Original author: starzq.eth, Web3Brand

Are you willing to hold Bitcoin for 4 years to $500,000? It has increased 90 times in the past 10 years. Where will it go in the next 10 or even 20 years?

The price of Bitcoin has recently reached $69,000 again. With the continuous release of crypto benefits in the US election and the US economic liquidity, it has become a consensus among more and more people that it will break through the $100,000 mark next year.

https://coinmarketcap.com/currencies/bitcoin/

MicroStrategy CEO Michael Saylor said in a recent interview that Bitcoin will reach $13 million in 2045, which means that the average annual increase in the next 21 years will reach 29%.

As a long-term investor/hodler, I am more curious about what are the valuation models of Bitcoin? What will be the trend of long-term value? So I collected and sorted out 7 common valuation models, which also gave the behavior of 'HODL' more theoretical support.

If you are also interested in the valuation model of Bitcoin, then enjoy!

Valuation Model 1: Gold Substitute

Valuation Model 2: Global Asset Substitute

Valuation Model 3: Stock to Flow Model

Valuation Model 4: Long Term Power Law

Valuation Model 5: Celebrity Call

Valuation Model 6: US Dollar Inflation Model

Valuation Model 7: Based on Production Cost

Valuation Model 1: Gold Substitute

This is also the most common Bitcoin valuation method. With a constant amount of Bitcoin and resistance to inflation, Bitcoin has become a new medium for "value storage", and its counterpart in the old world is gold.

Gold, as a long-term "value storage" target, is accepted by the whole world and has become an asset that transcends national boundaries; Bitcoin, as digital gold, started from the geek community and has gained some consensus among many young people, new money, and wealthy asset systems (the passage of BTC ETF this year further strengthened the consensus), replacing part of the "value storage" role previously undertaken by gold.

https://companiesmarketcap.com/assets-by-market-cap/

Currently (2024.10.18) the market value of gold is 18.3 trillion US dollars, the unit price of Bitcoin is $ 67,819, the market value is 1.34 trillion US dollars (the current number of mined is 19.76 million, which is very close to the total amount of 21 million), ranking the tenth largest asset in the world, accounting for 7.3% of gold. I have listed below the corresponding price of Bitcoin when this ratio increases:

· 10% ：$ 92,523

· 15% ：$ 138,784

· 33% ：$ 305,325

· 100%: $925,226 (completely reaching the same market value as gold)

10% is the historical high point of the market value ratio of [Bitcoin/gold]. If the penetration rate increases further, it can reach 15%, which means that the high point of this round may be around 140,000 US dollars.

Why is the ratio of 33% released? Because the value of gold is not entirely "value storage". In fact, more than half of it is for decorative purposes, 10% is for industrial purposes, and only 1/3 is used for investment + reserve. Because Bitcoin has no decorative and industrial uses, if there are no other variables, 33% may be a maximum ratio, and Bitcoin will reach about 300,000 US dollars at this ratio.

If one day Bitcoin reaches the same market value as gold, the unit price will reach nearly 1 million US dollars.

Source: The Golden Age of Bitcoin

Valuation Model 2: Global Asset Alternatives

Is $1 million the end of Bitcoin?

The answer is of course No.

In addition to gold, we also use currency and real estate to store value. The following estimates come from the famous Jiu Shen's "Hoarding Bitcoin" (the estimated time point is 2018, can be downloaded here):

· The total market value of global gold is 7.7 trillion US dollars, the total amount of broad money is 90.4 trillion US dollars, and real estate is 217 trillion US dollars.

· Broad money includes cash, fixed and demand deposits, securities companies' customer deposits, etc. Except for cash (accounting for 8%) for circulation, the rest is used for storing value.

· The main purpose of real estate should still be living and use, but there must be a considerable proportion of it used for storing value. If it weren't for Bitcoin, I would have used most of my money to buy a house. Since there is no ratio to check, let's temporarily assume that 20% of real estate is used for value storage (this ratio does not affect the order of magnitude of the final result).

