Modeling Bitcoin's Value with Scarcity

[Lucius]

This interesting article attempts to determine value of Bitcoin based on scarcity and stock-to-flow (SF) ratio ("Stock is the size of the existing stockpiles or reserves. Flow is the yearly production. Instead of SF, people also use supply growth rate (flow/stock). Note that SF = 1 / supply growth rate.")

For instance gold is have SF of 62, which would mean that by today mining we would need 62 years to mine amount of gold we have today. Silver is have only SF 22, and Bitcoin is have 25 SF so it is between silver and gold which tells us that it has value. This value should go up if we take into account that scarcity + SF makes that volume is going up.

This research is also focusing on halvings, and next halving should give SF 50 to Bitcoin, and prediction on price is over $50 000 with marketcap close or over $1 trillion.

Although the article is quite technical in some parts, it's worth reading. Just a note that date of article is March 22.

https://medium.com/@100trillionUSD/modeling-bitcoins-value-with-scarcity-91fa0fc03e25

[hatshepsut93]

In a few decades Bitcoin's SF value will explode to thousands and millions of years, because unlike with metals, Bitcoin's supply is strictly finite. Obviously Bitcoin's price can't reach dozens or hundreds of millions, like this formula will eventually show, so the real question is, when will this calculation stop being right? In 5 years? In 1 year? In 20 years? That's really the most important question in Bitcoin speculation - how long will we keep having these cycles that align with halvenings? If you think about it, halvenings become less important, because emission rate slows down, so we can expect the price growth to also slow down.

[ichai]

 This is one of the great ideas for the scarcity of Bitcoin in the future. But in order to do this, I believe it will take a lot of time and this news needs to be spread to investors who have a lot of money and influence such as Craigh Wright for example. Maybe he could help this idea work.

[Febo]

Modeling Bitcoin's Value with Scarcity

You cant get value out of emission inflation. Emission inflation is just one of the factors that adds to supply and pushes price down. When emission inflation decreases, so stock to flow rise then pressure to push price down decreases.  That is all. There are many more factors that determinate the price.

[bitmover]

https://medium.com/@100trillionUSD/modeling-bitcoins-value-with-scarcity-91fa0fc03e25
People ask me where all the money needed for $1trn bitcoin market value would come from? My answer: silver, gold, countries with negative interest rate (Europe, Japan, US soon)

I agree with this. There are countries with -0.7% interest rates, so they charge you to keep your money.

This is certainly a problem and millionaires over the world (as well as institutional investor) are seeking for alternatives to stock market, like gold , silver and Bitcoin.

[Lucius]

I agree that this model is not something what can show us with certainty direction in which Bitcoin is going, especially since it makes comparisons to gold and silver. They don't have limited supply and halvings, which is a big advantage for Bitcoin. But given the frequent comparisons of gold and Bitcoin, I find it personally interesting to read such analysis, although they are mostly hypothetical.

Still, I agree with the premise that after next halving it is not unrealistic to expect that value of Bitcoin will reach a price of $50 000. Amount of money needed for that is in fact very small if viewed globally, only about $800 billion - for example US budget for 2020 should be around $4.7 trillion.

[Harlot]

This would be just taking into account the supply of Bitcoin in the future would be but the article didn't point out anything about its future supply. Even if we reach to the “scarcity” of gold we don't know yet the demand would be in the future. Other factors such as regulation and adoption should be point out as well as this is what will complete the formula if its safe to say that BTC will reach 55k in the future. I'm not hating on the article but it simply avoids those facts about the matter.

[BitHodler]

Still, I agree with the premise that after next halving it is not unrealistic to expect that value of Bitcoin will reach a price of $50 000. Amount of money needed for that is in fact very small if viewed globally, only about $800 billion - for example US budget for 2020 should be around $4.7 trillion.

It's not unrealistic if we look back at what happened in the past, but we shouldn't discard the possibility of not getting there. People always assume that there is so much latent demand, but that's only based on the historical trend.

My long term target is $100k for Bitcoin, but I'm perfectly fine conceding a counter argument as to why we won't be getting there. Bitcoin might be small in the grand scheme of things, but that still doesn't mean it has to or will grow further.

I at first was wondering why some Bitcoiners were cashing out around the $20k mark, but that's more than understandable where they come from. You have a $20k price to sell at, so you take it before you never see it again.

I expect more old hands to unload the closer we come the all time high. Realistically speaking, what's there to lose out on? It's not the same as how things were when people were selling around the $100 mark to heavily regret it years later.

[1Referee]

Even if we reach to the “scarcity” of gold we don't know yet the demand would be in the future.

Gold being scarce is very subjective and definitely a common point of discussion. By today's standards there may only be x amount of Gold available to mine profitably or just below that, but that doesn't mean we don't get to see new technologies making it easier to mine and detect Gold. Bitcoin is factually scarce, and we actually know how many coins haven been minted last week, month, year.

I do however agree that there is no way to figure out beforehand what the demand will be in the future, but in Bitcoin's case, the fundamentals are improving, the regulatory framework in the US is taking shape, we're at a point where US regulators have already approved financial instruments, and so fort. The trajectory towards a $1 trillion market cap is promising.

[fillippone]

Hello.
I started a thread on the very same topic:

Stock To Flow Model: Modeling Bitcoin's Value with Scarcity

I am sorry I opened a new thread instead of writing here, but when I searched the forum for the topic, nothing popped out.

I am trying to discuss all the misconceptions and doubts on the model, hope you find interesting and you all can join the conversation.