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Forecasting Bitcoin price using quantitative models, Part 1

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This is Part One of a multipart series that aims to answer the following question: What is the “fundamental value” of Bitcoin? Part One is about the value of scarcity, Part Two — the market moves in bubbles, Part Three — the rate of adoption, and Part Four — the hash rate and the estimated price of Bitcoin.

The value of scarcity

In recent months — and throughout 2020 amid the COVID-19 pandemic and its negative effects on the economy — central banks around the world have issued unprecedented quantities of money in order to try to counter an inevitable economic crisis. We live in a world where each generation of newly issued money, printed by central banks, leads to inflation, or the reduction of the purchase value of the currency itself and consequently, an increase in the price of goods.

To give an example, last year alone the amount of U.S. dollars printed equals almost 20% of all dollars generated throughout time, based on the registered value of the money supply of dollars in the world. 20% in a single year is absurd, only made possible by breaking the pact that obligates governments to keep the dollar quantity in circulation linked to the quantity of gold in the central bank’s vaults (the famous 1971 Bretton Woods Pact).

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Consequently, the more dollars that are printed, the more we can see their worth decreasing over time. The opposite of inflation is deflation — in other words, as time passes, the more a currency appreciates and its purchasing power grows.

It is important to understand that Bitcoin (BTC) was designed to grow in value indefinitely. I say this because the smallest quantity, known as a satoshi, is equal to 0.00000001 Bitcoin. It’s obvious that its creator imagined a deflationary system for his creation, one that could help it reach ever-increasing values. In the moment that a satoshi has grown to be worth a U.S. dollar, a Bitcoin will equal $100,000,000. This is the value that Satoshi Nakamoto had in mind for his own Bitcoin.

Not immediately, obviously, and not even in the short term. The path will likely be long and paved with several bubble bursts. Only the most courageous and tenacious who resist will succeed in the enterprise. But alas, this is the story of the financial markets.

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Why is it possible for Bitcoin to reach this value?

Because there are 7 billion people in the world, and there can only be 21 million Bitcoin circulating at the end of its generation cycle. As of 2020, it is estimated that around 20 million people worldwide have more than a million dollars of wealth — do you think there is enough Bitcoin for all these rich people? Many of them won’t be able to own a whole Bitcoin because getting one will cost too much in a few years, and because those who own them would never think about selling them. This is the phenomenon of scarcity.

Whereas we are used to inflation, or the increasing amount of money being printed by central banks, this doesn’t exist in the crypto world. In some cases, there are special cryptocurrencies that are designed to decrease the number of tokens in circulation over time.

Scarcity, coupled with an increasing circulation of cryptocurrencies, is the main reason why the price tends to rise and will continue to do so over time. You understand now that owning an entire Bitcoin will be a luxury that only a few people will be able to afford, at most a few million people — given that the first million is rumored to be firmly deposited in Satoshi’s wallets.

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Related: 4 reasons why the top 15 richest Bitcoin wallets still matter in 2021

This is the most concrete possibility we know of in terms of getting rich fast, in a relatively short amount of years. Still, for a small group of people the scenario of becoming millionaires thanks to cryptocurrencies (about 100,000 in the world) has already happened.

Scarcity and precious metals

The concept of scarcity is well present and known in commodities, such as with gold, silver, palladium or platinum. These precious materials are all the more precious the more scarce their production is. But is there a mathematical model that can estimate what the correct value of goods should be, based on its scarcity?

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If we think about phenomena such as Ferrari, Rolex, ancient paintings by famous painters, etc… all these assets are valued significantly higher than their cost of realization due to their scarcity — induced or generated — by those who created the assets themselves, just like Bitcoin. In fact, there is a mathematical model known as stock-to-flow, or SF, that estimates price based on the quantity already present in the world (stock) with the quantity that is extracted every year (flow).

The smaller the quantity extracted every year, the higher the value the precious metal has. And since it takes many years to double the stock currently in circulation, it itself has value because it is scarce.

In this table, SF is measured as years required for the current stock to double. As you can see, gold is extracted at an amount of 1.8% per year compared with the current stock, so its total value is greater than the other commodities.

This relationship is more evident if the relationship between market value and supply growth is applied to a power diagram (Cartesian plane with both axes using a logarithmic scale).

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From this graph, you can clearly see that there is a power law governing the scarcity of goods along with their overall market value. The power law is deduced by how linear the existing relationship manifests on a Cartesian plane with both logarithmic axes, as shown in the previous figure.

Does this law also apply to Bitcoin, designed to have an ever-increasing stock-to-flow ratio? (i.e., an ever-decreasing number of Bitcoin mined over time).

From the graph, it is clear that even Bitcoin, albeit with a different scale, follows the same power law.

The three breaks in the graph represent the three halvings, a phenomenon of halving mined Bitcoin that occurs approximately every four years, which makes Bitcoin increasingly scarce compared with the stock in circulation.

From this graph, we can see that the value of $20 trillion is anything but impossible to achieve, and indeed, it is only a matter of time — once the percentage of Bitcoin mined in a single year will be equal to or less than 1%, a situation that will occur at the next halving in 2024.

