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{
  "@context": "https://schema.org/", 
  "@type": "HowTo", 
  "name": "How to Value Bitcoin",
  "description": "Bitcoin is many things to different people. In this session, you will learn about the different Bitcoin valuation models and frameworks used by professionals and academics of different perspectives, as well as critiques of these frameworks.
Valuing Bitcoin can be a challenge as, due to its abstract nature, there is “nothing to relate it to.” However, by shifting the lens through which we view Bitcoin, we can arrive at compelling theories through S2F, cost of production, Metcalfe’s law and relating it to a start-up. Each model also hosts criticisms, accommodating for improvements and adaptations. Ultimately, Bitcoin’s speculative nature calls to attention the need for more understanding of its various methods of valuation.",
  "step": [{
    "@type": "HowToStep",
    "text": "In a canonical July 2010 Bitcointalk.org forum post by Satoshi Nakamoto, Bitcoin’s creator, they said “Sorry for being a wet blanket. Writing a description for this thing for general audiences is bloody hard. There’s nothing to relate it to.” Because Bitcoin is so hard to describe, define or contextualise, people can barely agree on what Bitcoin is, let alone how to value it. By default, all frameworks we attempt to apply to Bitcoin will fall short, simply because Bitcoin isn’t “just” a network, software, commodity, or financial asset; it is all of the above, and potentially more. In short, the following valuation methods in isolation are unsuitable for valuing Bitcoin, but when taken together, can be quite useful.",
    "name": "Foreword",
    "url": "https://monochrome.co/research-article/how-to-value-bitcoin/"
  },{
    "@type": "HowToStep",
    "text": "Proponents often view Bitcoin as a network, and look to value it as such. Metcalfe’s law is a concept used in telecommunications in which a network’s inherent value is equal to the square of the number of nodes in its network. Using the example of fax machines, there is no value in owning a fax machine unless there is another to communicate with. The connections between cryptocurrencies and people can hence be quantified by the increase in their adoption. According to Timothy Peterson’s work in Metcafe’s Law as a Model for Bitcoin’s Value, the model requires three datasets: wallets, number of bitcoins created, and Bitcoin price. As Metcalfe’s law was seen to be too optimistic a figure, Peterson incorporated a method used to measure mobile phone usage. Peterson’s data can be found below, including Metcalfe value against Bitcoin price.",
    "name": "Network Effects (Metcalfe’s Law)",
    "url": "https://monochrome.co/research-article/how-to-value-bitcoin/"
  },{
    "@type": "HowToStep",
    "text": "Since the creation of new bitcoins requires electricity consumption via computational power, Hayes (2016) suggests Bitcoin can derive intrinsic value from its cost of production. The nature of competition in the Bitcoin Mining space is near-perfect due to, among other things, its commodity-like nature, low barriers to entry and exit, large number of buyers and sellers, and high mobility. Due to this level of competition, we can expect marginal revenue of mining firms to eventually equal marginal cost in long-term equilibrium. The cost of production of Bitcoin is fundamentally a strong benchmark for its absolute floor price, as a rational miner will choose to simply buy Bitcoin instead of mine if mining is unprofitable. It also illustrates how market price gravitates towards its cost as commodities tend to do, outlined in Satoshi Nakamoto’s work.",
    "name": "Cost of Production Model by DataDater",
    "url": "https://monochrome.co/research-article/how-to-value-bitcoin/"
  },{
    "@type": "HowToStep",
    "text": "Another way to value Bitcoin can be as a Store of Value (SoV) commodity. This value store is attributed to scarcity created by its underlying code; a maximum issuance of 21 million coins, with a predetermined diminishing supply. This allows Bitcoin to be valued using stock-to-flow (S2F) ratios primarily used for SoV commodities. It should be noted that this is one of the most contentious valuation models, even within the Bitcoin community, with critics and supporters.",
    "name": "Stock-to-Flow (S2F)",
    "url": "https://monochrome.co/research-article/how-to-value-bitcoin/"
  },{
    "@type": "HowToStep",
    "text": "The Market Sizing method can be used by valuing the Bitcoin market against comparable markets, including global remittances and gold. This approach is well suited for gold given the similarities. The implied Bitcoin price can hence be calculated as the level of penetration multiplied by the value of the target market divided by the fully-diluted circulating supply (how much will exist). A penetration rate is a proportion of what Bitcoin captures and changes depending on its usage. Lanre Ige and Michael Gotimer from Amun have forecasted paths required for the Bitcoin price to reach gold penetration levels until mid 2025. At 10% penetration, Bitcoin will generate a target price of $38,600. This figure increases to $115,700 at 30% penetration. This timeframe is selected to represent an adequate advancement made in Bitcoin’s underlying technology and infrastructure. As Bitcoin grows in value and daily transactions, it becomes more useful. An increase in usability will increase market size, thus increasing in accordance with the buying power that matches the natural growth of civilisation.",
    "name": "Market Size Approach",
    "url": "https://monochrome.co/research-article/how-to-value-bitcoin/"
  },{
    "@type": "HowToStep",
    "text": "There is no shortage of venture capitalists in the digital asset space, and it is irresistible for them to not think of digital assets as startup companies. Indeed, according to US Securities and Exchange Commission (SEC) Chairman Gary Gensler, the gross majority of “digital assets”, Bitcoin excluded, can likely be defined as securities or startup companies. Fundraising rounds can be compared to Bitcoin’s reward eras, as shown in the below framework chart.
The earliest stage was the pre-seed round, or 1st reward era (2009-2012). This period saw an extreme risk of failure where the earliest developers used both sweat equity and funds from the market to bootstrap the startup. The earliest developers can be very easily compared to the early equity employees of Google. The next round (seed round) saw the first VCs entering, investing in Bitcoin companies or Bitcoin itself.

For a typical “Series A” round, companies opt for funding to improve their user base and product offerings. Bitcoin was improved through protocol optimisations like SegWit, which allowed for the possibilities of the Lightning Network. A startup then uses funding in the Series B round to meet new and increased levels of demand. (Remember there isn’t any actual formal fund-raising or allocation done as Bitcoin is not a company.) The investment-to-utility lifecycle presented in the figure above suggests that it is simply a distributed network of Bitcoiners, who started off by building sweat-equity in a project they were passionate about, increasing the utility of the platform, thereby drawing in more participation, investment, and ultimately, additional utility over time. In Bitcoin’s case, after a “raise”, as people are busy at work and out of the limelight, price has tended to settle down to a natural floor over a protracted bear market. In the world of startups, this would be referred to as “burn rate”.

In startup terms, scarcity will then become a prominent element in its 5th reward era (Series C) until 2028. This Series’ funding allows people to use their influence to promote Bitcoin and increase the amount of people who buy Bitcoin. Finally, running into the 6th Reward Era (2028 - 2032), Bitcoin can be compared to an IPO. Beyond this, it can be expected to resemble a blue chip, with a relatively stable price and inflation nearing zero.",
    "name": "Bitcoin As a Startup",
    "url": "https://monochrome.co/research-article/how-to-value-bitcoin/"
  },{
    "@type": "HowToStep",
    "text": ""
  }]    
}
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