[2018-04-19]What Bitcoin Is Really Worth?It’s somewhere between $20 and $800,000

[vit05]

blomberg

It took two economists one three-course meal and two bottles of wine to calculate the fair value of one Bitcoin: $200.

It took an extra day for them to realize they were one decimal place out: $20, they decided, was the right price for a virtual currency that was worth $1,200 a year ago, flirted with $20,000 in December, and is still around $8,000. Setting aside the fortunes lost on it this year, Bitcoin, by their calculation, is still overvalued, to the tune of about 40,000 percent. The pair named this the Côtes du Rhône theory, after the wine they were drinking.

“It’s how we get our best ideas. It’s the lubricant,” says Savvas Savouri, a partner at a London hedge fund who shared drinking and thinking duties that night with Richard Jackman, professor emeritus at the London School of Economics. Their quest is one shared by the legions of traders, techies, online scribblers, and gamblers and grifters mesmerized by Bitcoin. What’s the value of a cryptocurrency made of code with no country enforcing it, no central bank controlling it, and few places to spend it? Is it $2, $20,000, or $2 million? Can one try to grasp at rational analysis, or is this just the madness of crowds?

Answering this question isn’t easy: Buying Bitcoin won’t net you any cash flows, or any ownership of the blockchain technology underpinning it, or really anything much at all beyond the ability to spend or save it. Maybe that’s why Warren Buffett once said the idea that Bitcoin had “huge intrinsic value” was a “joke”—there’s no earnings potential that can be used to estimate its value. But with $2 billion pumped into cryptocurrency hedge funds last year, there’s a lot of money betting the punchline is something other than zero. If Bitcoin is a currency, and currencies have value, surely some kind of stab—even in the dark—should be made at gauging its worth.

Writing on a tablecloth, Jackman and Savouri turned to the quantity theory of money. Formalized by Irving Fisher in 1911, with origins that go back to Copernicus’s work on the effects of debasing coinage, the theory holds that the price of money is linked to its supply and how often it’s used.

Here’s how it works. By knowing a money’s total supply, its velocity—the rate at which people use each coin—and the amount of goods and services on which it’s spent, you should be able to calculate price. Estimating Bitcoin’s supply at about 15 million coins (it’s currently a bit more), and assuming each one is used an average of about four times a year, led Jackman and Savouri to calculate that 60 million Bitcoin payments were supporting their assumed $1.2 billion worth of total U.S. dollar-denominated purchases. Using the theory popularized by Fisher and his followers, you can—simplifying things somewhat—divide the $1.2 billion by the 60 million Bitcoin payments to get the price of Bitcoin in dollars. That’s $20.

So far, so straightforward. It turns out, however, that when it comes to putting a price on Bitcoin, the same equation can yield many different answers. In September, Dan Davies, an analyst at financial research firm Frontline Analysts Ltd., wrote up a “guesstimate” of Bitcoin’s value that he’d originally conducted in 2014 using—again—the quantity theory of money. He plugged in estimates for each variable and got about $600.

On Dec. 10, Mark Kirker, a high school math teacher in California, published an analysis online using the same equation for the same purpose. He concluded that Bitcoin should be way above then-current levels. He’s since revised the number. Contacted by Bloomberg, he says it could be $15,000.

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[aso118]

This is as good as saying that the authors do not know the real worth of Bitcoin. They must be off their rockers if they think the true worth is $20. The price is never going to go to those levels again because of the insane number of people who will jump in at the next dip.

[FrueGreads]

This is as good as saying that the authors do not know the real worth of Bitcoin. They must be off their rockers if they think the true worth is $20. The price is never going to go to those levels again because of the insane number of people who will jump in at the next dip.

I agree with you. The bottom line of this article is just that, no one knows the true price for one bitcoin. Nothing against their approach, but there is a problem in knowing the variables in my opinion. The article said that to calculate the value of a currency, one needs to know:

total supply, its velocity—the rate at which people use each coin—and the amount of goods and services on which it’s spent

They don't even know the total supply, because no one knows how much coins are actually lost. They could make a good educated guess here though, but how will they know the "velocity". People are not really using bitcoin right now, and the real services we have are exchanges, but we all know how all that can change with bitcoin technological improvements that will allow for adoption to occur. So basically bitcoin can be worth $0, if no one uses it, or hundreds of dollars if it gets real use.

One thing is clear in my opinion. No one knows how much a bitcoin is worth, but if it's actually used as a currency, it should be worth a fortune. And the thing is, why wouldn't we use it as a currency? I know I will, if I get a chance to, so for me bitcoin is quite valuable.

