Hi there, I just released a longer research piece on the value of Bitcoin. I thought it would be great to share the report here on Bitcointalk and hopefully get some feedback from the community:
Intro: Various crypto valuation approaches have been pioneered over the last year by exponents such as Chris Burniske, Alex Evans, Dmitry Kalichkin, and others. Since I'm highly interested in evaluating cryptos (i.e. finding a "fair" price based on fundamentals / utility value) I started studying these different valuation methods to refine and professionalize them. My goal is to advance the practices how we value this new asset class and offer a more grounded view on cryptoasset prices.
Below you find a summary of my research that highlights the key results of my analysis. The full research can be downloaded here, if you want to dive in the details:
https://blocknovum.com/wp-content/uploads/2018/08/BlockNovum_Investment-Research_Bitcoin-August2018.pdfKey Results: - The fundamental analysis based on Bitcoin's current & future utility values yields a present value of $8,000 for August 2018 (Discount rate 30%).
- Hence, I see BTC still as a Buy with a target price of $8,000. Investors should aim to buy Bitcoin below this target price and account for their preferred margin of safety.
- Bitcoin serves several promising use cases, which gives it fundamental value. In particular, the store of value use case, where Bitcoin serves as digital gold, offers enormous market potential with an estimated market size of $2.6 trillion served by BTC in 2028.
- A qualitative assessment framework and ratio analysis (NVT, P/M, NVM) confirms Bitcoin’s strong and continuously growing fundamentals and further supports the price target. However, another short-term price correction is a possibility if fundamental on-chain activity does not develop as expected.
Research Method: The research is based on an extensive
fundamental valuation model of Bitcoin. The value per BTC is based on the expected utility values that Bitcoin receives through enabling certain use cases. Simply speaking, these utility values are calculated by modeling supply and demand of Bitcoin and calculating the size of Bitcoin's monetary base through the "equation of exchange". Hence, Bitcoin is modeled as its own economy where BTC is used as its native currency to spend for receiving the utility/services of various use cases (e.g. digital store of value, enabling fast payments worldwide, or the ability to convert Fiat to another altcoin via BTC). I see mainly the "store of value" and "gateway to other cryptoassets" as the leading use cases for Bitcoin.
My financial model then calculates the present value of a Bitcoin token, by discounting these future utility value inherent to one BTC at a discount rate of 30%. Consequently, the identified present value then helps decide if Bitcoin is under- or overvalued at today’s price level.
In addition, alternative valuation approaches are illustrated, such as cost-based valuation or ratio-analysis, to achieve a holistic valuation perspective and to verify the $8,000 valuation result. Finally, I also analyzed Bitcoin according to a set of key qualitative assessment factors. The complete analysis is then synthesized into a recommendation and investment profile.
Summary of Bitcoin Investment Report: According to my valuation I expect the price of Bitcoin to have a
current value of $8,000 per BTC. This price is justified by the present values of the underlying future utility values of modeled Bitcoin use cases. The
store of value (“digital gold”) use case, along with the usage as a
gateway to other cryptoassets, promises a substantial addressable market size for Bitcoin. The size of the market served by BTC, for these two use cases alone, is estimated to be over $2.8 trillion in 2028. Further markets where Bitcoin acts as a transfer facilitator (though at a smaller scale) are digital payments, remittances, and banking of the unbanked.
Bitcoin’s characteristics as a fully digital, safe, decentralized, scarce and autonomous currency free from any government control makes it a perfect fit as a digital store of value asset with appreciation potential. Furthermore, Bitcoin’s ability to reduce transaction costs and simultaneously increase speed through technological improvements (e.g. Lightning Network) makes its usage highly attractive in the other aforementioned industries.
It is also estimated that
66% of today’s present value of $8,000 is based on current utility value and
34% accounts for speculation on future utility value.
An alternative approach,
cost-based valuation, predicts a price range of $7,440 and $8,670 per BTC, validating the fundamental valuation result. The ratio analysis — consisting of Network Value to Transactions Ratio (NVT), Price to Metcalfe Ratio (P/M), and Network Value to Metcalfe Ratio (NVM) indicates that BTC is currently largely supported by fundamentals. However, short-term corrections are a possibility if fundamentals don’t develop as expected or market sentiment stays bearish. For example, NVM shows signs of a temporary overvaluation of BTC, which might lead cautious investors to delay investing for a few months.
Nevertheless, the
qualitative assessment confirms BTC’s strong positioning in six assessment categories, which supports its leading role as a “blue chip” token in the cryptoasset space. Recent developments such as the announcement of Bakkt, a jointly launched company by Starbucks, NYSE parent Intercontinental Exchange, and Microsoft to create an open and regulated, global ecosystem for digital assets, highlight Bitcoin’s perceived potential among leading corporations.
Unfortunately, I could not post any images here of the valuation model or the recommendation page of the report. If you are interested in learning more about my valuation methodology and the details of my analysis, please have a look at the full research:
https://blocknovum.com/wp-content/uploads/2018/08/BlockNovum_Investment-Research_Bitcoin-August2018.pdf I am posting this research as part of a small startup (BlockNovum) that I launched a few months ago to value cryptoasset tokens and blockchain startups. I am planning to launch more public research like this in the upcoming months, where I value cryptoassets. I'm also open to suggestions, which token to value next.
If you are interested to learn more, have a look at my website:
https://blocknovum.com/Thanks for reading. I hope this is useful to you. I am also happy about any kind of feedback.
Disclaimer:This article does not constitute investment advice. Further disclosures and risks related to cryptoasset investing are listed in the report. I have invested in Bitcoin and several other cryptoassets.
