cryptocurrencies-what-is-the-fair-value-of-a-currency

Please, feel free to ask me any questions you may have.

 

In my opinion I think it depends if the value of the currency can afford the basic necessities of a person. For example you have a salary ranging 30 $ per day. It doesn't matter how much $ you have but it matters how much can you buy with 30 dollars with an excess for future needs. If you have some degree and have a decent job but can't afford your needs for a month then I think the economy of your country is low, meaning the value of your currency is not enough.