So, how big is the global total value storage market? 7.7 + 90.4 × 92% + 217 × 20% = 134 trillion US dollars.

Total amount of gold, currency and real estate in the world (modified from http://money.visualcapitalist.com/)

And the total amount of Bitcoin is only 21 million, and about 3 million are permanently lost. Considering the absolute advantage of Bitcoin value storage over gold, currency and real estate, each Bitcoin will rise to 7.5 million US dollars.

134 trillion US dollars / 18 million = 7.5 million US dollars

Is that the end? Of course not.

The total amount of world wealth is growing at an annual rate of 6%. In 10 years, the total amount will be 1.8 times the current amount, and in 20 years, the total amount will be 3.2 times the current amount. Therefore, assuming that the value storage function of Bitcoin is widely recognized in 20 years (2038), its price should be 24 million US dollars, 160 million RMB.

Of course, this is the case when Bitcoin occupies 100% of the global total storage market. If it reaches 10% of the market share, the price of Bitcoin will reach 2.4 million US dollars, 16 million RMB in 2038.

For the most radical version of [160 million RMB], Jiushen also made linear and exponential price models:

· "Linear growth" (actually not linear in mathematics): the growth multiples are the same in each cycle;

· "Exponential decrease": the growth multiples are high at the beginning and low later.

Bitcoin price predictions for two growth models, in RMB

The above predictions were made in 2018. At the end of 2021, the price of Bitcoin did reach $64,863, about 450,000 RMB, which is quite close to the prediction of Jiushen. Will this cycle reach 3.4 million RMB / 500,000 USD in the table?

Btw, another major contribution of Jiushen is the invention of the famous Jiushen Hoarding Index, which guides fixed investment and bottom fishing (I use this indicator myself):

AHR 999 = (Bitcoin price/200-day fixed investment cost) * (Bitcoin price/index growth valuation)

• Index growth valuation = 10 ^[ 5.84 * log(coin age) - 17.01 ]

• Coin age = the number of days from the current date to the Bitcoin genesis block (January 3, 2009)

Based on indicator backtesting

· When the AHR 999 indicator data is lower than 0.45, it may be suitable for bottom fishing;

· Between 0.45 and 1.2 It may be suitable to invest in BTC within the range

· If it is higher than this range, it may not be a good time to invest.

Valuation Model 3: Stock to Flow Model

In 2019, Twitter user PlanB added the consideration of "scarcity" to the "gold substitute" and proposed the Stock to Flow Model.

We use 3 parts to illustrate this model

1. Scarce goods can be better used to store value and have the role of currency;

2. Scarcity can be quantified by Stock-to-Flow Ratio;

3. Final modeling

1. Scarce goods can be better used to store value and have the role of currency

This point should not need too much explanation, directly quoting the cypherpunk pioneer Nick Szabo in the article words:

"What do antiques, time, and gold have in common? They are all expensive, either because of their original cost or because their history is unpredictable and difficult to counterfeit. Precious metals and collectibles have an unforgeable scarcity due to their expensive manufacturing costs.

This once provided value for currency, whose value was largely independent of any trusted third party. Therefore, it would be great if there was a protocol that could create unforgeable expensive bits online with minimal reliance on trusted third parties, and then store, transfer, and verify them securely with similar minimal trust. Bit gold."

btw, Nick Szabo is suspected of being Satoshi Nakamoto due to his similar professional background and writing style, but he has denied it many times.

