The price increases by way of speculation.
You two clearly don't know what fundamentals mean. And surely you wouldn't even believe me if I explained to you so it's better you find out in your own.
If you think think there is a fundamental value then you can tell me what it is from a DCF analysis. Good luck with that since speculative assets have no cash flow. Finance 101
Bitcoin having the (only) pretention of being a monetary asset, its fundamental is given by the monetary formula: P x Q = M x V.
But better: B = 1/P (the value of a bitcoin), and T = 1/V (the harmonic average of holding times).
M is the amount of bitcoins existing (ultimately 20 million).
If Q value of goods is traded against bitcoin, and if the average holding time between acquiring bitcoin and spending it for goods Q, is T, then the fundamental value of a bitcoin is given by:
B = Q x T / M
You can also say that the fundamental market cap of bitcoin is Q x T.
This is a fundamental, because as long as people want to buy value Q with it, and hold on average the coins during a time T, then the value of the market cap CANNOT be lower than Q x T.
Imagine that people are buying for the equivalent of $ 100 billion on the (black ?) market per year, and they are holding the coins for about 14 days (1/25 of a year, say), then the market cap of bitcoin must be about $4 billion. Simply because this is the value the coins need to have to be immobilized during 14 days, and being able to buy $100 billion worth.
This is why the fundamental of bitcoin is merchant (and customer) adoption.
But of course, the current market value of bitcoin will include the speculative part of the FUTURE fundamental. Currently, I don't think that bitcoin has as a monetary fundamental (as defined above) its current price. I would even think it to be in the double digit range rather. The current price reflects the speculation on a future higher fundamental of course. I think the current decline is simply due to people finally realizing that that future higher fundamental, if ever, is not for the next few years.
The high end of the future fundamental would be if bitcoin replaced all of fiat in the world, and would be used in a similar way as fiat now (that is, similar holding times). In that ultimate case, a coin would go for about $ 3 millon (value today).
If you expect that to happen 150 years from now, you can apply your discounted cash flow technique. I don't know how much you'll find for the price right now.
If you expect bitcoin to be limited to a market of a few hundred billion dollars in the next decades, then everything depends on the holding times. Those could be really short if people just use them as a transaction between fiat holdings, which would put the holding times to a few hours only. In that case, you could expect the market cap to be divided by about 100. and end up in the few tens of millions up to a few hundred millions, which would bring us indeed back to a coin price in the double digits.
