I'm wondering if we can come up with good estimates of Bitcoin's value based on the currency's velocity.
I'm guessing that the velocity of Bitcoin could increase by a lot. So I'm interested in how high this could go.
For instance, in the past 24 hours there were 460,000 btc in transactions (according to bitcoinwatch). There was 210,000 traded on the exchanges which leaves 250,000 of other transactions.
If we assumed that 80% of these were people using bitcoins to buy real goods (as opposed to just shuffling them around) - then the bitcoin market economy was around 200,000 btc x $2.75 = $550,000/day.
That seems high. Does anyone have a good estimate of what the daily market value of btc trade is?
These 200k btc are 1/37th of the outstanding (7.5 million) bitcoins. This means that a bitcoin circulates once (roughly) every 37 days.
If it is possible for bitcoins to double in velocity, then it is possible to maintain the same size bitcoin market economy while halving the price of them. I think this is reasonable. How far can this velocity go? In practice, if people wanted to use them just as an exchange mechanism, I could see merchants converting their bitcoin to another currency on a daily basis (or even hourly if it gets automated). In this case the velocity could go as much as 37 times faster than the current speed - and btc prices could fall to $0.08.
In practice, I don't think velocity will increase by that much - but I could see it going up by a factor of three to five.