Neosify - Buy, Stake & Earn Crypto
Neosify - Buy, Stake & Earn Crypto
Neosify - Buy, Stake & Earn Crypto

Compelling Thought Experiment on How To Value Bitcoin - CDS

Though we always avoid emphasizing any one person or even entity for that matter, like anyone else perhaps we do value the views and content from certain folks a lot more than others.  Peter Thiel and Matt Kratter come to mind, as does Greg Foss.  Greg has some very intriguing insight on how to peg market value to Bitcoin or at least present a framework for doing so.  Before diving in, here are some other pieces published here to include one highlighting Mr. Foss previously:

Bond Trader Pegs Bitcoin At $20 Million Per Coin

Lightning Network Adoption and Traction

When Will Bitcoin Enter A New Bull Market

At the risk of speaking for Mr. Foss - our interpretation of his approach and analysis in this thought adventure centers around the following:

- Bitcoin can represent insurance against the collapse of the financial system in effect via CDS (Credit Default Swaps)

- CDS pricing and trading action is reflective of the health of the fiat currency itself - i.e. U.S. CDS shows the price to insure against UST default which intuitively is the default of the fiat itself

- at the end of the day Bitcoin can be viewed as a giant insurance policy against the debasement and ultimate collapse of all global fiat in the form of a monstrous CDS on the whole enchilada

We agree conceptually and are open to other valuation methods as well to be used in conjunction with the one presented here. 

From there Mr. Foss annualized the 5yr CDS price (only contracts quoted) and then multiplied that by 20 to project the cost of buying a 20yr CDS (given the longer time period to reflect the enormity and complexity of the issue and system as a whole).  This is a projection and assessment by Mr. Foss.  20yr CDS do not exist and are not traded just to be clear. 

Foss then argues that you then convert today's 5yr CDS price into a 20yr CDS price.  This results in some amount of basis points.  Multiply those basis points by the total amount of global liabilities (or do so for just one nation) and you have a projected market value for Bitcoin

The graph below shows the current outlook strictly looking at the United States:

bitcoin and credit default swaps

The exact numbers fluctuate by the minute, so don't get too caught up in that.  Suffice to say, given current price ranges for U.S. CDS 5yr, Mr. Foss feels based on that alone Bitcoin is worth about $150,000/coin.  Given it did in fact trade as high as $69K just 12 years or so after conception, frankly this doesn't even seem like a stretch to us. 

Using this, you can today buy BTC at an 85%ish discount to its implied CDS price - AND you get coverage for the rest of the world (outside the U.S.) for free

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davidgyoung Verified Member

BTC since 2013. Investor. Entrepreneur. Always looking to learn and develop.

Alternative Investing
Alternative Investing

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