Principal Valuation Exploration: BTC Value Interval Estimation Based on Value Reserve Valuation Method

Guide

By comparing BTC, gold and French currency, we find that BTC has great potential as a good value reserve, and further analyzes the value range of BTC by using the value reserve valuation method.

Summary

According to the definition of value reserve, the main characteristics of the ideal value reserve include universal acceptance, durability, stability (scarcity) and liquidity.

Gold: an excellent means of value reserve. Different value reserves have their own advantages and disadvantages. Gold is recognized as a relatively ideal value reserve, and it plays an important role in both international reserves and private reserve assets.

BTC has the potential to develop into a good value reserve. Based on the main characteristics of the value reserve, we compared BTC, gold and French currency. In general, BTC has significant advantages in terms of scarcity, portability, severability, verifiability, etc., and has good durability. Although BTC is currently relatively inferior in general acceptance and stability, With the gradual maturity of the BTC market, the public's acceptance of BTC is growing rapidly, and its price volatility is gradually decreasing.

BTC Value Reserve Valuation Method: As the price of BTC changes, the market value of BTC's market value in value reserve gold or offshore assets changes accordingly. Therefore, by expecting BTC to obtain the market share of value reserve gold or offshore assets, it can reflect the expectation of BTC's price fluctuation range.

An optimistic investor may think that the market value of BTC can account for 50% of the sum of the estimated value reserve gold market value/offshore asset market value/value reserve gold and offshore asset market value by 2029 and before. The price of BTC is about $100,000 / $260,000 / $360,000, respectively, in 2029 and before.

Risk warning: gold value reserve and offshore asset scale growth are less than expected, BTC stability development is less than expected, quantum computer technology is advancing by leaps and bounds

table of Contents

1 What is the value reserve?

2 Can BTC be a value reserve?

3 BTC price interval estimation based on value reserve valuation method

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1 What is the value reserve?

The Store of Value is one of the main functions of money. According to the definition of Wikipedia, value reserve refers to the function that assets can be saved and used for exchange in the future. Anything that can maintain purchasing power in the future can become value. Reserves, common value reserves include currency, precious metals, etc.

According to the definition of value reserve, the main characteristics of the ideal value reserve include universal acceptance, durability, stability (scarcity) and liquidity:

  • Universal acceptance: universally recognized and accepted, assets can be exchanged with other items in the future.
  • Durability: Assets can be stored forever.
  • Stability (scarcity): The purchasing power of an asset can remain relatively stable, and scarcity is a source of value as an asset of value reserves.

Portability (easy to transport and storage), severability (easy to segment) and verifiability (easy to quickly identify and verify authenticity) are not required for an asset to be a value reserve, but determine when assets are used for exchange. Convenience level.

2 Can BTC be a value reserve?

Gold: an excellent means of value reserve. Different value reserves have their own advantages and disadvantages. Gold is recognized as a relatively ideal value reserve, and it plays an important role in both international reserves and private reserve assets. According to the World Gold Council data, the global central bank holds nearly 34,000 tons of gold. The top five countries with global gold reserves are the United States, Germany, Italy, France and Russia. The US foreign exchange reserves account for 73.8% of gold. In 2018, global gold demand increased by 4%, mainly driven by the central bank's purchase of gold. In 2018, the total net purchase of gold by central banks reached 651.5 tons, a year-on-year increase of 74%. This is the highest net annual net since the 1971 dollar exchange of gold stopped. purchase amount.

There are many similarities between BTC and gold, such as limited total amount and long-term preservation. The “mining” mechanism makes it easier for people to associate BTC with gold. Therefore, some people refer to BTC as “digital gold”. Gold is a recognized good value reserve, so can BTC be a value reserve?

Based on the main characteristics of the value reserve, we compared BTC, gold and French currency. In general, BTC has significant advantages in terms of scarcity, portability, severability, verifiability, etc., and has good durability. Although BTC is currently relatively inferior in general acceptance and stability, With the gradual maturity of the BTC market, the public's acceptance of BTC is growing rapidly, and its price volatility is gradually decreasing. BTC has great potential to develop into a good value reserve.

Note: According to BTC, gold and French currency, the performance of each characteristic is divided into A, B and C grades from high to low.