[Glenn Techincs]

The REAL value of bitcoin is very hard to count because of variety of reasons, but I would say that $20 seems to a be a joke, nothing more =)

[gentlemand]

I'm pretty sure similar people nominated $50 when it was around the $1200 mark in 2013.

I'd agree that the price is almost entirely hot air, but then again so is almost everything else these days. Gold's price is 95% speculation and abstraction but what it has on its side is countless centuries of speculation and abstraction.

Even stuff with measurable fundamentals like Tesla is largely hype fuelled bunkum betting on a future that may never arrive. Same goes for the majority of internet based companies. Very few are making any money and never will.

[hatshepsut93]

I always though that this argument about "intrinsic value" kinda misses the point, because value itself is a psychological phenomenon, it's not some physical property that exists on its own. Economists like assets that generate profit in form of money, because they can make some good estimations of their market price, but they never ask fundamental questions about money and value.

Another thing that they always miss out on Bitcoin is its utility - gold became a method of storing and exchanging value because of its resilience and scarcity, Bitcoin has even more awesome properties - it can be quickly send to any point on the globe, it takes very little space to store and can even be stored in some interested places (you can store it in your mind, or split it into shards that are useless on their own, etc), while gold is almost never used as a currency.

[odolvlobo]

They have the right idea, but the basic flaw that these and so many other people overlook is that they should also be estimating the future value and then discounting it to get the present value, since the supply can easily be withdrawn from circulation for investment.

Also, there is nothing new or novel about using MV=PQ to derive a value for a bitcoin. That is the right way, and maybe the only way, to do it. I'm glad the article at least alluded to the fact that the hard part is figuring out the right numbers to use.

[CryptoBry]

One thing for sure is that people will have different views and therefore sometimes extreme valuation on Bitcoin. Unlike the traditional fiat money, Bitcoin can be a different animal in the first place so that so-called experts are finding a hard time in using different formulas coming up with their guesstimates. In the end, it is the marketplace that will determine the value of Bitcoin and all of these opinions and ideas as to its real value are just noises in the background trying to influence the marketplace to consider their weights on many things. As to its value, I would rather listen to coinmarketcap (a little bit pun intended).

[Slow death]

It took two economists one three-course meal and two bottles of wine to calculate the fair value of one Bitcoin: $200.

basically, they are the greatest geniuses of planet earth, I believe that neither people should be, maybe they are gods that possess a divine wisdom that is that they are aliens that have a superior intelligence or will they be archangels or the wine must have made their head bad? it is not they who decide the value of bitcoin, is the supply and demand that decides. so they are campaigning against bitcoin.

So far, so straightforward. It turns out, however, that when it comes to putting a price on Bitcoin, the same equation can yield many different answers. In September, Dan Davies, an analyst at financial research firm Frontline Analysts Ltd., wrote up a “guesstimate” of Bitcoin’s value that he’d originally conducted in 2014 using—again—the quantity theory of money. He plugged in estimates for each variable and got about $600.

On Dec. 10, Mark Kirker, a high school math teacher in California, published an analysis online using the same equation for the same purpose. He concluded that Bitcoin should be way above then-current levels. He’s since revised the number. Contacted by Bloomberg, he says it could be $15,000.

each one does his own calculation and defines his price, fortunately we have a market with supply and demand and the buyers and sellers are who will decide the price

[Taki]

What if bitcoin cost as much as Satosi spend on it? Like the price of electricity plus something tiny,  so the actual price of bitcoin is just couple of dollars this way. But what makes bitcoin price high as it is today?  I think the reply is obvious - people's interest and all those money that they already put into that.

[gentlemand]

What if bitcoin cost as much as Satosi spend on it? Like the price of electricity plus something tiny,  so the actual price of bitcoin is just couple of dollars this way. But what makes bitcoin price high as it is today?  I think the reply is obvious - people's interest and all those money that they already put into that.

That's how the very first publicly set price was set. It was the cost of the electricity to mine it.

http://newlibertystandard.wikifoundry.com/page/2009+Exchange+Rate

These days traders have taken control so they're controlling the price now, but if it did return to that formula it's possible the price wouldn't be much different than it is now.

[Carlton Banks]

There is no "the price" in a capitalist system, anyone saying this has fundamentally misunderstood capitalism. That's only possible when prices are being fixed.

Doesn't anyone remember when BTC was trading in Zimbabwe nearly 100% higher than exchange prices last year? Or when the prices on BTC-e.com were consistently 5% lower than every other exchange, because it was considered a risky website to trade on?


