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Posted November 9, 2020
There are four main valuation frameworks for Bitcoin and I wanted to summarize them with a target valuation that one would assign if one subscribed to that framework.
1) Bitcoin’s rise is equivalent to the Tulip Mania. It has no real comparative advantage to any existing monetary good or to the current fiat monetary system and is a bubble that will eventually pop.
Long term target price: $0.
2) Bitcoin is a new monetary technology whose appeal is largely limited to technologically savvy and libertarian minded people who can tolerate its volatility, which will be a permanent feature of its existence going forward.
Long term target price: $10,000 - $100,000
3) Bitcoin is a new monetary good that will primarily disrupt its closest monetary cousin, gold. It is significantly superior to gold along all the attributes that make gold a good store of value.
Long term target: $300,000 - $1,000,000
4) Bitcoin will ultimately become the world’s reserve currency. It is superior as a collateral asset to anything ever created and will eventually drain store of value premiums out of government bonds, real-estate, precious metals and rare art.
Long term target: $10,000,000+
After existing for a decade the first valuation framework, which was dominant in the early years, is now only subscribed to by ideologues and luddites (e.g., @PeterSchiff, @paulkrugman and @nouriel). No intelligent thinker who understands Bitcoin subscribes to this framework.
The primary valuation frameworks that investors subscribe to today are 2) and 3) with the market slowly transitioning from 2) to 3). Once framework 3 is widely accepted by the market, it will lay a foundation for framework 4 to be viewed as possible and even inevitable.