Welcome to part 2 of my Bitcoin story.
Value of Bitcoin is fairly difficult to measure because there is not fundamental value. Experts are keep arguing that Bitcoin is just an illusion.
Because there is no any back up assets to support Bitcoin or any financial statement that back up the value of Bitcoin, its value is simply ZERO.
However, the entire value of Bitcoin is nothing but trust that anonymously users are continue buying and supporting its values. You and me and others are keep the Bitcoin value exist and continue to exist in the future.
Simply trust may not sufficient to convince people that Bitcoin is the future so there are ways that smart people figure out how to access the value.
There are many resources that demonstrates how to calculate the Bitcoin value but I will show 2 methods that I think it is very useful.
Method #1: Quantity Theory of Money (QTM)
QTM is the one of the oldest monetary economics theory that invested around 1517 by Polish mathematician Nicolaus Copernicus.
The price level of goods and services is directly proportional to the amount of money in circulation.
MV = PT
Where:
- M is the money supply
- V is the velocity of money in a given time period
- P is the price level
- T is the transaction volume in a given time period
There is really nothing new here besides converts $1 worth of current to Bitcoin price P into M*V/T or Bitcoin Value = 1/P = T/(M*V)
Once you gather all information from here and here, you got:
T = 6.6 billion * 365 days
M = 18.58 million
V = 5 (assumption similar of moving like US Dollars without COVID impact which is factor of 5 from 2015 to 2019 )
Bitcoin Value = $25,931
However, I will not rely too much on this calculation simply because:
- assumption is too arbitrary
- formula does not describe dynamic of digital currency but a static snapshot of the value
Method #2: Metcalfe's Law (Tom Lee's Method)
Tom Lee is FundStrat Global Advisor co-founder and he explains his method in this article in 2017.
Bitcoin Value = Numbers of Users^2 x Average Transaction Value
Numbers of Users = 300k per day
Average Transaction Value =161k per day
Bitcoin Value = $26,256
Here is the paper back the theory and MIT article confirm the theory.
My opinion is that this method catches the essential communication features that Bitcoin or digital currencies exchange. I would use this method to verify the current value of Bitcoin.
Maybe you have known or heard about both methods but it can give you some ideas about where the Bitcoin is heading and what you should know before you purchase any cryptocurrencies.
Happy Learning.
