MV=PY model of Bitcoin value--what do you think? \ stacker news ~bitcoin

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MV=PY model of Bitcoin value--what do you think?

302 sats \ 9 comments \ @SimpleStacker 25 Jul 2022 bitcoin freebie

I was thinking of what would be a good long-run valuation model of Bitcoin. I thought maybe one could use the MV=PY identity to make an estimate.

For those who don't know, MV=PY says that the supply of Bitcoin (M) times the velocity of Bitcoin (V) must equal to the total value of all transactions done in Bitcoin (PY).

So imagine now a world in which all transactions are done in Bitcoin, perhaps through a L2 solution. The total value of all world trade (world GDP) is valued at around $85 trillion in today's US dollar values. So PY=$85 trillion. M, the total supply of Bitcoin, is 21 million. Assuming velocity is the same, around 1.2, we get:

(21 million BTC)*(1.2) = ($85 trillion)

Which means 1 BTC = $3.4 million. So in a hyperbitcoinized world where all trade was done in Bitcoin, one bitcoin would buy about $3.4 million worth of goods, valued in today's dollars.

Of course, velocity may not be the same, and not all world trade may be done in Bitcoin. But still, this model may be useful as a starting point. For example, if you think velocity will be lower, then the value of Bitcoin would actually be higher; if you think share of world trade will be less than 100%, then the value of Bitcoin will be lower.

Thoughts?

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100 sats \ 0 replies \ @azoundria 27 Jul 2022 freebie

There is a possibility that decentralized finance will increase the velocity of money due to enabling micropayments and streaming payments, which are not presently possible.

Imagine how much more spending could happen if you didn't have to wait until payday and could "pay as you go" on everything. Or people could monetize their own content for micropayments that right now is funded by advertising only. You can get paid to see ads or try things out as well.

30 sats \ 2 replies \ @Undisciplined 22 Mar

What? You were making good posts before I even got here!

Two thoughts

Velocity should be higher, other things equal, since transactions costs will be lower, right?
You're completely overlooking demand from savings, I think.

If bitcoin is the best store of value, then it should absorb an appreciable share of the monetary premia from other assets, which only enjoy those premia because fiat is so bad as a SoV.

31 sats \ 1 reply \ @SimpleStacker OP 22 Mar

Yep I came to stacker.news pretty early but didn't become more active till recently

As for the demand from savings, how would it show up in this equation? Coz I thought this equation was an accounting identity. Maybe it means that the PY shouldn't just count global gdp but savings demand?

I'm no monetary economist so pretty noobish at these kinds of questions

30 sats \ 0 replies \ @Undisciplined 22 Mar

Ha! I didn't know either. Just a couple of non-monetary economists groping around in the dark.

I was thinking it may show up as radically lower velocity, as a huge fraction will be at 0, but I also wondered if it would enter into PY somehow.

1 sat \ 2 replies \ @clementinemoney 25 Jul 2022 freebie

I like this approach! But curious how velocity would be calculated on chain vs L2. Would this just be a theoretical velocity where any txn is treated the same as any other, whether on chain or L2?

Also would adjust total supply of BTC to account for lost/burned coins, likely a higher valuation in that case

0 sats \ 0 replies \ @selfish_gene 25 Jul 2022

купить на 1 000 000 000 000 $ монет биткоина? 5 000 000 столько нет на рынке.... а что будет если на рынок придёт 100 000 000 000 000? а монет будет всего 100000? какая будет капитализация?

0 sats \ 0 replies \ @sb 25 Jul 2022

Nice approach, but I'd venture a guess that BTC will break all models to the upside :)