Topic: Bitcoin's Future Value, Weighted Scenario Analysis - page 2. (Read 10089 times)

This is a very interesting thread, as usual for rpietila

I don't know whether this has been discussed elsewhere, but has anyone tried to estimate a value (or stated differently, a market cap) at which the US government (and/or other governments) would feel threatened by bitcoin? People like Ben Bernanke probably do not currently view bitcoin as being particularly dangerous to the dollar. But if they did, then I imagine they could and would do whatever was needed to maintain the dollar's supremacy over bitcoin. Perhaps this will be what determines the steady-state valuation of mBTC for the foreseeable future.

I would add one scenario:
F - BTC becomes illegal in many countries, although it has implemented more anonymity tools. Bitcoin becomes black market currency, especially for international transactions. It's not widely used, but because it transactions are secure can't be traced. BTC can be exchanged for gold or fiat in little tax-heaven countries. It's hard to asses mBTC value in this case.

Personally I think in that case F is more probable, than E.
I vote for C as most probable, although might be B in optimistic case.

I take a similar view on the idea that government versions of crypto currency might compete with bitcoin and thus keep it from gaining further value/adoption.
https://bitcointalksearch.org/topic/m.3839368

A government issued crypto currency would necessarily be much more centralized than bitcoin - otherwise what would be the point? No large government is going to want transactions that they cannot track, block or reverse. They aren't going to want a finite supply since the central banks would be largely pointless. They sure as hell aren't going to support mining to be the mechanism for controlled distribution.

The question then ends up being whether citizens accept or reject government issued digital currency vs bitcoin. To that answer, I'm not sure - the press has managed to get it mostly wrong about bitcoin so I'm dubious about whether they would do a decent job of educating people on the difference between centralized and decentralized currencies.

In the end, do customers always choose the superior product? I'd say that the answer is no, especially when the product is as complicated to understand as bitcoin is. I'd have to warrant that centralized digital currencies will be a threat at some point.

Interesting approach.

I distinguish bitcoin adoption by speculators apart from bitcoin adoption by the underlying economy. In 25 years I expect bitcoin to completely replace the legacy financial infrastructure and extend its utility through a disruptive combination of lower cost and software-defined features. I expect network effects to strongly favor keeping bitcoin, and to favor amending the consensus protocol to forestall otherwise competitive cryptocurrencies. Bitcoin is the TCP/IP of money in that regard.

Furthermore, consider that bitcoin is not minted by central banks in response to credit demand, rather individuals and commercial entities requiring an amount of bitcoin for working capital, e.g. for ordinary bitcoin-denominated expenses, will have to purchase that bitcoin from some holder. I am beginning to believe, and will look for evidence, that speculative holders are selling bitcoins to transacting users very dearly. Thus using a metric such as world M2 monetary base to figure the extreme high end of bitcoin adoption may be too low a target.

Actually, I can see bitcoin failing, but subtly.

There is no reason that Bitcoin can't be used to prove the concept and get the legislation worked out, and then it gets upgraded to a Government controlled version.

This could easily happen in the same way that the people who bought all those great domain names found themselves being called domain squatters and eventually had to hand everything over for free.

Rather than calculate where bitcoin will be in 7 years, why not work out where it may be in 25 years - that is the sort of time frame the finance industry works to.

 

The odds in favor aren't tiny or even particularly small, so it's nothing like Pascal's Wager.

You are making something of a Pascal's Wager style argument here.  Sure, Bitcoin, like believing in God might bring ultimate happiness and for the small entry costs set against the eternal damnation of Hell or the eternal damnation of missing out it might be logical to believe and buy in even if the odds in favor are tiny, but it is not an argument that ever made me want to go to Church or take out a loan for Bitcoin.  You should add an option for gradual decline over time as people find other things to obsess over.

I don't see any possibility of half-measures, ultimately. If Bitcoin gets established in the mainstream as anything, it will inevitably become everything (or the basis for everything). It's simply way too superior to fiat for any other possibility to play out. And if it becomes anything, it will be a store of value. With its properties it will be irrestistable as a store of value and will command insane prices. A ban would just push it to other countries and a coordinated ban would just push it underground and to holdout countries. It might take a few years but eventually it would become so powerful there that it resurges onto the world scene and continues as before.

Or it fails. (Death by altcoin dilution is probably economically impossible, but I haven't reasoned it out conclusively.)

