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A Case for a $60,000 Bitcoin

The first valuation of Bitcoin came from Lazlo Hanyecz, who bought 2 large pizzas for 10,000 BTCs in May 2010. The pizzas costed $41, which translates to 1 BTC = $0.0041.

In 2018, BTC is still in price discovery mode, with pundits calling for anywhere between $1500 and $100,000.

Bitcoin Price to Hit $100,000 in 2018, Predicts Saxo Bank Analyst (

The common question of "what is the value of Bitcoin" often prompts an answer from captain obvious - "whatever the next person is willing to pay for it". 

But there has to be ways to gauge the intrinsic value of bitcoin? Let's take a look at a couple of approaches. 

1) Mining Cost - We can consider the mining cost to be the base value of bitcoin.

The thing is, mining cost depends on many factors that vary tremendously between countries. I would focus on the low-end costs, such as China's $3172 as the base value.

When we add other costs into the mix, we probably see a higher number, but let's be conservative and round down to $3000 as the base value for Bitcoin that is purely based on mining cost.


2) Utility Value - A more reasonable valuation might be based on Bitcoin's utility. Let's take a look at some possible uses:

i) Store of value
ii) Value in the Informal Economy
iii) Remittance
iv) Commerce
v) Speculation

We should focus on Store of Value, Usage in the Informal Economy, and Remittance as the most realistic use cases at the moment. Developers are still experimenting with scaling solutions for commerce, and speculation is not an intrinsic value driver. 

First, some data and assumptions:

Supply of Bitcoin = 20 million
Technically 21 million bitcoins will be  mined. It is safe to say that the market is going to use the final supply in any forward looking valuation approach. We are assuming 1 million bitcoins are forever lost - there is actually more than that, but we want to be conservative and assume a larger supply in our valuation. 

Size of Gold market = 2.4T USD
We also make an assumption that Bitcoin can grow to be 25% the size of the gold market.

Size of informal economy = around 10% of formal economy. This might be a gross underestimation based on the available stats

Size of the remittance market = 600B USD

BTC remittance velocity - 5 (based on the USD M1 velocity of 5) 

BTC informal economy velocity - 3 (lower than remittance velocity of 5, because much of informal economy is about store of wealth)



We are taking the additive approach that Chris Burniske and Jack Tatar used and described in their book "Cryptoassets - The Innovative Investor's Guide to Bitcoin and Beyond"

We are actually pricing in speculation because the we are using future penetration rate rather than current. 

Let's take the dive:

Store of Value: $30,000

Gold market cap: $2.4 Trillion
BTC penetration: 25%
BTC market cap as storage of value: $600B  ($2.4T x 25%)
BTC value as storage of value: $30,000 ($600M / 20M total supply) 
Note: store of value has no velocity

Informal Economy: $32,500

Only 1% of global population live in urban cities. There are many in the world who do not have access to banks.


The size of the informal economy is unclear. From the above graphic, we can see that many regions have from the informal economy much higher than 10%. With the world economy at around $77.99T in GDP, we conservatively estimate an informal economy of $7.8T.

BTC penetration: 25%
BTC velocity: 3* (see assumptions above)
BTC market cap as value in the informal economy: $650B ($7.8T x 25% / 3)
BTC value in the informal economy: $32,500 ($650B / 20M)

Remittance: $1,500

A key feature of Bitcoin is that it has no sovereign border. It is perfect for remittance because it dramatically reduces fees and transaction time.  

Remittance Market in 2017: $600B (estimate)
BTC-Penetration: 25%
BTC velocity: 5 (using US M1 velocity)
BTC-Remit-Value (total): $30B ($600B x 25% / 5)
BTC-Remit-Value: $1,500 ($30B / 20M)

When we add these values together we can see a valuation of at least $60,000.

While some assumptions were conservative, the BTC penetration of 25% is aggressive. We are no where near 25% adoption, but markets are forward-looking and will put a $60,000 valuation on BTC before getting 25% penetration. 

In conclusion, there is much room to grow within the next 5-6 years with a base value of $3,000, and upside to $60,000.

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