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I have been trying to figure out eventual equilibrium price of BitCoin and here is one approach: Due to wealth inequality, we assume that majority of the crypt

I have been trying to figure out eventual equilibrium price of BitCoin and here is one approach: Due to wealth inequality, we assume that majority of the crypto investment would be from ultra-rich. It might become quite normal for them to invest 1% of their wealth in crypto for uncorrelated diversification. In a way this is very similar to buying art which probably doesn't have much utility except among other wealthy people as socially agreed upon store of value. These folks have estimated wealth of $10T so that puts market cap contribution from them to $1T. Let's assume same amount comes from non-ultra-rich investors. So we can estimate btc market cap to $2T. This puts reasonable eventual upper bound value of 1 btc to $95,000. This eventual value might never be reached however because all 21M coins never be mined, not all wealthy people might do this, and also other coins will fragment the market. May be 3/4 discount is reasonable at this point to accommodate these factors which might put the value to $25K at this point. This is obviously assuming no black swan events like countries making it illegal or some other virtual currency tech doesn't become popular.

flick 9y ago
That doesn't make any sense. Using this logic you could argue that basically anything should have an eventual market cap of ~$1 trillion.
- dunkmaster 9y ago
  He's merely talking about upper bound. Which is probably true.
- FabHK 9y ago
  Anything that the rich would want to put 1% of their wealth in.
rootusrootus 9y ago
Could you clarify something for me that has been bothering me every time I see someone make an argument along these lines? Why does BTC === crypto? I see it over and over that people make arguments about the potential value of the cryptocurrency 'market' and then immediately use that to put a value on bitcoin. Aren't there hundreds of other cryptocurrencies already?
- brucephillips 9y ago
  It's often just metonymy, just as your usage of "crypto" to refer to "cryptocurrency" is.
  - rootusrootus 9y ago
    Yes, that absolutely could explain it, except for one detail -- only bitcoin has an arbitrary 21 million coin limit. So making the argument that bitcoin is kinda like gold is implying that bitcoin is the only cryptocurrency. Is there a good argument here that first-mover advantage will be enough to ensure that bitcoin remains the only viable cryptocurrency? Because if not, then the $1T theoretical market value has to be split amongst all the players, and then the argument for a $25K BTC 'value' is pretty thin.
    - brucephillips 9y ago
      I'm not sure, but I think it's possible that BTC runs away with it. The value of BTC, much like the value of gold, is due to network effects. That's the only reason AFAICT that gold is ~60x more valuable than silver.
      - ximeng 9y ago
        http://about.ag/debate.htm http://about.ag/debate.htm There’s lots of reasons
brucephillips 9y ago
> In a way this is very similar to buying art which probably doesn't have much utility except among other wealthy people as socially agreed upon store of value. Art may not have "utility", but it does have value, so the analogy here doesn't quite work. Also, 1% of 10T is 100B, not 1T.
corbett3000 9y ago
1% of $10T is $100B. Add $100B younge BTC upper bound at $9,523.
blensor 9y ago
Why can't we just estimate the "real" value of BTC with the amount of work that goes into operating it. We know the hashrate, we basically know what the hardware is that does the "mining", we know the cost of the hardware and we can estimate some mean electricity cost. The hardware has no other real use (except for heating) so there is an upfront investment the miners were willing to pay and also how much they are continually willing to invest. This is a real world in investment that is not easy to withdraw from the Bitcoin system
snarfy 9y ago
The equilibrium price ultimately boils down to energy. How much gasoline can you buy with $1? How much BitCoin can you mine using $1 worth of energy? These will eventually even out.
gondo 9y ago
about 25% of all bitcoins are lost and this number can only increase.

flick 9y ago

That doesn't make any sense. Using this logic you could argue that basically anything should have an eventual market cap of ~$1 trillion.

dunkmaster 9y ago
He's merely talking about upper bound. Which is probably true.
FabHK 9y ago
Anything that the rich would want to put 1% of their wealth in.

rootusrootus 9y ago

Could you clarify something for me that has been bothering me every time I see someone make an argument along these lines? Why does BTC === crypto? I see it over and over that people make arguments about the potential value of the cryptocurrency 'market' and then immediately use that to put a value on bitcoin. Aren't there hundreds of other cryptocurrencies already?

brucephillips 9y ago
It's often just metonymy, just as your usage of "crypto" to refer to "cryptocurrency" is.
- rootusrootus 9y ago
  Yes, that absolutely could explain it, except for one detail -- only bitcoin has an arbitrary 21 million coin limit. So making the argument that bitcoin is kinda like gold is implying that bitcoin is the only cryptocurrency. Is there a good argument here that first-mover advantage will be enough to ensure that bitcoin remains the only viable cryptocurrency? Because if not, then the $1T theoretical market value has to be split amongst all the players, and then the argument for a $25K BTC 'value' is pretty thin.
  - brucephillips 9y ago
    I'm not sure, but I think it's possible that BTC runs away with it. The value of BTC, much like the value of gold, is due to network effects. That's the only reason AFAICT that gold is ~60x more valuable than silver.
    - ximeng 9y ago
      http://about.ag/debate.htm http://about.ag/debate.htm There’s lots of reasons

brucephillips 9y ago

> In a way this is very similar to buying art which probably doesn't have much utility except among other wealthy people as socially agreed upon store of value. Art may not have "utility", but it does have value, so the analogy here doesn't quite work. Also, 1% of 10T is 100B, not 1T.

corbett3000 9y ago

1% of $10T is $100B. Add $100B younge BTC upper bound at $9,523.

blensor 9y ago

Why can't we just estimate the "real" value of BTC with the amount of work that goes into operating it. We know the hashrate, we basically know what the hardware is that does the "mining", we know the cost of the hardware and we can estimate some mean electricity cost. The hardware has no other real use (except for heating) so there is an upfront investment the miners were willing to pay and also how much they are continually willing to invest. This is a real world in investment that is not easy to withdraw from the Bitcoin system

snarfy 9y ago

The equilibrium price ultimately boils down to energy. How much gasoline can you buy with $1? How much BitCoin can you mine using $1 worth of energy? These will eventually even out.

gondo 9y ago

about 25% of all bitcoins are lost and this number can only increase.