(1) Universal acceptance

BTC is less than gold and legal currency. Gold has a long history, and gold as a symbol of wealth has formed a deep-rooted concept in people's minds. In contrast, the history of legal currency is much shorter, but the legal currency is guaranteed by the national law and forced to use, so unless there is severe inflation, the legal currency is a generally accepted means of payment and reserve, which can be easily combined with other items. Exchanges, in certain periods, the legal currency of some countries can be universally accepted. In contrast, BTC has the shortest time to appear, and the development of the blockchain is still in its early stages. Under the current legal currency system, BTC has not yet established extensive contacts with the real world.

BTC is gaining more and more recognition. Trust and consensus are built up gradually, according to the Lindy effect (which means “for something that doesn’t die naturally, their life expectancy is proportional to the time they already exist”), something of value The vitality will become stronger and stronger, and the longer the BTC exists, the more confidence people will have for BTC. This is also the case. After ten years of development, more and more countries have begun to recognize BTC. More and more people are beginning to understand BTC, and more and more businesses are beginning to accept BTC payments.

According to the coinmap data, on March 5, 2014, there were only three merchants accepting BTC payments worldwide. On March 5, 2019, this number has risen to 14,420, and the 5-year CAGR (composite annual growth rate) reached 310. %.

(2) Durability

BTC is the most durable in theory and requires time to test. The vast majority of the gold that has been mined still exists today and will continue to exist in the future. The durability of legal currency does not depend on the durability of the legal currency itself, but on whether the government issuing the legal currency can maintain its purchasing power for a long time. BTC does not have an issuer or a physical entity. Therefore, as long as the system supporting BTC has always existed, BTC will be the most durable, but compared with gold, it has been well tested by time. Short, its "durability" needs further testing.

(3) Stability

BTC stability is gradually increasing. With the trend of the value of the BTC market, the BTC market is becoming more and more mature, the public acceptance is getting higher and higher, the participating professional organizations are more and more, the compliance operation is becoming mainstream, and the BTC is gradually becoming stable. Comparing the volatility of gold and BTC, we can find that the price volatility of gold is also more severe in the early days when the dollar is decoupled from gold. As the market matures, the price volatility of gold gradually decreases.

(4) Scarcity

In terms of scarcity, BTC has the most advantage. The total amount of BTC is constant at 21 million. The total amount of gold on the earth is also limited, and the amount of gold that can be mined is even lower. However, the current amount of gold on the earth is still growing every year, and gold still has the possibility of increasing supply, such as seabed or asteroid mining. As for the French currency, there is almost no scarcity.

(5) portability

BTC is the best portability. BTC also has the incomparable advantages of French currency and gold in terms of portability, which is extremely convenient for storage and transportation. The legal currency exists in different forms, the storage and transportation cost of cash is relatively high, and the digital legal currency is also very portable, but large-scale value transfer is difficult to achieve due to government regulation and other reasons. Gold is far from portable and BTC and French currency because of its physical form and weight.

(6) Severability

BTC is the easiest to segment. The smallest unit of BTC is Cong, which is a BTC of 100 million, which provides the possibility of small payments. The legal currency can usually be divided into very low purchasing power. The degree of gold can be divided is the most limited among the three.

(7) Verifiability

BTC verification is convenient and reliable. The means of forging counterfeit currency are endless, and gold is also immune from forgery, such as gold-plated tungsten. In contrast, the decentralized, non-tamperable, and transparent nature of the blockchain makes BTC verification more convenient and reliable.

3 BTC price interval estimation based on value reserve valuation method

Based on the historical growth in the value of gold and offshore assets and the current gold price, the value of gold and offshore assets after 10 years (ie 2029) can be estimated. As the price of BTC changes, the market value of BTC accounts for a corresponding change in the market share of value reserve gold or offshore assets. Therefore, by expecting BTC to obtain the market share of value reserve gold or offshore assets, it can reflect the expectation of BTC's price fluctuation range.

According to the World Gold Council, the global gold stock at the end of 2017 was approximately 190,040 tons, of which 90,718 tons were jewelry, accounting for 47.7%, private investment was 40,035 tons, accounting for 21.1%, and the official sector invested 32,575 tons, accounting for 17.1%, and other 26,711 tons. 14.1%. In 2018, the world's new gold production was 3,347 tons. By the end of 2018, the global gold stock was about 193,387 tons.

Judging from the annual output of new products, the world has produced 2,400 to 3,300 tons of gold per year since 2002, and it has increased in recent years.