Hence we have the old binary bet. Bitcoin will either be nothing or everything. Either nothing will be denominated in Bitcoin, or the percent of outstanding coins you control will command roughly that same percentage of all the goods, property, and services in the world.

As to the probabilities, I used to give it 90% chance of failure and 10% chance of success (still a staggeringly good investment), but now I'm leaning toward 50/50 or maybe even 60/40 in favor of success. It only makes sense that as upside is reduced (by 100x this year) the probability of success is increased.

Am i misunderstanding something here? It seems that your prices are based on a total amount of fiat going to bitcoins divided by the number of bitcoins. Isnt the price based on available supply vs demand. The fiat in bitcoins - doesnt it make a only a fraction of a price?

It's a prediction, not for now.

My probability distribution (for a not so remote future when I am still alive)
A: 0
B: 0
C: 5%
D: 45%
E: 50%

So the expected value of mBTC is 300 * 0.05 + 17 * 0.45 = 22.65.
Not too bad, it seems I have a good chance to be a millionaire without doing anything.

Nice argument.

interesting reading, I would like to share my imagination for these scenarios

A- If I understood this right than I think this is happening already, we have so many worthless coins out there I mean really so many that we have a coin for every word in the dictionary (sarcasm) but this really worries me, I thought of having 2 mx 3 alts as a backup but this went out of control now I am starting to think what is the point of alts.

B- I personally think that is the last thing to happen, even to think about it is hard for a simple reason, this could be a scenario only if a big revolution start to take down all currepted systems and replace them with a system who adopts the concept have.

C- I think this is the most realistic scenario and the closest to what we are at now, and I personally believe on this one, in fact just few minutes ago I posted something about it, feel free to read it   https://bitcointalk.org/index.php?topic=358943.0;topicseen

D- to be honest I really do not understand how can this happen exactly.


F- I didnt like seing it on the list but for the sake of the argument it is a possible scenario, but there is really a small chance of this happening.

Alternative A is utopistic, some people have explained it to me but it was above my understanding. Similar as the Internet is now, compared to the life in the 1980s. The change has been so profound, yet so gentle.

As 100x cleverly pointed out, the expected value (weighted average of the outcomes) does not change significantly whether the zero case is weighed with 3% or 50%. It is much more important that there are realistic scenarios with enough zeros after the significant digits. And based on sound mathematics and economical thinking, this is the case. This drives level-headed investors to take Kelly bets and many more take smaller bets.

This new fiat pushes the prices higher. Compare this to an old thread from last March. Price was about $50 and we run the same thought experiment. We arrived at the conclusion that the EV is $2200 or so. The background was that price had quickly risen 5x after several months of flatlining, so essentially identical to our situation. It was scary to buy more after such a runup, but this analysis was irresistible.

It is self-fulfilling. If 9 months ago Bitcoin was undervalued by 1:44, now it is undervalued by 1:100, 1:300, 1:1000 or so, depending on the weights. If Bitcoin is considered as even more sure bet now than it was then, it is all the more probable that 9 months from now we estimate that the most positive scenarios are the most realistic.

As long as bitcoin price relentlessly rises (and we are already seeing about 50% awareness among general population), everybody is faced with the decision whether to buy or not. Oh, I had so much to talk to you from last night's conversations

And yet the US Treasury and FBI have REPEATEDLY said that there are legitimate uses of bitcoin.  The more senators, Second Market customers, hedge fund managers and billionaires that get involved in bitcoin, the less likely this is.

Since we are seeing a fair amount of this, I'm setting the government ban possibility as very low.

The tackling of this question is commendable since answering it is not something that many (or any) of us are up to individually.

Option A seems rather unlikely in the near future. In order for us to not have a lower class "poor in the sense of not having his basic needs met" we would need a massive technological change, ala Star Trek's replicator, transporter, etc. Scarcity of basic resources such as food, clean water and adequate shelter for the masses who still don't possess a smart phone is not a trivial problem to overcome. Without some incredible change in technology and/or motivation by those with means, I can't see worldwide distribution of wealth as a benefit for any digital currency - maybe I'm just missing something. In my opinion money may become ubiquitous, but the value of money in relation to resources will still challenge those who struggle today.

