How to value Bitcoin
author:Wish Visha
Yesterday I wrote an article entitled “Why Bitcoin ETFs are the Best Wealth Management Products”, which was posted on the chainless.hk website. After the article was published, some readers asked the following two questions:
1. They believe that investing in Bitcoin has a huge advantage over stocks: investing in stocks requires first judging the macroeconomic direction, then judging the rotation of the sector, and finally finding the right leading stocks in the sector before it is possible to make a profit. Even if you choose the right direction and sector, you may end up losing money. However, with Bitcoin, as long as you have a correct understanding of the macro direction, it is possible to make a profit. This makes investing in Bitcoin relatively simple and has a higher fault tolerance rate.
2. They are puzzled by the idea that “Bitcoin has had almost no news-induced decline.” Because they often see the price of Bitcoin fluctuate greatly due to the influence of certain news, they may need you to explain this point of view more.
To answer these two questions, we need to start with Bitcoin's valuation method.
1. Stock valuations are based on profit forecasts
Stocks represent the value of an enterprise, and we usually use the fundamentals of a company to express this value. Changes in corporate fundamentals are the root cause of rising and falling stock prices. Analysts will forecast stock profits based on possible changes in corporate fundamentals.
Changes in the fundamentals of stocks can be divided into changes within the enterprise and changes in the external environment. Changes within the enterprise include an increase in market share, the development of new technology and the launch of new products, etc., all of which may lead to changes in the company's profits. We can call this change caused by “internal changes within the company” “the company's own news.” When good news comes out, if someone grasps this inside information and buys shares before the company discloses the news, then he can
Make huge profits in a short period of time. This type of trading is known as “insider trading,” and it is illegal in the stock market.
Changes in the external environment include industry policies, the emergence of alternative products, etc. External changes also include breaking news,
For example, as soon as China's education and training regulations take effect, New Oriental lost money and couldn't even find a mother. The environment is changing widely. For example, if the same stock is listed in different places, the valuation may be completely different. Just as China's A Shares, B Shares, and Hong Kong Shares have different valuations.
Let's talk about gold again. Does gold have fundamentals? The characteristics of gold determine that its own change is zero. The increase in the amount of gold is predictively reported, so it is deterministic rather than a change. The new reserves are uncertain and involve changes in the total amount of gold. They can be classified as external news or as own messages (similar to internal corporate changes). Since total volume changes are involved, it seems more reasonable to classify them as internal changes. Without changes in fundamentals, valuation is simple; only external factors influence prices.
Nakamoto understood the essence of gold and applied it to Bitcoin's design. Bitcoin's internal news is only a change in the program, and there has been no change in circulation for 15 years. Satoshi Nakamoto's “0.1 always” spirit finally made it to the day when he was admired by capital giants.
2. The valuation of Bitcoin is the valuation of demand
Bitcoin has no fundamentals; its valuation matches the characteristics of the product and is based on the relationship between supply and demand. However, the supply of Bitcoin and its transfer on the chain are clear brands, which is much simpler than the valuation of ordinary commodities. Bitcoin's valuation is affected by only three factors: supply, inventory, and market demand. External factors are mainly reflected in the impact on demand.
Bitcoin's supply is known and fixed, and is halved every four years until the supply runs out. Currently, around 900 bitcoins are mined every day.
Bitcoin's on-chain inventory and transactions are shown in Chart 1. It can be seen that after the Bitcoin ETF was approved, Bitcoin's untraded coins dropped from 70.72% to 68.97%. There were 36,750 fewer, while ETFs purchased around 80,000 units. The blue line in Table 1 represents stockpiling, and the yellow line represents trading.
There is no chart for changes in demand since the approval of the Bitcoin ETF. In the 51-day period from January 10 to March 2, 2024, capital inflows were between 408-45.9 billion. The BlackRock family is close to 100 million! At the same time, stablecoin funds flowed into USDC 1 billion and USDT 4.2 billion, for a total of 5.3 billion dollars. This also exceeds the average inflow of stablecoins. Even so, ETF inflows in almost 10 times as much money as stablecoins. Bitcoin ETFs have replaced stablecoins and are the biggest factor affecting demand.
table 1
Based on the analysis of the above three points, the supply of Bitcoin is determined. The changes in stocking and demand are shown in Table 1. The high price of Bitcoin corresponds to the low point of hoarding, and capital inflows determine the price increase. The ETF purchased 80,000 units, which is larger than the 36,700 units that have flowed out of the chain. ETF purchases will not be sold in large quantities, which in disguise reduces the liquidity of Bitcoin. Exactly what future liquidity will look like remains to be seen. We'll have to wait a year before we can make an accurate judgment about the ETF's behavior.
Actually, Bitcoin's valuation is simpler than what friends think. The original alligator grayscale is now small shrimp. We only need to keep an eye on BlackRock, the leader of Bitcoin ETF, observe BlackRock's views, and at the same time observe the data in Table 1 to make smart decisions.
The ETF was approved, and Bitcoin came into the room. In response, Halfini, one of the founders of Bitcoin, commented on Bitcoin two days after its launch: “If Bitcoin succeeds, it will become the world's main payment system. And the total value of money should equal the world's wealth. Currently, based on estimates of the total number of households in the world, the wealth I've discovered ranges from $100 trillion to $300 trillion. For 20 million bitcoins, the value of the coin is about $10 million”. Halfini's vision called for Bitcoin to become the main payment system, which meant the success of Bitcoin applications. Whether AI can take over the popularity of AI in the future depends on the popularity of Bitcoin applications and Bitcoin applications. Conclusions:
Generally speaking, Bitcoin's valuation is based on supply and demand, but demand is also affected by various factors such as market sentiment and external news. Bitcoin may be easier to value than traditional assets, but it also requires close attention to market dynamics.
At the same time, we also need to be aware that there must be some uncertainties and risks in the market, and Bitcoin is no exception. Investors need to be careful and carefully assess risks. While pursuing high returns, we must also pay attention to risk control and asset diversification.
Whether it's Bitcoin or other assets, investing requires rational thought and thorough research to avoid blindly following the trend and speculative behavior. This article helps readers understand the basic characteristics of Bitcoin and the internal and external causes of value drivers, and helps investors make wise decisions.
3. How to get revenue comparable to Bitcoin in the current year
The DW20 Bitcoin-based idea I designed comes from Halfini's vision, which means that Bitcoin-based will become the main payment system. This idea took shape in 2023. Simply put, it is to equip Bitcoin with the yardstick it lacks, use Bitcoin to measure global economic development, and use DW20 (Davidcoin) to replace stablecoins for everyday transactions. Together, Bitcoin and DavidCoin form an inflation-free Bitcoin-based system. If realized, the price increase is as expected by Halfini, and it may make Bitcoin popular all over the place.
The distribution principle of David Coin is the same as Bitcoin. It is a consensus currency, and it also requires the growth process from air to asset coins (stablecoins). The difference is that DW20 DavidCoin uses an unconditional airdrop method. Anyone who signs up can receive the airdrop for free. The process from air to assets is a process of profiteering. Let's use DavidCoin to get on the Bitcoin shuttle and help Bitcoin at the same time. Today's Davidcoin, like the early Bitcoin, can only be easily profitable with early participation. The sooner you register, the more likely it is to cross the class. Bitcoin's profiteering era has already been missed. Don't miss DW20 DavidCoin again.
Give yourself a chance to get rich and receive airdrops at zero cost! App download link: https://eco.chainless.top/download?code=8613510870809, you will receive a big red envelope that will increase, possibly up to tens of thousands of dollars.
