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Author Topic: A Rational Price For BTC  (Read 365 times)
SapphireSpire
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October 25, 2019, 05:12:21 PM
Last edit: October 30, 2019, 05:32:39 PM by SapphireSpire
 #1

If supply and demand is influenced entirely by idle speculation and whim then
the market price represents anything but the real price. For the price to be real,
the market must derive the price from tangible metrics. Buyers and sellers may
not always agree on what that is exactly but everyone should have an accurate
approximation by using the same or a similar formula.

There are many metrics to Bitcoin but the one that all others depend on is the hash
rate. The security of the blockchain scales directly with the hash rate and so should
the price. A pricing formula can be all kinds of sophisticated but it needs to be simple
enough that anyone can do it in their minds. The initial price of this formula needs to
approximate the current market price to make it easier for everyone to adopt.

According to https://www.coinwarz.com/network-hashrate-charts/bitcoin-network-hashrate-chart,
the last recorded hash rate, as of this writing, was 97ehs (exa-hashes per second).
We can generalize it to 100ehs. The price has been moving around $10k so I'll use
these numbers to find a constant that will make it easy to derive the price from the
hash rate.

100 ehs / $10k = $0.01 <--- constant

What's the price of BTC? Simple: (current hash rate ehs / $0.01) = (97 ehs / $0.01) = $9700

Now the price will scale with the hash rate:

    ...

    at 1ehs, 1 BTC = $100

    at 10ehs, 1 BTC = $1k

    at 100ehs, 1 BTC = $10k

    at 1000ehs, 1 BTC = $100k

    ...

When adoption really hits, nobody will be trading in whole coins.
We will be trading in Satoshi.
21 million bitcoin * 10 million Satoshi per coin = 210 trillion Satoshi.
At $10k per BTC, you can buy 10k Satoshi for $1. HODL!
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October 25, 2019, 05:41:33 PM
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 #2

Every asset price is determined not only by fundamentals, balance of the company, or whatever metric. The price is determined mostly by investors expectations about the future.

https://www.investopedia.com/terms/m/marketsentiment.asp

For example, even if you metric is correct, but there is a strong felling that energy prices will go down, or that bitcoin will be banned in US, the price will fall.

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October 25, 2019, 05:57:52 PM
 #3

your entire argument is flawed because security is not something that has levels (at least not in the way you are describing it). something is either secure or it is not. in case of bitcoin, it is either expensive enough to attack bitcoin which makes it secure or it is not which makes it insecure.

not to mention that in the end the only deciding factor is the demand for bitcoin. it can continue to have the same hashrate and as long as the demand continues rising the price will too. and vice versa, meaning if demand decreased, even if the hashrate remains the same, price will fall.

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October 25, 2019, 05:59:25 PM
 #4

Personally, I don't think it has any relationship with the hash rate, I think that Bitcoin's value is mostly tied to its utility (or its potential utility at the moment).

Because Bitcoin doesn't have a huge amount of utility right now, and still more complicated than it should be to use, its price is suffering.

After all, there's less than half a bitcoin for every millionaire in the world right now. If it reaches peak saturation, it could be worth around $2 million each.

However, that's definitely quite a way off.

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October 25, 2019, 06:01:50 PM
 #5

What should the price of BTC actually be? Is there some tangible metric that we can identify as the basis of Bitcoin's value? It seems to me that the only tangible value of bitcoin is it's security- the fact that it can't easily be counterfeited. That's what makes it a reliable ledger of accountability. The security of bitcoin is directly tied to the hash rate of the Bitcoin network so that's what should determine the price, very precisely.

We can set the price to any hash rate but, in order to maximize the adoption of this pricing scheme, we need to set a price that is close to the current market price. According to blockchain.com, the last recorded hash rate was 90M TH/s and before that it was 125M TH/s. We can generalize it to 100M TH/s. The price has also moved around $10k so I'll use that.

(100M TH/s)/($10k) = 10k TH/s - and this becomes our standard unit. Now the price is directly tied to the hash rate.

What's the price of BTC? Simple- (current hash rate divided by 10k TH/s) * $1.

    ...

    at 1M TH/s, 1 BTC = $100

    at 10M TH/s, 1 BTC = $1k

    at 100M TH/s, 1 BTC = $10k

    at 1B TH/s, 1 BTC = $100k

    ...

Not only is this a fair and stable pricing scheme, it encourages mining, which increases the hash rate, which increases the price. And that's what we want because it will maximize security.
Thing is that even if we consider bitcoin as a security whose value can be measured then also there are a number of things that would effect it's value than merely the hash rate. Which are for example the buzz and demand created around in the market which could be channelized by Economic and political Situation. In case there is a Economic crash in fiat bitcoin could possibly become more popular which could lead to increased prices. Also last I heard someone even tried to value btc based on stock to flow approach but that would only work is an equivalent demand is generated.
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October 25, 2019, 06:26:35 PM
 #6

You can't set the price. The price is determined in the market by supply and demand. As for coming up with some formula for determining its value, good luck with that.

