Fundamental analysis of Bitcoin

Sascha Huber is a financial journalist and writes for Traders Mag ‘, a young magazine for investors and stock market traders. In the January issue of the magazine he published a detailed and well-informed article about Bitcoin: “The fabulous Bitcoin rally”. With his permission, we are publishing an excerpt from the article devoted to fundamentals. Thank you very much for this!

First a note from me: The projections presented in this article have pleasantly surprised me, as they are relatively high. Everything is possible. But there is no guarantee of that. Please regard these numbers as speculation. In no case do not rely on them to come true. And please don’t put your house on it. But now have fun – c.b.

Fundamental Analysis

On the one hand, there are absolute Bitcoin fans who see it as the new world currency. These use the world gross national product, which was most likely around 63 trillion US dollars, and then calculate what a Bitcoin would have to be worth if Bitcoin became the new world currency. The calculation here is very simple: you simply have to divide those 63 trillion US dollars by the maximum possible number of bitcoins of 21 million and you get a potential value of three million US dollars. But to be honest, we think that’s complete nonsense at the moment.

Because the fact that in the foreseeable future the entire world trade will only be handled via Bitcoin is, from our point of view, absolutely illusory, with all the advantages that Bitcoin may offer. However, there is one thing that we like about this calculation, after all, it “only” refers to the real world gross national product and leaves out derivative financial bets, which were only possible through the creation of deposit money by commercial banks. However, you should forget this “best-case scenario” because we consider such a calculation to be dubious.But speaking in general about bitcoin, it is worth mentioning and how it all began and, in general, to describe why it is needed, you can read it here

Serious but very optimistic: Bitcoin represents 3% of cash and 1% of gold reserves

In our opinion, it is a little more serious if you look at how much cash is in circulation around the world and how high the global gold stocks are. Because on the one hand, you will remember, Bitcoin is a form of electronic cash that, however – due to its limitation to a maximum of 21 million pieces – has a similar value retention function to gold, for example. In this respect, it is entirely correct to assume that Bitcoin could replace both part of the global cash and part of the global gold supply. According to current estimates, the global currency in circulation is around 15 trillion US dollars and the global gold reserves currently amount to around 12 trillion US dollars. Assuming that Bitcoin can substitute around three percent of the world’s cash in circulation and one percent of global gold reserves in the medium to long term, then Bitcoin would have a market capitalization of 15 trillion US dollars x 0.03 + $ 12 trillion x 0.01 = $ 0.45 trillion + $ 0.12 trillion = $ 0.57 trillion = $ 570 billion required. Accordingly, the fundamentally fair value of a Bitcoin would then be 570 billion US dollars divided by 21 million Bitcoin and thus almost 27 150 US dollars.We consider this calculation to be far more serious, albeit still very, very optimistic.

Also serious, but less optimistic: Bitcoin takes over the functions of credit cards and online payment providers

Interesting it is, however, to look at how high the volume is today that is processed via online payment providers such as PayPal or Western Union, but also via credit card providers such as American Express, Mastercard or VISA. The credit card providers recently processed transactions with a total volume of around seven trillion US dollars and the online payment providers around 50 billion US dollars. While you will hardly be able to take more than 2.5 percent of their market from the major credit card providers, things are looking better for online payment providers. Because Bitcoin became known as the “Internet currency”, it should be possible to buy up to 20 percent of their market from these online payment providers.

Accordingly, the fundamentally fair value would be 7 trillion US dollars x 0.025 + $ 50 billion x 0.2 = $ 0.175 trillion + $ 10 billion = $ 175 billion + $ 10 billion = $ 185 billion. Accordingly, the fundamentally fair value of a Bitcoin would then be 185 billion US dollars divided by 21 million Bitcoin and thus around 8810 US dollars.

No matter how you calculate it from a fundamental point of view, the current Bitcoin rates of more than $ 1000 do not yet appear excessive.Because even if Bitcoin could take only one percent of their market from credit card providers and only five percent of their market from online payment providers, the fundamentally fair value of a Bitcoin would still be a good 3450 US dollars. From a fundamental point of view, Bitcoins are still very interesting, although the price cannot multiply by a factor of a million in the next few weeks, months or years.

Caution: The tightest supply is useless if the demand tends towards zero ”

However, one should not disregard the fact that a) Bitcoin’s price has developed more than well in the last three to four years and b) the Bitcoin price has no “intrinsic” value and is therefore solely dependent on supply and demand. Even though the supply of Bitcoins seems very narrowly limited to a maximum of 21 million pieces, there can be violent price movements here at any time – not only upwards, but also downwards. Because the tightest supply is useless if the demand tends towards zero. In this respect, Bitcoin was, is and will remain a very speculative “investment” on which one should by no means build one’s old-age security.

A possible ban on Bitcoin by the US, which up until a few months ago was hotly debated -Government or other governments, on the other hand, no longer seem to be a major threat today. On the one hand, representatives of the US government recently expressed their opinion positively on Bitcoin at a hearing in the Senate, on the other hand, a ban would have no prospect of success anyway – due to the decentralized Bitcoin network. In this respect, a ban would push Bitcoin into the black market, but it would continue to exist underground.

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