2. Scarcity can be quantified by Stock-to-Flow Ratio

Bitcoin scholar Saifedean Ammous further introduced the concept of Stock-to-Flow Ratio to quantify scarcity

“For any consumable, a doubling of production will dwarf existing inventory, plummeting prices and hurting holders. For gold, a doubling of annual production due to a price surge is also negligible, increasing reserves by only 3%. It is the continued low supply rate of gold that has kept its monetary role throughout human history. Gold’s high [stock-to-flow ratio] makes it the commodity with the lowest supply elasticity. The existing reserves of Bitcoin in 2017 were about 25 times the newly generated Bitcoin in 2017. This is still less than half of the gold ratio, but by 2022, the current reserves of Bitcoin will be about 25 times the newly generated Bitcoin in 2017. This is still less than half of the gold ratio, but by 2022, the current reserves of Bitcoin will be about 25 times the newly generated Bitcoin in 2017. This is still less than half of the gold ratio, but by 2022, the current reserves of Bitcoin will be about 25 times the newly generated Bitcoin in 2017. This is still less than half of the gold ratio, but by 2022, the current reserves of Bitcoin will be about 25 times the newly generated Bitcoin in 2017. Around 2020, Bitcoin’s [stock-to-flow ratio] will exceed that of gold. 」

Stock-to-Flow Ratio (SF) = stock / flow

· Stock is the total amount of the current commodity

· Flow is the annual supply of the current commodity

The author gave the stock-to-flow ratio of several commodities at that time (2019.3.23) in the article:

"Gold has the highest SF of 62, and it takes 62 years of production to get the current gold reserves. Silver ranks second with SF 22. This high SF makes them monetary commodities.

The SF of palladium, platinum and all other commodities is almost above 1. The existing inventory is usually equal to or lower than the annual output, making production a very important factor. It is difficult for commodities to get a higher SF because once someone hoards them, the price will rise, production will also rise, and the price will fall again. It is difficult to escape this trap.

The current stock of Bitcoin is 17.5 million, and the annual supply is 700,000 = SF 25. This puts Bitcoin in the category of monetary commodities like silver and gold. The market value of Bitcoin at the current price ($4,000) is $70 billion. "

It can also be seen from the table above that SF is proportional to the value of this type of commodity, and Bitcoin halving will cause Bitcoin's SF to continue to rise, thereby increasing its value.

Indeed, according to Biteye statistics,

"Bitcoin's stock-to-flow ratio is: 19750000 / 164359 ≈ 120.1 (August 2024)

Gold's stock-to-flow ratio is: 209000 / 3500 ≈ 59.7 (2023)"

Gold's stock-to-flow ratio is not much different from that in 2019, but Bitcoin has increased by more than 3 times, and is currently 2 times that of gold! In other words, Bitcoin's scarcity is about twice that of gold. How will this be reflected in Bitcoin's value prediction?

3. Final modeling

PlanB's model assumes that the scarcity represented by SF directly drives Bitcoin's value.

Skip the intermediate derivation process, the final formula is: Market value = exp(14.6) * SF ^ 3.3 (a power law distribution)

https://charts.bitbo.io/stock-to-flow/

As you can see, the Stock-to-Flow model was proposed on March 23, 2019, and its predictions were quite accurate until May 2021, but then the predicted price was much higher than the actual price.

"According to this model, the current predicted price is $250,000."

However, the author did predict that the price would reach $55,000 within one to two years after the halving in May 2020, and the market value of Bitcoin would exceed $1 trillion (March 9, 2021), which also made Plan B famous on Twitter.

And he also predicted where all the money needed for a $1 trillion Bitcoin market cap will come from:

"My answer: Silver, gold, countries with negative interest rates (Europe, Japan, and the United States soon), predatory governments (Venezuela, China, Iran, Turkey, etc.), billionaires and millionaires hedging against quantitative easing (QE), and institutional investors discovering the best performing assets of the past 10 years."

Plan B himself still sticks to his prediction:

"After the halving in 2024, Bitcoin will reach $500,000 by 2028 and the market cap will reach more than $10 trillion."

Will it happen? Let's wait and see.

Valuation Model 4: Long Term Power Law Long-term Power Law Forecasting Method

After PlanB proposed the Stock-to-Flow model in 2019, many people also noticed the time power law distribution of Bitcoin prices at the same time. Harold Christopher Burger is one of them. He studied for a doctorate at the Max Planck Institute and is now an artificial intelligence expert.