I'm amazed: subsidised farming and monopoly commodities markets have managed to (essentially) brainwash 99% of the world into believing that there's a "correct" price or an "incorrect" price for goods

[Qartersa]

blomberg

It took two economists one three-course meal and two bottles of wine to calculate the fair value of one Bitcoin: $200.

It took an extra day for them to realize they were one decimal place out: $20, they decided, was the right price for a virtual currency that was worth $1,200 a year ago, flirted with $20,000 in December, and is still around $8,000. Setting aside the fortunes lost on it this year, Bitcoin, by their calculation, is still overvalued, to the tune of about 40,000 percent. The pair named this the Côtes du Rhône theory, after the wine they were drinking.

“It’s how we get our best ideas. It’s the lubricant,” says Savvas Savouri, a partner at a London hedge fund who shared drinking and thinking duties that night with Richard Jackman, professor emeritus at the London School of Economics. Their quest is one shared by the legions of traders, techies, online scribblers, and gamblers and grifters mesmerized by Bitcoin. What’s the value of a cryptocurrency made of code with no country enforcing it, no central bank controlling it, and few places to spend it? Is it $2, $20,000, or $2 million? Can one try to grasp at rational analysis, or is this just the madness of crowds?

Answering this question isn’t easy: Buying Bitcoin won’t net you any cash flows, or any ownership of the blockchain technology underpinning it, or really anything much at all beyond the ability to spend or save it. Maybe that’s why Warren Buffett once said the idea that Bitcoin had “huge intrinsic value” was a “joke”—there’s no earnings potential that can be used to estimate its value. But with $2 billion pumped into cryptocurrency hedge funds last year, there’s a lot of money betting the punchline is something other than zero. If Bitcoin is a currency, and currencies have value, surely some kind of stab—even in the dark—should be made at gauging its worth.

Writing on a tablecloth, Jackman and Savouri turned to the quantity theory of money. Formalized by Irving Fisher in 1911, with origins that go back to Copernicus’s work on the effects of debasing coinage, the theory holds that the price of money is linked to its supply and how often it’s used.

Here’s how it works. By knowing a money’s total supply, its velocity—the rate at which people use each coin—and the amount of goods and services on which it’s spent, you should be able to calculate price. Estimating Bitcoin’s supply at about 15 million coins (it’s currently a bit more), and assuming each one is used an average of about four times a year, led Jackman and Savouri to calculate that 60 million Bitcoin payments were supporting their assumed $1.2 billion worth of total U.S. dollar-denominated purchases. Using the theory popularized by Fisher and his followers, you can—simplifying things somewhat—divide the $1.2 billion by the 60 million Bitcoin payments to get the price of Bitcoin in dollars. That’s $20.

So far, so straightforward. It turns out, however, that when it comes to putting a price on Bitcoin, the same equation can yield many different answers. In September, Dan Davies, an analyst at financial research firm Frontline Analysts Ltd., wrote up a “guesstimate” of Bitcoin’s value that he’d originally conducted in 2014 using—again—the quantity theory of money. He plugged in estimates for each variable and got about $600.

On Dec. 10, Mark Kirker, a high school math teacher in California, published an analysis online using the same equation for the same purpose. He concluded that Bitcoin should be way above then-current levels. He’s since revised the number. Contacted by Bloomberg, he says it could be $15,000.

And who are these people by the way? I do not agree with absolutely everything that has been written here mainly because they are guesses and they have no basis for what they set off as opinion. Firstly, they cannot derive at an accurate conclusion if they only based their calculation on $1,200 taken a year ago, $20,000 during Bitcoin's peak in 2017 and its value as of writing which is at $8,000. Taken all of which, how then did they arrive at $200? Secondly, the write up keeps mentioning on 'estimates'. Like, how are they able to gather these figures claiming to have used scientific formulas yet they only have estimates? It is just so unfathomable.

[Carlton Banks]

how then did they arrive at $200?

Think of it as a bid. If someone else is willing to sell at that price (maybe the Wannacry coins, for instance), then now everyone knows these price scientists economists are buying at $200.

There are bids on website exchanges, right now, at 1$ and $25 thousand.

[imsotiredofmoviereboots]

Oh boy, I want to know what it feels to have a bitcoin valued at $800k.  It is still very far to think that price would happen but it's also totally impossible hearing that someone is saying that bitcoin only costs $20.

[Sher123_]

You cann voting here, if you thins this news is a good to buy BTC  -  https://yeenot.today/catalog/news/81