Bitcoin is worth up to $74,000 and it is expected to take 120 years to reach it. Is this evaluation model reliable?

Original title: “After Bitcoin stands at $20,000, do you think the model that Bitcoin is worth up to $74,000 is reliable? 》

On December 16, 2020, Bitcoin historically exceeded $20,000. Just as the cryptocurrency market was thrilled, some people began to pour cold water. An opponent warned that the current price of Bitcoin was already fair market value. double. In addition, if viewed in the long run, the highest value that Bitcoin can achieve is “only” $74,000.

Although US$74,000 is not a “small number”, it is still somewhat low compared to the predicted valuation results given by other specially designed Bitcoin valuation models. For example, Plan B, a well-known Bitcoin market analyst on Twitter, gave a “stock-to-flow” valuation model. According to the calculation result of the model: Bitcoin price will be 1-2 after the halving Increased 10 times during the year. However, the valuation of Bitcoin given by the “stock-to-flow” valuation model cannot be completely taken seriously. After all, some people in the crypto community believe that the model is flawed.

Critics of the cryptocurrency industry continue to emerge, mostly focusing on evaluation models

As Bitcoin hits an all-time high of $22,309.84, a large number of “most heroic” supporters and “most evil” critics flocked in. Some people who are not optimistic about Bitcoin will even be dubbed “Doctor Doomsday”. The name aptly expressed a sense of evil, but Bitcoin was not scared by the attack! The price breaking through $20,000 is the best counterattack. (PANews note: Dr. Doom refers to the economist Nouriel Roubini, who has always criticized, criticized and despised Bitcoin.)

In addition to confronting critics, Bitcoin is also fighting inflation. Throughout 2020, based on the “narrative” of safe-haven assets and digital gold, Bitcoin has been fighting against precious metals-there is no doubt that Bitcoin has won this battle, at least in terms of return on investment. Shiny gold.

Of course, not everyone in the traditional market looks down on Bitcoin, and some people do not believe that gold can be used as a hedge, so they began to turn their attention to the more disruptive Bitcoin.

Claude Erb (Claude Erb) is a former professor of commodity investment and finance at Duke University. He currently works at the National Bureau of Economic Research in Cambridge, Massachusetts. He recently published a new book, The Golden Dilemma. ). The world-renowned financial publication Barron’s recently published an article entitled “5 Reasons Not to Buy Gold” (5 Reasons Not to Buy Gold), which quoted Claude Elb’s point of view and the fair market value of precious metals “concept. According to Claude Elb’s analysis, after the end of the Great Depression in the United States, the fair market value of gold was less than half of its price.

After the publication of the “Five Reasons Not to Buy Gold” article, the price of gold fell by $600 per ounce, as shown in the following figure, source: XAU/USD trading pair trend on TradingView.com:

The world of coins-Bitcoin is worth up to 74,000 US dollars, which is expected to take 120 years to reach. Is this evaluation model reliable?

In other words, people seem to have little interest in seeing gold as an inflation hedge. It is worth mentioning that just after Barron’s article was published, the price of gold plummeted by $600. Now, Claude Elb has published another paper, which aims to question the fair market value of Bitcoin-Claude Elb’s latest paper is entitled “Bitcoin and Gold are the same at all times” ( Bitcoin is Exactly Like Gold Except When it Isn’t). Based on his past experience in commodity research, he concluded that the price of gold can be decomposed into a “golden constant” (golden constant) fair price and fair price deviation, If used as an inflation hedge, a store of value and a safe haven, Bitcoin has no historical data to follow in these aspects. The paper concluded in the abstract and wrote: It can be said that it is doubtful whether the Bitcoin price can be decomposed into the fair price of the “Bitcoin network” and the fair price deviation.

It should be noted that Claude Elb is not opposed to gold, and in the past he would choose to hold gold when he managed client portfolios. At the same time, Claude Erb is not opposed to Bitcoin. Maybe just like other traditional financial scientists, when he saw the Bitcoin valuation model, he didn’t know where to start. Maybe he just thought that Bitcoin was used as “Safe haven” assets are questionable.