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October 25, 2019, 06:32:25 PM
 #7

You can't set the price. The price is determined in the market by supply and demand. As for coming up with some formula for determining its value, good luck with that.
If the price of bitcoin can be set, then it is centralized asset as other investment schemes. The limited supply to the increasing demand is the one that generates value for each coin. It is impossible to make some formula and make bitcoin get stick to it, such an act will ruin the growth as well the unique features of bitcoin.

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SapphireSpire
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October 25, 2019, 06:41:06 PM
 #8

Every asset price is determined not only by fundamentals, balance of the company, or whatever metric. The price is determined mostly by investors expectations about the future.

https://www.investopedia.com/terms/m/marketsentiment.asp

For example, even if you metric is correct, but there is a strong felling that energy prices will go down, or that bitcoin will be banned in US, the price will fall.
The metric is necessary to establish a rational base price. Any deviation from the base price is irrational and shouldn't dominate the market.
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October 25, 2019, 06:41:15 PM
 #9

No it is practically not possible. If there is no demand then the price will remain stagnent. The price of Bitcoin has to be determined by demand and supply. With your calculation the price will never rise to the level everyone is expecting it to.

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October 25, 2019, 06:44:56 PM
 #10

No it is practically not possible. If there is no demand then the price will remain stagnent. The price of Bitcoin has to be determined by demand and supply. With your calculation the price will never rise to the level everyone is expecting it to.
I don't care what the supply or demand is. I only care about how secure my money is and that is determined directly by the hash rate. So the 'real' price should follow the hash rate. Whatever else people are thinking is all smoke and mysticism, and con artistry.
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October 25, 2019, 07:32:07 PM
Last edit: October 25, 2019, 07:42:31 PM by odolvlobo
 #11

I only care about how secure my money is and that is determined directly by the hash rate. So the 'real' price should follow the hash rate. Whatever else people are thinking is all smoke and mysticism, and con artistry.

You may care only about the security, but someone else might care about the convenience, and someone else might care about the privacy, etc. Different people value different things. Each person will determine the value of a bitcoin to them and will buy or sell based on that. A market takes all different those values and aggregates them into a single price.

The hash rate doesn't ultimately determine the security. The security is dependent on the cost of an attack, and (for any mining-based attack) the cost is ultimately determined by the value of the block reward.

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October 25, 2019, 07:50:24 PM
 #12

most new cryptocurrency innovators like those in ethereum, think they could exploit those weakness of bitcoin especially with its lack of utility and more to produce cryptocurrency with better use case but the case had been difference. Some of these use cases of the new coin cant produce a sustainable market demand. e.g the ICO crowdfund dumps the value or price of ethereum whenever they want to convert into fiat. However, bitcoin promised nothing but remains the indomitable

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October 25, 2019, 08:03:37 PM
 #13

The metric is necessary to establish a rational base price. Any deviation from the base price is irrational and shouldn't dominate the market.

I don't know where you heard about this, but that´s not how the market works. Market price works with expectations, not with "rationality"
Also, you can check this famous quote from John Maynard Keynes

"Markets can remain irrational a lot longer than you and I can remain solvent."



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October 25, 2019, 08:17:26 PM
 #14

What should the price of BTC actually be? Is there some tangible metric that we can identify as the basis of Bitcoin's value? It seems to me that the only tangible value of bitcoin is it's security- the fact that it can't easily be counterfeited. That's what makes it a reliable ledger of accountability. The security of bitcoin is directly tied to the hash rate of the Bitcoin network so that's what should determine the price, very precisely.

We can set the price to any hash rate but, in order to maximize the adoption of this pricing scheme, we need to set a price that is close to the current market price. According to blockchain.com, the last recorded hash rate was 90M TH/s and before that it was 125M TH/s. We can generalize it to 100M TH/s. The price has also moved around $10k so I'll use that.

(100M TH/s)/($10k) = 10k TH/s - and this becomes our standard unit. Now the price is directly tied to the hash rate.

What's the price of BTC? Simple- (current hash rate divided by 10k TH/s) * $1.

    ...

    at 1M TH/s, 1 BTC = $100

    at 10M TH/s, 1 BTC = $1k

    at 100M TH/s, 1 BTC = $10k

    at 1B TH/s, 1 BTC = $100k

    ...

Not only is this a fair and stable pricing scheme, it encourages mining, which increases the hash rate, which increases the price. And that's what we want because it will maximize security.


No its not related. Bitcoin cannot control things outside Bitcoin, certainly not USD, you cannot code anything like that, and you cannot enforce it either it would be another pegging system. Pegging is bad, it depends on people. Bitcoin is about being trust-less, not trust someone will keep his/her promise...

The best price bitcoin ever has, is whatever the market decides. The beauty is in the freedom it fluctuates within, with nothing outside attempting to force any artificial price only to have the thing blow up later.

