Bitcoin Valuation

An Attempt to Get a Grip on the Fundamentals

Frankfurt, Jan 9, 2014

What is Value?Some Terms: Value, Price, Cost, Fair Value, Inherent

Value

Why Buy?

Speculation

Attempt to profit from fluctuation, not underlying financial attributes.

Trading

wikipedia: day trading is speculation.

Investing

Long-term, based on financial attributes.

Value Investing

Very long-term, based on value.

Value vs. Price

Price: Current market price, driven by supply and demand

Value: Expected proceeds from sale (whole / sum of parts), cost of making or buying, expected returns (e. g. dividends)

Expected returns: DCF is the generally accepted method

Discounted Cash Flow

The value of Bitcoin is only based on the expectation that it might become a generally accepted means of payment some day.

might —> Discount rate

generally —> Money supply being replaced

some day —> time factor in DCF

When will Bitcoin be ubiquitous?

1. Other innovations: books, electricity, telephone, Internet, mobile phones, …

2. Often longer than expected (UMTS, ASP, …)

3. With DCF, time is a huge factor.

4. When will it happen for Bitcoin?

Worldwide Money Supply

$ 50 trillion (World bank, IMF, etc.)

Ubiquity (20 years) means: 100 % replacement.

DCF: One “return” of $ 50 trillion in 2023 to be discounted for present value

Discount Rate

1. Covers risk

2. Safe (long-term): 6 %

3. VC, high risk bonds: approx. 25 %

4. Market acceptance is the main risk for new ventures (Oliver Samwer)

The Big Picture

Bitcoin bears no dividends

Market price and “production” cost alone no measure for value

Money supply might be replaced

Reasonable assumptions for parameters: time, future value, risk.

Present Value: $ 28,823.00

What a contrast to the current market price!

Influencing Factors:

www.bitcoin-valuation.org Check that site for more details and discussions.