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Bitcoin intrinsic value

By PatronMaster | You_crypto | 18 Jul 2021


Have you ever talked to stock investor who said Bitcoin has no value?

How can you argue against the recurring question "what is the intrinsic value of Bitcoin?"

The fashion value investing technique used by Warren Buffett is taking over YouTube and many investors. They calculate the companies' returns and then try to understand whether the stock is cheap or expensive.

If a friend wants to invest in Bitcoin and came to talk to you, it is hard to understand what a good price is for him to start investing in Bitcoin. We always said that last year was a good year.

It is difficult to calculate the intrinsic value of goods. Bitcoin is like a commodity in some way, but it also has some stock or company-related features.

But we have the advantage that all bitcoin-related data is public and very easy to parse.

So, I started digging and coming up with formulas that give some tips.

 

Visa VS Bitcoin

First, I need to understand the value investment method very well, I calculated Visas intrinsic value and compared my results with some YouTubers. After I compared Bitcoin with Visa company, (they are very different, I know, but it was the closest stock I can compare to Bitcoin).

Visa vs Bitcoin

The first conclusion is: the use of Bitcoin is growing faster than Visa. The number of wallets compared to visa cards is 50 times smaller. This means lots of potentials to grow because we still have just a few people using it. But Trade Volume is only 18 times smaller. It seems this year will be just 8 times smaller.

If we assume Bitcoin is a company and compare it to Visa, we will say that Bitcoin's market capitalization needs to be at least 10 times smaller than Visa. Unless the profit margins are very different. The reality is that Bitcoin has a larger market capitalization than Visa.

So, we can conclude that we can't compare in this way, but at least now we have a clear way that Bitcoin still has huge growth potential.

 

Bitcoin intrinsic value

 

My approach using Trade Volume.
We are using an infrastructure for which we need to pay 1.4 to 3.5 percent in fees (Visa and Mastercard). If we have an alternative that is cheaper and faster, the value for the end-user will be the same. For example, visa and MasterCard have the same service and if Visa charge half of the fees of Mastercard, some users will swap, and we will see an increase in payments volume and transactions on the visa. The value to the user is the difference in fees.

So using this approach, if trading volume is increasing on Bitcoin, means that more users are using Bitcoin infrastructure, the value to the users is that difference in rates or speed. To use Bitcoin blockchain, the user needs to buy Bitcoin, which will affect the demand. Therefore, I am calculating the intrinsic value of Bitcoin using the trading volume.

I'm using 2%,of trade volume to estimate free cash flow, after I multiply by 20 and divide it all by Circulating Supply.

Bitcoin Value

 

In this above image, we have Bitcoin price in the logarithm view.
The Red is maximum, in blue the minimum, and the dash the median. The green color that is model outputs, formula that I am using and explained above.

The intrinsic model is more optimistic until 2017 and then seems to fit right in. It's not great, but it gives us a reference. It is more stable than the price.

 

Bitcoin intrinsic value (2021)

Now, just for fun, I estimated the trade volume for 2021 and tried get current intrinsic value.

 

Forcast 2021

 

Since I don't know what the trading volume will be in the last 6 months of this year, I multiply the trading volume from the first 6 months of 2021 by:

  • 0 (for fun)
  • 0.3 (very defensive approach)
  • 0.5 (defensive)
  • 1 ( normal)
  • 2 (optimistic)

We can say the intrinsic value is between 27k to 63k depend what is our strategy.

According to this model, it looks like the current Bitcoin price is a fair price to invest. Of course, a dump below 21k will be a very good opportunity. But we need be careful because the trade volume still decreasing. At the moment we are very close to the defensive approach, and trade volume is still going down.

Trade volume

 

Let me know if this type of analysis is of value to you. If so, what data do you want me to verify?

 

 

 

 

 

 

 

 

 

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PatronMaster
PatronMaster

https://www.youtube.com/channel/UCW84pMA9XZJliKZbb72M0zA


You_crypto
You_crypto

As a data analyst and data scientist, verifying crypto data and trying to gain value. We try to apply prediction models, check history and observe patterns, which gives us an advantage for success.

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