The only good intervention, is no intervention. You have to change your mindset, fluctuation is good, learn to live with it, stop trying to oppose it, embrace it and love the freedom it entails. It means it will never blow up, like "stablecoins" and fiats do.

Oh but you have never lived a crash of your fiat in your lifetime, the people in charge never let it blow up... Doesn't mean it can't. This is the fundamental problem, trust in those people, trust they would never do what things like Maduro and Mugabe and several many other idiots in history did, back to the ancient Romans and Greeks...

Bitcoin: In Code We Trust.


Are you worried about something? That mining will decline? Cast your doubts aside, mining WILL decline, its designed like that. Find another source of income now that you know it.

Also you are wrong thinking your money becomes less secure with less mining, the less mining is a result of it becoming too expensive, which is what makes the thing secure to attacks in the first place, that it is too expensive to pull out a 51% attack, and that is not changing. It is the very reason, in fact, that mining will decline, because its too expensive to keep it in such large scale anymore.

Its not on/off either, mining will slowly diminish at the same time the asics are so efficient the hashrate is the highest ever, even with reducing mining, and large operations closing, and the equipment to do it so expensive. And by the time most commercial miners are gone, those that remain are plenty (efficient) enough to keep things secure.

So you are indeed, wrong.



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October 25, 2019, 08:22:40 PM
 #15

It seems good times are ahead. Recently Chinese president said to his countrymen to seize the opportunities afforded by blockchain. On 2017, china central bank banned mainland based exchanges to stop their operation, recent comment of Chinese president actually adds positive vibes. Price climbs 12% overnight. BTC will bloom as it is the key player in crypto industry

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October 25, 2019, 08:28:08 PM
 #16

It seems good times are ahead. Recently Chinese president said to his countrymen to seize the opportunities afforded by blockchain. On 2017, china central bank banned mainland based exchanges to stop their operation, recent comment of Chinese president actually adds positive vibes. Price climbs 12% overnight. BTC will bloom as it is the key player in crypto industry

And the halving. But its bad when they mention blockchain but not Bitcoin. Originally the Chinese politicians were angry at ICOs but ended kicking exchanges, they still have to get it.

If they bring yet another centralized State backed token, they still fail to grasp the fundamental reason why Bitcoin is still the best. Sure anyone can use "blockchain" for little side projects, but it is Bitcoin that is revolutionizing the world, not blockchain.



.
.BIG WINNER!.
[15.00000000 BTC]


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October 25, 2019, 08:54:40 PM
 #17

Even with it accountability and security features, the price of Bitcoin cannot be easily determined like that.
This is just one thing no one can propose and it becomes possible.
This quality of it makes exploitation impossible; something very different from fiat.
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October 25, 2019, 09:33:49 PM
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What should the price of BTC actually be? Is there some tangible metric that we can identify as the basis of Bitcoin's value? It seems to me that the only tangible value of bitcoin is it's security- the fact that it can't easily be counterfeited. That's what makes it a reliable ledger of accountability. The security of bitcoin is directly tied to the hash rate of the Bitcoin network so that's what should determine the price, very precisely.

We can set the price to any hash rate but, in order to maximize the adoption of this pricing scheme, we need to set a price that is close to the current market price. According to blockchain.com, the last recorded hash rate was 90M TH/s and before that it was 125M TH/s. We can generalize it to 100M TH/s. The price has also moved around $10k so I'll use that.

(100M TH/s)/($10k) = 10k TH/s - and this becomes our standard unit. Now the price is directly tied to the hash rate.

What's the price of BTC? Simple- (current hash rate divided by 10k TH/s) * $1.

    ...

    at 1M TH/s, 1 BTC = $100

    at 10M TH/s, 1 BTC = $1k

    at 100M TH/s, 1 BTC = $10k

    at 1B TH/s, 1 BTC = $100k

    ...

Not only is this a fair and stable pricing scheme, it encourages mining, which increases the hash rate, which increases the price. And that's what we want because it will maximize security.

In terms of price determination of bitcoin and cryptocurrencies in general, the hash rate has little or no influence on the market value of Bitcoin and cryptocurrencies. Just like any other product in the financial market, the rate of demand for Bitcoin is the main determinant of the market price of it. Once there is a decline in the rate at which demand the use of Bitcoin or its supply exceeds more than the demand, there will be a drop in the market value of Bitcoin. With this, the hash rate has nothing to the market price of Bitcoin.

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October 25, 2019, 09:57:35 PM
 #19

Toady we have nice move price Bitcoin! How do you feel it?
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October 25, 2019, 10:32:50 PM
 #20

It is a very good proposal and would give a more stable price, the problem is that currently the price is fixed based on speculation, there is a fight between bulls and bears in investments and thus the price is changing and of course other external factors as opinions of politicians, businessmen, new applications, scalability, etc.
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