Yesterday, BlackRock Strategist Richard Turnill said there’s no inherent right or wrong Bitcoin price, no fair value. On multiple occasions Bitcoin has been criticized for lacking fair value. I haven't come across any stats or traditional methods that can be used to calculate Bitcoin's fair value, but does that mean Bitcoin doesn't have a fair value?
I found an article on Investopedia about how to measure Bitcoin's fair market value. I don't think this framework is statistically accurate, but theoretically plausible. Almost all predictions regarding Bitcoin price are speculative in nature, but backed by a solid belief that Bitcoin's scarcity and its underlying technology is potentially revolutionary which would have an impact on different sectors. Bitcoin has value because people think it has value, right. It means Bitcoins have positive expected value.
The total market value of a currency, its "monetary base", is driven by two things, transactional demand and reservation demand.
1. Transactional demand - Daily transaction volume.
2. Reservation demand - Hoarding/long-term investment.
It is expected that with more merchant adoption the transactional demand would increase.
3. Hurdle rate - Rate of return required to compensate for the risks associated with holding Bitcoin. Yeah, technopolitical hurdles or backlash from a country can have an impact on Bitcoin's expected value.
Theoretically, the fair-market value of one BTC should simply be the dividend of its
predicted future monetary base (total market cap) and BTC in circulation, discounted by a "hurdle rate."
For further illustration, it might also help to consider how a venture capitalist could determine the net present value of an investment that he never expects to generate positive cash flows during his firm's investment period (e.g. a high-growth tech company that reinvests 100% of its earnings before it ultimate sells to Google). In the absence of earnings, that VC might look at revenue multiples to determine the company's terminal value, and then discount that figure by a rate of 40 to 60%.
With Bitcoin, the thinking is the same. Except Bitcoin's terminal value is actually its future monetary base.
This framework relies on assumptions only, but backed by Bitcoin having all the attributes of money, its scarcity and underlying technology.
A rational market price for something that is expected to increase in value will already reflect the present value of the expected future increases. In your head, you do a probability estimate balancing the odds that it keeps increasing.
http://www.investopedia.com/articles/investing/050914/easy-way-measure-bitcoins-fair-market-value-doityourself-guide.asp?Bitcoins does not have the fair value because those investors are earning a huge amount of profit from the market's volatility and because of that we can expect to become very wealthy if we are patient enough to wait until the price grow up before selling.
