How much should bitcoin cost

The analysis aims to determine the reasonable (or fair / fundamental) value of bitcoin.

The material is split into two parts. Cryptocurrency market growth prospects and Bitcoin valuation.

Part 1. Prospects for the growth of the cryptocurrency market

Many people know that in macroeconomics there are indicators of the volume of money supply (they are called monetary aggregates):

M0 = cash in circulation (coins, banknotes);

M1 = M0 + funds in settlement and current accounts, checks, demand deposits;

M2 = M1 + time deposits;

M3 = M2 + savings deposits, commercial bills and short-term government securities.

Thus, the money supply includes means of payment (this is M1) and savings (savings are added to M1).

Cryptocurrencies are not a store of valuedue to reasons of high volatility and lowcorrelations with prices for goods and services. Owning cryptocurrencies does not protect our purchasing power. And it is unlikely that a person in his right mind will save money for education for children, for an apartment or for retirement in cryptocurrencies.

Cryptocurrencies - means of payment... This means that cryptocurrencies belong tomonetary aggregate M1, that is, they compete with other currencies as a means of payment. The global volume of M1 funds of payments is about 45 trillion. dollars. Four regions - the USA, China, Japan and the European Union - occupy about 15% each in the M1 aggregate. Suppose M1 grows to $ 75 trillion by 2025. dollars (the average annual growth rate of the money supply will remain 11%, observed since 2015) Then, such issuers as the United States, China, Japan and the European Union will account for approximately 11 trillion. dollars (15% of 75 trillion dollars.)

It can be assumed, within the framework of an optimisticscenario, by 2025 the volume of all cryptocurrencies will be 50% of the volume of the M1 aggregate of such giants as the USA (or China, or the European Union), i.e. 5-6 trillion. dollars (over the last 3 years, the share of cryptocurrencies has fluctuated from 5 to 14% of US M1). This means that the volumemarket of cryptocurrencies from the current 1 trillion. dollars has a growth potential of 40% annually up to 5 trillion. Doll.

Why is this scenario optimistic?

Firstly, privatecryptocurrencies will remain an inconvenient means of payment for a long time... For most sellers of goods and servicescryptocurrencies are too volatile to be priced in. And where will they get it later - will they buy a new batch of goods or raw materials? All production chains of goods and services are tied to traditional currencies with low volatility.

For buyers, the inconvenience is due to the fact thatthe time will not come soon when salaries will begin to be paid in volatile and unrelated to the economy of the vast majority of companies in cryptocurrencies. In this case, where will buyers get the cryptocurrency to buy goods and services from?

For sellers, buyers, employers and workersthe use of private cryptocurrencies in settlements is an additional currency risk created from scratch... It will be more convenient to pay in traditional currencies.

Secondly, imagine that private cryptocurrencies will gain popularity, and the status of states that control their own currencies will be threatened. Then, and this is very likely,governments will do everything to declare independent (private) cryptocurrencies and everyone who uses them outlawed. I think Mayer Rothschild said: “Let me manage the money of a country, and I don’t care who makes the laws there.”The function of controlling the emission of money is too important for the state to give it to some freaks.

So,in the optimistic scenario, one can expect an increase in the capitalization of cryptocurrencies from 1 to 5 trillion. dollars in 2025... Good growth.And it would be logical to create a portfolio of existing cryptocurrencies. However, imagine, 15-20 years ago, someone from the future 2021 would have told you that almost each of the 7 billion earthlings would have a phone call, and the phone itself would have everything - news, mail, access to a bank account , games, etc. Knowing this, what stock would you buy then? Most likely Nokia and Motorola, but definitely not Apple and Samsung.

The same goes for cryptocurrencies. Yes, they are generally promising, butwithin the next 5 years on the market maynew cryptocurrencies will appear from more respectable and, most importantly, powerful issuers (consortia of banks, IT giants and states). Due to them, the market will grow in many ways.

Part 2 - "Estimating the value of bitcoin" - published ontelegram channel: https://t.me/TradPhronesis