He published an article titled "Bitcoin's natural long-term power-law corridor of growth" on September 3, 2019, which made long-term predictions on the market tops and bottoms of Bitcoin prices:

· Bitcoin prices will reach $100,000 per Bitcoin between 2021 and 2028, and after 2028, the price will never be lower than $100,000.

· The Bitcoin price will reach $1 million per Bitcoin between 2028 and 2037, and after 2037, the price will never be less than $1 million.

This model is very easy to understand:

1. For Bitcoin's [price-time] distribution, after taking the logarithm of both the y-axis (price) and the x-axis (time), it can be fitted by linear regression;

2. If we move the above fitting line slightly downward (but without changing the slope), we will get the support line of Bitcoin price;

3. Performing linear regression on only the three highest points in 2011, 2013 and 2017, we get a power law line of the market top;

4. Bitcoin price fluctuates between two power law lines: the lower support line and the upper line defined by the three market highs

https://hcburger.com/blog/powerlaw/

The power of this model is that the data for the five years after it was proposed (September 2019-September 2024) are still within its prediction range, so it seems that it is not far from $100,000.

Valuation Model Five: Celebrity Calls

I must admit that this part is quite entertaining, and it is more of a record of an era. Here are three representative ones:

ARK Invest CEO Cathie Wood predicted in January 2024 that Bitcoin will grow to $1.5 million in 2030.

Former Twitter CEO Jack Dorsey predicted in May 2024 that Bitcoin will break the $1 million mark by the end of 2030.

MicroStrategy's Michael Saylor said in a recent interview that Bitcoin will reach $13 million in 2045, which means that the average annual increase in the next 21 years will reach 29%.

However, although it is entertainment, the crypto market still has a strong reflexivity, and celebrity orders do affect local prices at some special times.

Valuation Model 6: US Dollar Inflation Model

source:https://www.tastycrypto.com/blog/bitcoin-price-predictions/

If we make price predictions in 10-year units, we have to take into account the impact of US dollar inflation, which leads to a significant increase in asset prices.

"Unlike Bitcoin, the US dollar is an inflationary asset, and the Fed's inflation target is 2%. However, we are not robots, and it is challenging to fully control the economy. Central banks often print more money by lowering interest rates to stimulate economic growth, especially in difficult times like the epidemic. This is why we have a surge in inflation, with an annual rate of inflation reaching 8%, the highest in about 40 years."

https://www.macrotrends.net/global-metrics/countries/USA/united-states/inflation-rate-cpi

The purchasing power of the US dollar is weakening due to rising inflation. For example, $100 in 1984 is worth more than $300 today.

Only considering this factor, the current price of Bitcoin is $69,400 (2024.4), and it may reach about $200,000 by 2050, without considering other fundamental factors.

(I think many celebrities' predictions also take into account inflation)

In fact, if the US dollar loses its status as the world's reserve currency, it may be due to the current tectonic geopolitical changes, which may lead to hyperinflation (although the possibility is extremely small), pricing Bitcoin to astronomical figures.

Valuation Model Seven: Based on Production Cost

This is also easy to understand. For miners, Bitcoin is a business that generates cash flow and profits. The mining machine downtime price often marks the bottom price for a period of time, which can be used to guide bottom-fishing (but it is difficult to use it to guide price increases).

Okay, the above are the 7 valuation models of Bitcoin. For friends who are interested in the details, I have attached links in each section, and you are welcome to deep-dive. If you know of other important valuation methods that are missing above, you are also welcome to leave a message to supplement.

I hope these valuation models can help you better understand, invest in and hold Bitcoin.

Original link

欢迎加入律动 BlockBeats 官方社群：

Telegram 订阅群：https://t.me/theblockbeats

Telegram 交流群：https://t.me/BlockBeats_App

Twitter 官方账号：https://twitter.com/BlockBeatsAsia