How To Estimate Bitcoin’s Fundamental Value

&l;p&g;Bitcoin pricing has rebounded of late to again approach the $10,000 mark, which is our estimate for its current fair value based on our &l;a href=&q;https://dashboards.trefis.com/no-login-required/petx6jEu?fromforbesandarticle=how-to-estimate-bitcoins-fundamental-value&q; target=&q;_blank&q;&g;&l;strong&g;bitcoin price estimator dashboard&l;/strong&g;&l;/a&g;. This estimate is based primarily on factors such as the number of unique users and transaction volumes. While the day-to-day price of Bitcoin is undoubtedly impacted by other, less quantifiable factors, we believe that this is a sound method for estimating the currency&a;rsquo;s fundamental value.

&l;strong&g;Utilizing The Price Estimator&l;/strong&g;

&l;a href=&q;https://vimeo.com/257961400&q; target=&q;_blank&q;&g;&l;strong&g;This video&l;/strong&g;&l;/a&g; shows how to leverage our bitcoin pricing dashboard. While the dashboard looks extremely simple, in back-testing &a;ndash; a method to see how well it could have predicted prices in the past &a;ndash; it was about 96% accurate. As shown in the table below, the back-testing results are very similar to the actual figures.

&l;a href=&q;https://dashboards.trefis.com/no-login-required/petx6jEu?fromforbesandarticle=how-to-estimate-bitcoins-fundamental-value&q; target=&q;_blank&q;&g;&l;img class=&q; wp-image-181972 size-full&q; src=&q;http://blogs-images.forbes.com/greatspeculations/files/2018/03/BTC-Back-Testing.jpg?width=960&q; alt=&q;&q; data-height=&q;382&q; data-width=&q;655&q;&g;&l;/a&g;

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The 96% accuracy figure was especially interesting, so we took a deeper dive. What does Bitcoin pricing depend on? Like the price for anything, it depends on two things: demand and supply, i.e. how many people want it vs. what is available. Demand for Bitcoin is primarily driven by two factors: the number of active users, and how much they transact. On the supply side, the number of available Bitcoins is capped, and about 80% of the capped number is already mined. As such, it is sensible to focus on the demand, both in terms of users and transaction volumes.

&l;a href=&q;https://dashboards.trefis.com/no-login-required/petx6jEu?fromforbesandarticle=how-to-estimate-bitcoins-fundamental-value&q; target=&q;_blank&q;&g;&l;img class=&q; wp-image-181973 size-full&q; src=&q;http://blogs-images.forbes.com/greatspeculations/files/2018/03/BTC-Drivers-e1520879384538.jpg?width=960&q; alt=&q;&q; data-height=&q;306&q; data-width=&q;616&q;&g;&l;/a&g;

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&l;strong&g;Create Your Own Estimate&l;/strong&g;

If a user believes that our transaction volume forecast is too high &a;ndash; for example, if you think that the April volume forecast should be about 1 billion, you can click on the April forecast and enter 1 billion. In this scenario, the Bitcoin predicted price drops to about $8,000 for April. This is fine, but in this case the $16,000 estimate by the end of the year looks high. Accordingly, we can enter a lower uniform growth rate for the rest of the year by selecting the May data point and clicking Advanced. From there, you can select a specific growth rate &a;ndash; such as 2% &a;ndash; for May and beyond.

&l;!–nextpage–&g; In this scenario, the Bitcoin predicted price shows about $11,000 by the end of the year. If you think this is too low or too high, you can enter your own expectations for Bitcoin demand indicators &a;ndash; users and transaction volumes &a;ndash; and come up with your own estimate for Bitcoin pricing.

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&l;strong&g;Like our charts?&l;/strong&g; Embed them in your own posts using the &l;a href=&q;http://wordpress.org/extend/plugins/trefis-forecast/&q; target=&q;_blank&q;&g;Trefis WordPress Plugin&l;/a&g;.&l;/p&g;

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