Super Nova: What is a Bitcoin Worth?


Asking what is bitcoin worth and what is the price of bitcoin are not the same question. Securities markets are considered highly efficient yet investors find and buy stock in undervalued companies all the time. An efficient market is one where the price matches the value because all information is reflected in the price. Bitcoin worth is not reflected in the price of bitcoin. There's a whole range of people who value bitcoin much higher than its price so now is a great time to buy bitcoin before the market catches up to itself. 

Disclosure

I'm a Bitcoin Evangelist so I'm very biased towards bitcoin being undervalued. Bitcoin is impossible to price accurately because it's true potential has yet to be realized. An infinite number of use cases will continue to provide value as they are rolled out and deployed over the coming years. The birth of altcoins, appcoins and fundamentally new protocols are proof of an accelerating expanding Bitcoin Universe. 

Price

The price of bitcoin can be found everywhere on bitcoin exchanges, bitcoin price indexes and providers of traditional financial information. The Bitcoin Investment Trust is an investment example where non-bitcoiners can buy bitcoin. It generally mirror the bitcoin price at a slight premium. Bitcoin is ripe for exploitation of gains as the DNA of traditional financial market stuff like shorting, margin trading and derivatives are woven into the Bitcoin market. 

Succumb

The forces of trading are moving the price of bitcoin around perhaps more than its true worth is being reflected in the price. However, like the dance between gravity and fusion inside a star, fusion succumbs to gravity exploding into a Super Nova. Gravity in this case is bitcoin's infinite number of use cases and the explosion is it's unrealized potential manifesting in a higher future price of bitcoin.

Worth

Bitcoin worth is also largely dependent on what you think it's worth. In Bitcoin Billions, a chapter in my book, The Ultimate Bitcoin Business Guide, I examine how various financial experts developed models to put a scientific price on bitcoin. This is a topic for another blog but it gives a solid basis to assert that bitcoin has never been overpriced or in a bitcoin bubble. Just add in your own value premium and figure out what is bitcoin worth to you. 

Unlike Anything

In September 2014, Gil Luria, managing director of equity research for Wedbush Securities, stated "bitcoin is unlike any financial instrument that existed before it, which makes it so much more difficult to value. The range of potential outcomes is so great (in my mind between zero dollars and $1 million) that it is much harder to value than stocks and small changes to its potential change its value to dramatically."

The Spread

ALFAquotes.com uses a bitcoin mining based formula to calculate bitcoin worth relative to the price. by crunching the change in the cost of mining equipment, hashing power and factors of production like electricity cost. The site shows the spread as bitcoin potential or the amount bitcoin is undervalued which is a consistently high percentage. At blog time bitcoin "fair" price is $1077.87 and the bitcoin market price is $661.43, a 62.96% potential. Value investors would jump all over bitcoin with numbers like this the same they would for any stock. This approach was inspired by reigning in folks touting sky high numbers and those party poopers claiming bitcoin has no value.

Fixed Supply

One thing's for certain there will never be more than 21,000,000 bitcoins and likely substantially less. Each bitcoin can be divided into 100,000,000 units called Satoshis. This shakes out to a mind numbing 2.1 quadrillion units (2,100,000,000,000,000). As the value of the Bitcoin Network increases over time the price of bitcoin can only go up when supply remains constant (after all bitcoins are mined). It's a simple formula. 

Example #1: The value of the Bitcoin Network as demonstrated by demand and usefulness is $3.5B with 12,000,000 bitcoins in circulation resulting in a price of $292 per bitcoin 

Example #2: The value is $9B with 13,000,000 bitcoins in circulation resulting in a price of $692 per bitcoin. 

To The Moon 

At blog time the price of one bitcoin is about $625 and sometime hundreds of years into the future one satoshi with be worth $625, a 100,000,000 increase. There's no central bank non-stop money printing shenanigans here just the first predicable monetary policy in the history of money. The "store of value" component of bitcoin is insanely high so everyone should stash away at least one bitcoin.

Learning

As you can see bitcoin worth and the price of bitcoin are two different things, what do you think a bitcoin is worth? Your answer will change as you learn more about bitcoin so get your copy of The Ultimate Bitcoin Business Guide™ in paperback, eBook and audiobook. Also stay tuned with The Ultimate Bitcoin Business Blog™. There's no better place to learn about this new 21st century money. 

Kirk Phillips, The Bitcoin CPA™