How to predict fundamental value of Bitcoin
Predicting the long-term fundamental value of Bitcoin involves a multifaceted approach. There are many speculations around its future value. What is the long-term fundamental value of the Bitcoin? How to predict the price with maximum probability? What are the drivers of the future price? We share our insights.
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Supply-based valuation of Bitcoin
Bitcoin’s value can be analyzed through supply-based value indicators, considering that the circulating supply of Bitcoin can be determined quite easily due to its predetermined, finite, and fixed nature. Below we share our analysis.
As of?May 7, 2024, there were?19,694,756?bitcoins in existence. Since Bitcoin has a?limit of 21 million, there are approximately?1,305,244?bitcoins left to be rewarded. The maximum total supply of Bitcoin is indeed?21 million. However, due to the use of rounding operators in the Bitcoin codebase, the actual number of bitcoins issued is likely to fall slightly short of that figure. Let me explain why:
Rounding Down and Satoshis:
Future Halvings:
The halving process ensures that the total supply of Bitcoin approaches its?maximum limit of 21 million?over time. The?stock-to-flow ratio?(SF) measures the existing stock (circulating supply) relative to the newly produced flow (annual issuance). A higher SF ratio indicates greater scarcity. Bitcoin’s SF ratio increases significantly after each halving, making it more comparable to precious metals like gold. I agree with many of those experts who believe that the scarcity created by halving events will contribute to Bitcoin’s long-term value.
Thus, from my research and analysis, I noticed that every time after bitcoin halving event, we witness price growth to the next higher-highs levels.
It’s important to note that while stock-to-flow (SF) models are widely regarded and have historically been used to predict Bitcoin’s price trajectory, such predictions should still be approached with caution due to the inherent volatility and unpredictability of cryptocurrency markets.
However, theoretically, if we apply SF model, to predict the price of the bitcoin by the year 2028 (the next halving event), the bitcoin’s price could reach $600,000. The SF model calculates the stock-to-flow ratio by dividing the current stock of Bitcoin by the annual production flow, and it has been used to predict significant price increases for Bitcoin, especially surrounding halving events (which corresponds to our Price vs. Halving Event analysis).
Why Bitcoin is considered as a store of value
We highlight the following important reasons for that:
Limited Supply: As we explained above, bitcoin has a capped supply of 21 million coins, which creates scarcity similar to precious metals like gold. This scarcity can protect against the devaluation that might occur with fiat currencies due to inflation.
Decentralization: Bitcoin operates on a decentralized network, which means it isn’t subject to control by any single entity, government, or central bank. This independence from traditional financial systems can be seen as a hedge against economic instability caused by policy changes or financial mismanagement.
Durability and Portability: Bitcoin exists on the blockchain, which means it is not subject to the physical wear and tear that can affect fiat currency or commodities. Additionally, it can be easily transferred and used across borders, adding to its utility as a store of value.
Recognizability and Acceptance: As the first cryptocurrency, bitcoin has the advantage of brand recognition and a growing acceptance as a form of payment, which supports its value proposition.
Security: The underlying technology of bitcoin, the blockchain, provides a secure and immutable ledger for transactions. This security aspect gives holders confidence that their assets cannot be easily tampered with or counterfeited.
Historical Performance: Although past performance is not indicative of future results, bitcoin has seen significant appreciation over the years since its inception, outperforming many traditional assets. This track record has led many to view it as a viable store of value.
Digital Gold: Often referred to as ‘digital gold,’ bitcoin shares many characteristics with gold, a traditional store of value, such as durability, scarcity, and being a hedge against inflation. This comparison has strengthened its narrative as a store of value. We also witnessed positive price correlation between bitcoin and geopolitical risk.
What are experts saying
Changelly’s Price Prediction:
Morgan Creek CEO Mark Yusko:
DigitalCoinPrice Forecast:
General Range:
Summary – Our view
Bitcoin’s price is influenced by a complex interplay of many factors, and predicting its long-term trajectory remains challenging. Besides scarcity and halving events, bitcoin’s price is impacted by regulatory environment.
Favorable regulations can boost adoption and price; conversely, restrictive regulations or outright bans can hinder growth. Growing demand from institutional investors, corporations and retail users can also impact bitcoin price.
High liquidity and growing trading volume also positively impact bitcoin price development. Among the factors which may prevent bitcoin’s price appreciation: we highlight growing competition from other evolving cryptocurrencies. However, when we mention all these factors, we still see that the price growth drivers significantly overweight the negative factors.
While it is challenging to predict, with 100% certainty, the long-term price of Bitcoin, one is sure – the price will likely continue to reach higher-highs in the coming decade.
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