Option B seems unlikely since there is going to be a massive tug of war between the desire for the government to maintain control and the ability for technological advances to thwart such control, without either side being able to declare ultimate victory. It would be like the Pirate Bay buying out and taking over iTunes/Apple - it gives one giggles to think about an awesome day like that, but it's hard to envision a reality where this is the case.

In my opinion, Option E is also unlikely under any scenario except for technical failure. The world has just barely discovered peer to peer financial transactions. Even if bitcoin fails because of a technical reason, how do you put the desire to perform these transactions back in the bottle? Most likely bitcoin is adaptable to technical failures and if it isn't then bitcoin 2.0 takes its place. Considering that there is a likely point where you can exchange the value of bitcoin 1 for bitcoin 2, I don't see that as a failure. Similar to the war on drugs or peer to peer file sharing, the government can have an impact, but it never really is able to fully stamp out the public's desire for drugs or the spread of information.

Options C and D seem plausible. I can't fathom what kills the momentum when bitcoin reaches perhaps the value of $17/mBTC mentioned in Option D but then again the future is always hard to see before you get there. I'll take a stab at it though:

TL;DR version:

Option D happens ($17/mBTC) and at that point, major governments decide to adopt the components of distributed currencies making officially sanctioned competitors for bitcoin that the elite of the world can get behind and embrace. This mollifies the masses into being provided with officially endorsed cryptocurrencies without banning bitcoin. Bitcoin is overly regulated and becomes a tool for only the technologically capable, the criminals or fringe anarchist/libertarians (no offense intended). I could see bitcoin managing to stay valuable but not be accepted by the masses due to fear of being scrutinized or persecuted for choosing to use the 'shady' version of digital currencies. Back to the bit torrent comparison again, how many users don't choose to use torrent for fear of being prosecuted and instead go with iTunes? Between fear and ease of use, the majority choose the sanctioned version, I wager.

http://www.zerohedge.com/news/2013-12-05/bofaml-sees-bitcoin-fair-value-1300

$1300 apparently is a fair value... seems a bit plucked out of thin air, but there you go!

I wouldn't try to guess a future valuation, but C feels like a realistic scenario. As an asset class its future would be pretty peaceful and secure.

There would be a dedicated attempt at all-out eradication if it ever came close to completely upending a major currency. I've no idea whether such an attempt could ever succeed, but the wars on drugs and terrorism don't make a whole load of sense either and they're piffling sideshows in comparison.

What's worth taking into account are the uses that are still to be fully explored. It's possible previously unthought of new economic opportunities could be created.

Someone has to play the devils advocate.

Everybody here is painting a mostly good to great future for bitcoin.

Risto's E option (bitcoin fails) seems to be almost not an option to most of you. There are so many reasons that this
option will play out that it's not even funny. I'll leave the technical reasons out of this. The most threat is from the current elite of the world that basically control everything. Sure, they might just climb on the bandwagon and try to make even more wealth with bitcoin but the chances are not small that they will come down hard if it looks like bitcoin is "upsetting". It's not a matter of the U.S.  or U.K. banning bitcoin. If this happens it will be practically a worldwide ban. The bitcoin technology will continue to exist of course but not as anything we wish it would be.

For this reason I suggested in my 1st post  a 50% possibility for option E.

I would put C-/D , as the most probable scenario. Given the technology and goverment regulatory risks.
i.e.,
a) Bitcoin handles the same volume as Paypal, but both have different areas of application
b) Bitcoin is a major player in international remittances , Western Union and Money gram are wounded but still limp along as the lower end customer base still use them.
c)  As a store of value Bitcoin captures 10% of the market share of gold.


Why just 10% of gold and not 100%.
a) After 15 years, online sales are just 10% of retail sales
b) There will be some medium to small size govt that will ban bitcoin.
c) The greater the market cap of Bitcoin, more incentive for creation and propagation of viruses, botnetworks etc...
d) Inflation from Altcoin's in the future.

That still puts it at at around 30k per coin.

Bank of America analysts just said that C has a maximum valuation of $1300 ($1.30 per mBTC).

I don't believe that of course, just wanted to make everyone on here laugh.

I think that rpietila's per coin dollars are inflated.  I think in a C to C- scenario (C- being where bitcoin replaces major functions of PayPal, WU and MG) that we would see a valuation of about $30-$40 per mBTC.  That's an order of magnitude difference from the $300 that rpietila is saying.

I see A and B as very remote (less than 10% together) and E as about 10% as well.