Bitcoin’s price has been showing signs of growth recently. The $20,000 mark is still far off, although the green color of the digital asset is beginning to calm crypto enthusiasts. How fair is the current price of Bitcoin and how much should BTC truly cost at the end of 2018: $0 (because the bubble has burst), $20, $600, $4,000 or more than $20,000?
Whoever Giveth More
At the time of wring, $3,777 was the exact price of Bitcoin, according to Coinmarketcap. But many experts and analysts of the crypto industry do not agree with such a low market valuation market of the first digital asset. For example, Tom Lee, co-founder of Fundstrat Global Advisors, who is well known for his “bullish optimism”, and regularly shares his predictions about market development, believes that Bitcoin is undervalued.
“In essence, Bitcoin’s fair value is between $13,800 and $14,800. But because of the meteoric rally last year the meltdown in the macroeconomic climate and treasury sales during initial coin offerings, the price of Bitcoin is low,” as Lee explained his point of view in a comment for Bloomberg.
Lee’s benchmark in evaluating Bitcoin is based on the ever increasing number of digital wallets and their active addresses, as well as on the high interest in cryptocurrencies. To demonstrate and justify the current cost of BTC, one needs to reduce user demand from 50 million to 17 user wallets, assures Lee.
$20, this is the true price of Bitcoin according to economists Savvas Savuri and Richard Jackman. During a one three-course meal with two bottles of wine the analysts calculated the cost of Bitcoin same way they would with a fiat currency — by using quantity theory of money, which was formalized by Irving Fisher in 1911. Previously we covered the topic of mathematical evaluation of crypto assets and explained key principles behind MV = PQ equation in detail. Without proper transformations and adaptation to the specifics of digital assets, the classical formula cannot be used, since it does not take into account the true nature of crypto coins. Thus errors in calculations are to be expected.
This was also proved by Dan Davies from Frontline Analysts, who used other data inputs in the MV = PQ equation, which were different from those of Savuri and Jackman. In Davis’ case the fair value of Bitcoin was at $600, as his calculations included demand from the participants of the shadow market, an indicator that was not taken into account by economists Savuri and Jackman.
On December 17th famous crypto enthusiast and analyst Willy Woo wondered what would it take to calculate real value of Bitcoin and launched a Twitter thread on this issue. Based on the classic Fisher formula, Woo prepared his own quantitative investment theory where he classified economic values into three types: U for utility volume, I for investment, and S for speculation.
Then Woo compared metrics for BTC and fiat money and derived his combined formula for the quantitative investment theory. Source.
A popular blogger and analyst from the top 10, as ranked by Insider magazine, Ian Balina, during his June trip to Moscow exclusively told DeCenter that in his opinion, the real cost of Bitcoin is underestimated and can be much higher.
“Let's look at the numbers for a better understanding of all this buzz around Bitcoin and its price. Back in 2015, BTC demonstrated an impressive growth of 20%. However, by 2016 Bitcoin gained another 120%, resulting in a sharo price increase going from $400 to $1200. Given this dynamic and the community’s desire to develop the industry, Bitcoin can actually cost more than $15,000. This price will be acceptable,” concluded Ian Balin.
Trader Anatoly Radchenko at the Crypto Event conference RIW said that Bitcoin will cost more than it does now due to a high demand, but does not know the real value of the digital coin "and cannot know it." All the low rates were caused by users, who treated cryptocurrencies as classic assets due to the lack of a clear calculation formula.
“There is no reliable data. At each exchange the cost will be different. For example, false news influence people's attitudes towards the value of an asset, but they do not really affect the price, because no one knows the real data. Rating agencies and their listings can be bought. These companies don't understand anything either,” says Radchenko.
All of this results in a simple fact that the fair value of Bitcoin cannot be calculated. After all, at this stage a single standardized formula that would fully describe and take into account the complex structure of a digital coin does not exist.
Market Manipulation And The Establishment of a Monopoly
Theoretical calculations that try to evaluate the real price of Bitcoin by using Fisher equation are misleading and confuse many analysts in the crypto community, meanwhile many users express their growing doubts about the decentralized nature of the crypto market and its indicators. Crypto enthusiasts believe that the true price of Bitcoin is not as real as it could be.
In the Telegram chat rooms, where traders and users interested in cryptocurrencies discuss exchange rates, the theory of the Digital Currency Group (DCG) monopoly, which specializes in the digital currency market, is gaining popularity. According to this theory a venture capital company under the leadership of the executive director Barry Silbert has varying degrees of influence over Ripple, Zcash, Civic as well as other cryptocurrency exchanges, manufacturers of crypto equipment, and many other companies.
According to Qoin Telegram channel, the DCG is nearing a monopoly status on the cryptocurrency market. Seems like Mastercard and Nasdaq are also in cahoots. Look at the infographics more closely. Source.
It is worth noting that Barry Silbert published on his Twitter page a series of short and mysterious tweets, that revealed the true power of words on the cryptocurrency industry. On Friday, December 14, Silbert wrote a message stating that the weekend promises to be interesting. Crypto enthusiasts were inspired by this message and tried to understand the true meaning of his words. The rate of Bitcoin, however, continued to fall from December 15th to 16th.
But the reasons behind the “conspiracy theory” and “the desire of whales to play their game,” as crypto users around the world often write in various chat rooms, are not truly justified. Only actual impact, such as the Digital Currency Group influencing other companies, can really affect the real value of Bitcoin. For a classical economy with a free market, the calculation of an asset is not related to the actions of only one company.
In addition, Bitcoin indicators, which are regularly and quickly updated, cannot guarantee the real calculation of the value of the coin. After all, the selection of indicators that will affect the results in various formulas will be unique for each price analysis. At the moment, the crypto community needs to determine the vector of research and concepts that will describe the essence of Bitcoin.
What Bitcoin will become in the future is still unclear. One thing is clear, though: there is demand for cryptocurrencies and their integration into real life. The real and fair estimation of Bitcoin is based on various factors that must be considered when trying to calculate the fair value of the first digital coin.