Based on the annual production of 2,800 tons, the global gold stock in the year of 2029 is about 221,387 tons. The current gold price is 1,296.75 US dollars per ounce, the value is about 10.13 trillion US dollars, and the private and official sector investment gold value is about 3.87 trillion US dollars.

On the basis of the above assumptions, the respective BTC prices can be estimated by considering the ratio of different BTC market values ​​to the value reserve gold market value. Under the most conservative assumptions (BTC market value is 1% of the value reserve gold market value), BTC's valuation is about $1,900, under the optimistic assumption (BTC market value accounts for 50% of the value reserve gold market value), BTC valuation Up to 95,000 US dollars.

To put it simply, an optimistic investor may think that BTC's market value can account for 50% of the estimated value reserve gold market value by 2029 and before, then in his view, BTC's price is at the upper limit of 2029 and before. It is about $100,000.

At the beginning of May 2019, the price of BTC was around US$6,000, the corresponding BTC market value was about US$106 billion, the value reserve gold market value was US$3.38 trillion, and the BTC market value was about 3.13% of the value reserve gold market value.

The above only considers the gold invested by the private and official sectors, and does not include the gold jewellery that has the highest proportion of gold stock. If this part is taken into account, the BTC is estimated at about 210,000 when the market value is 50%. Dollar.

Another important driver of BTC value is as an offshore asset. Offshore bank accounts are used to store wealth because of their security and privacy, but in fact this approach is not absolutely safe and private. BTC's good anti-censorship makes it a safer and more secret way to store wealth. Buying a BTC is easier and more convenient than setting up an offshore bank account.

According to the Global Wealth Report released by BCG in 2018, global offshore assets in 2017 were approximately $8.2 trillion, an increase of 6% compared to 2016, and CAGR from 2012 to 2017 was approximately 5%. From 2018 to 2029, offshore assets CAGR was calculated at 2.5%, and global offshore assets reached US$10.8 trillion in 2029.

On the basis of the above assumptions, the ratio of different BTC market values ​​to the market value of offshore assets can be considered separately, and the corresponding BTC price can be estimated. Under the most conservative assumptions (BTC market capitalization accounts for 1% of offshore asset market value), BTC is valued at approximately $5,300, under optimistic assumptions (BTC market capitalization accounts for 50% of offshore asset market value), BTC valuation Up to 260,000 US dollars.

To put it simply, an optimistic investor may think that the market value of BTC can reach 50% of the market value of offshore assets by 2029, and in his view, the price of BTC is capped at 260,000 in 2029 and before. Around the dollar.

At the beginning of May 2019, the price of BTC was around US$6,000, the corresponding BTC market value was about US$106 billion, the offshore market capitalization was about US$8.4 trillion, and the BTC market value was about 1.3% of the offshore asset market value.

Further, while considering the value reserve gold and offshore assets, the BTC market value accounts for 50% of the value reserve gold and the total market value of offshore assets, the BTC valuation is about 360,000 US dollars (if gold is considered as a gold jewelry part, BTC The estimate is about $480,000).

To put it simply, an optimistic investor may think that the market value of BTC can reach the estimated gold market value and 50% of the total market value of offshore assets by 2029, and then, in his view, the price of BTC is in 2029. The previous ceiling was around $360,000.

At the beginning of May 2019, the BTC price of about 6,000 US dollars, the corresponding BTC market value is about 106 billion US dollars, the total market value of value reserve gold and offshore assets is about 11.8 trillion US dollars, BTC market value accounts for about the value reserve gold and offshore assets. 0.9% of the market value.

Conclusion: BTC has great potential as a value reserve. By comparing BTC with gold and French currency, it can be found that BTC has shown its potential to become a good value reserve in addition to its short birth time and stability to gold and legal currency. Assuming BTC acquires different gold as a value reserve and market share of offshore assets, there is a relative expectation for the corresponding BTC price.

Note:

For some reasons, some of the nouns in this article are not very accurate, such as: pass, digital pass, digital currency, currency, token, Crowdsale, etc. If you have any questions, you can call us to discuss.

This article is original for the General Research Institute (ID: TokenRoll). Unauthorized reproduction is prohibited. Reprint, please reply to the background keywords [reproduced]

General Information Institute × FENBUSHI DIGITAL

Text: Song Shuangjie, CFA; Tian Zhiyuan

Special Adviser: Shen Bo; Rin