However, this is actually the key point where things started to get chaotic. Seeing economists like Claude Elb questioning Bitcoin, you might feel that “old people” simply cannot master this emerging technology. The true power and network effects of If Claude Erb uses the traditional fair price valuation model to explain Bitcoin, just as people used Metcalfe’s law to explain why a network like Facebook can grow exponentially. (PANews note: Metcalfe’s law is a law about the value of the network and the development of network technology. The more users of a network, the greater the value of the entire network and each computer in the network.)

For traditional economists, focusing on Bitcoin’s powerful network effects is indeed a good starting point, but it cannot be said to be completely correct. Take Metcalfe’s law as an example. The law states that the growth of a network’s value is proportional to the square of the number of users. Based on this theory, the reasonable market value of Bitcoin should be about $12,315, but this is not the case. The figure below shows the comparison between the Bitcoin price trend based on Claude Elb’s theory and the actual Bitcoin price trend since 2010:

Why is Bitcoin more than just a “network” 

Claude Elb mistakenly assumed that each BTC in the Bitcoin “social network” represented only one user, and therefore felt that the price of Bitcoin was overestimated. But in fact, he was wrong, because every Bitcoin can be decomposed infinitely (in a decimal way), thus making user accessibility endless, although the Claude Elb model does follow Bitcoin’s Linear proportional trajectory, but because the basic problem is not considered thoroughly, the analysis result will naturally not be correct. There are actually many different analysis results in the crypto market. For example, for those experts who analyze Bitcoin based on the logarithmic scale model, they believe that Bitcoin assets will grow to $170,000 in 2028.

As the financial publication Barron’s pointed out, no matter what, economists always want people to seriously consider their analytical models. After all, there is no other valuation method that is “more empirically reasonable”. But is it true? Charles Edwards, the founder of digital asset management company Capriole Investments, designed a set of valuation evaluation methods for Bitcoin in accordance with Metcalfe’s Law. The results showed that the fair price of Bitcoin was only $6,600. This conclusion seems “unreasonable” (as follows As shown in the picture, source: BTC/USD trading pair on TradingView.com):

The world of coins-Bitcoin is worth up to 74,000 US dollars, which is expected to take 120 years to reach. Is this evaluation model reliable?

According to the Claude Elb model, based on the total supply of 21 million bitcoins, the highest price per BTC is expected to be about 73,000 US dollars, and Claude Elb also warns that his theory is Calculated based on the analysis of all the mined bitcoins, but the conclusion of the theory is astonishing: it may take 120 years to finally reach the high of $73,000!

Just as Claude Elb is skeptical of gold’s inflation hedging properties, he also does not believe that Bitcoin has “anti-inflation” qualities, because in order for an asset to have a good inflation hedging advantage, it must first maintain price stability. Bitcoin’s performance in this area is obviously not satisfactory-the ratio of Bitcoin to the consumer price index has soared from almost zero to 73. But the problem is that Claude Elb’s analysis results sometimes seem to be contradictory. For example, he believes that gold should not be used for “inflation hedging purposes”, but the ratio of gold to the consumer price index is only between 3-8. .

Undoubtedly, the cryptocurrency community does not approve of the analysis of the Claude Elb model, but as Bitcoin increasingly attracts the attention of various types of investors, it will inevitably lead to scholars, politicians, and billionaires. There is a new wave of criticism and challenges between businesses and businesses, and valuation models may become the focus of debate.

If you are very supportive of Plan B’s “stock-to-flow” valuation model, and scorn the Claude Elb model, you might as well consider this question first: Plan B is an anonymous analysis that is very active on Twitter Teacher, “stock-to-flow” is just an interesting mathematical model he designed, but Claude Elb is an economist, professor and portfolio manager with extensive experience in commodity markets. Of course, we can’t think that the “stock-to-flow” valuation model is useless. In fact, there has not been anything like Bitcoin in the history of finance for a century. Therefore, it is too early to assert that a certain model must be accurate.

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