An Attempt to Get a Grip on the Fundamentals of Bitcoin Valuation

1. Bitcoin Valuation
An Attempt to Get a Grip on the Fundamentals
Frankfurt, Jan 9, 2014

2. What is Value?
Some Terms: Value, Price, Cost, Fair Value, Inherent Value

3. Why Buy?
Speculation
Attempt to profit from fluctuation, not underlying financial attributes.
Trading
wikipedia: day trading is speculation.
Investing
Long-term, based on financial attributes.
Value Investing
Very long-term, based on value.

4. Value vs. Price
Price: Current market price,
driven by supply and demand
Value: Expected proceeds from
sale (whole / sum of parts),
cost of making or buying,
expected returns (e. g.
dividends)
Expected returns: DCF is the
generally accepted method

5. Discounted Cash Flow

6. The value of Bitcoin is only based on the
expectation that it might become a generally
accepted means of payment some day.
might —> Discount rate
generally —> Money supply being replaced
some day —> time factor in DCF

7. When will Bitcoin be ubiquitous?
1. Other innovations: books, electricity,
telephone, Internet, mobile phones, …
2. Often longer than expected (UMTS, ASP, …)
3. With DCF, time is a huge factor.
4. When will it happen for Bitcoin?

8. Worldwide Money Supply
$ 50 trillion (World bank, IMF, etc.)
Ubiquity (20 years) means: 100 %
replacement.
DCF: One “return” of $ 50 trillion in 2023 to
be discounted for present value

9. Discount Rate
1. Covers risk
2. Safe (long-term): 6 %
3. VC, high risk bonds: approx. 25 %
4. Market acceptance is the main risk for new
ventures (Oliver Samwer)

10. The Big Picture
Bitcoin bears no dividends
Market price and
“production” cost alone no
measure for value
Money supply might be
replaced
Reasonable assumptions for
parameters: time, future value,
risk.

11. Present Value: $ 28,823.00
What a contrast to the current market price!

12. Influencing Factors:

13. www.bitcoin-valuation.org
Check that site for more details and discussions.