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Legendary Trader Peter Brandt Challenges Binance with Four Questions about 88% BTC Crash

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Here’s what is unclear for Mr. Brandt about mysterious Bitcoin (BTC) flash-crash of Oct. 21, 2021

Prominent trader and analyst Peter Brandt has taken to Twitter to ask his four questions in the context of the flagship crypto’s 88% dropdown.

What do Binance and Binance.US have in common?

First of all, Mr. Brandt challenged the character of corporate relationships between Binance and Binance.US, its unit focused on American markets.

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Also, Mr. Brandt asks whether Binance is planning to release detailed documents to specify statistics for trades, their volume and prices during the flash-crash.

Then, the trading legend asked about the role of the platform in taking the opposite side of a client fills.

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Besides the Binance CEO and co-founder Changpeng “CZ” Zhao, Mr. Brandt mentioned the Interactive Brokers platform, U.S. watchdogs CFTC and SEC and Gary Gensler, the SEC chairman.

Most expensive “trading algorithm bug” ever?

Also, Mr. Brandt attached a screenshot of a tweet by CZ when Binance’s boss warned his audience about expected volatility spikes across cryptocurrency markets.

Finally, Mr. Brandt added that he never used Binance for trading.

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As covered by U.Today previously, on Oct. 21, 2021, amidst a spending rally, the Bitcoin (BTC) price briefly tanked to the $8,000 level, losing more than 88% in no time.

A similar flash-crash was registered on 26 other low-liquidity exchanges. A Binance.US representative attributed this dramatic plunge to a critical bug in third-party mechanisms by one of the platform’s sophisticated institutional clients.

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Dogecoin Looks Ready To Rip As Bitcoin Finds Critical Support, According to Crypto Analyst Justin Bennett

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Crypto analyst Justin Bennett says that Dogecoin (DOGE) could be ready to make a run for its next critical level about 37% above current prices.

The popular analyst tells his 88,000 Twitter followers that DOGE is attempting to break out of a long descending resistance line that it has been up against since May.

“DOGE looks ready (as long as $BTC cooperates).

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Just needs to get above 0.27 on a daily closing basis to open up 0.34+.”

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Source: Justin Bennett/Twitter

In the near term, Bennett says DOGE needs to turn the $0.26 level into support and close above $0.27 before continuing higher to his initial target of $0.34. At time of writing, Dogecoin is trading at $0.26 according to CoinGecko.

Looking at Bitcoin, the analyst says BTC’s ability to maintain the $60,000 level is a major show of strength that could have big implications in the broader markets.

“Although the BTC weekly candle might not look great, it still held above $60k.

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That’s what I was looking for. Doesn’t mean we can’t see more pullback before further upside, but it does mean $60k is holding as support on a weekly closing basis.

That’s huge.”

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Source: Justin Bennett

Bennett also has his eye on Bitcoin dominance, which compares BTC’s market cap to the rest of the crypto markets. He says it’s bounced off a support level and is currently on its way up.

“BTC.D is bouncing from 44.5% support.

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Surprise, surprise.”

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Source: Justin Bennett/Twitter

While surging Bitcoin dominance often suggests that altcoins will underperform, Bennett says this may only hold true in the short term. He says if the king crypto is looking healthy, then altcoins might take it as a signal to move up.

“This isn’t necessarily a bad thing for altcoins.

Will they suffer if BTC.D heats up again?

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In the short term and against BTC, yes.

But Bitcoin strength now is massively bullish for alts over the next few months.

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Anybody That Does the Homework Eventually Invests in Bitcoin: SkyBridge Capital’s Scaramucci

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Founder of SkyBridge Capital believes that anyone who starts looking into Bitcoin seriously will end up buying

Antony Scaramucci, founder and CEO of SkyBridge Capital venture fund that has a branch investing in Bitcoin, has told CNBC that Bitcoin can eventually convert anyone who “does their homework” to invest in it.

He named several billionaires who used to be skeptical on BTC but have been into it since 2020.

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Ray Dalio, Paul Tudor Jones, etc, have turned to Bitcoin

According to Scaramucci, Bitcoin has the power to attract even its opponents – if they begin to study BTC carefully and “do the homework” they get convinced of the great potential Bitcoin has.

He has referred to billionaire investors, such as Ray Dalio, Paul Tudor Jones and Stanley Druckenmiller – they used to be opposed to the flagship cryptocurrency and now are holding BTC in their portfolios.

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Among these former Bitcoin skeptics are Shark Tank’s co-hosts – Kevin O’Leary (widely known as Mr. Wonderful) and Mark Cuban, billionaire and owner of the Dallas Mavericks baseball team. He now considers Bitcoin a store of value and believes that Dogecoin is a perfect crypto for payments. The Mavericks online store accepts DOGE for tickets and merch, and, according to Cuban, people are spending thousands of USD in Dogecoin on every month. He also likes Ethereum because of smart contracts.

Here’s how much Bitcoin Scaramucci holds

As part of studying BTC, Scaramucci recommended reading the BTC white paper written by Satoshi Nakamoto, the mysterious person or a team of them that created Bitcoin back in 2008-2009.

As for his own crypto holdings, Anthony Scaramucci holds over one billion USD worth of Bitcoin. He believes BTC to be digital analogue of gold.

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He also believes that Ethereum and Cardano have a large potential and are going to keep rising in the future.

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