Nice approach!
Still, while I accept the existence of scenarios B (sole currency) and E (failure), it seems to me the other scenarios are variations on X, which is co-existence; I'm not quite sure what to make of A!
I'm pretty sure $100T of money stock is an over-estimate in a non-inflationary world. The world's 2010 money supply was only put at $55T. I suspect we might get by with only $20T.
I would break failure down into three possibilities resulting in low/zero value ($0.1): technical failure/limitation: 5%; political suppression: 10%; commercial/competitive failure: 15%.
I see two possibilities yielding high value success (somewhere between $1,000 - $5,000): competitive/Darwinian domination: 15%; political adoption with the suppression of alternatives: 10%.
Successful co-existence is another possibility, as per cases C and D ($300 and $17): 45%, yielding a middling value.
So I'd calculate 1mBTC's expected value to be $0.03 + ($250 to $1250) + $142.6 = $393 to $1393, depending on the likely value of bitcoin as the world's exclusive currency.
Topic: Bitcoin's Future Value, Weighted Scenario Analysis - page 3. (Read 10089 times)
Very informative post. As things are right now, I would be inclined to believe that Option C might prevail:
C. Bitcoin becomes an important independent world currency or a reserve currency with real bills, moderate fractional reserve, etc. Then it can go to the same value as the stock of world's gold, which is in the same ballpark as the M1 money of USD, EUR or JPY. This would put 1mBTC=$300.
Time will tell though, and in the meanwhile it's usefull to have a summary of possible scenario's
C. Bitcoin becomes an important independent world currency or a reserve currency with real bills, moderate fractional reserve, etc. Then it can go to the same value as the stock of world's gold, which is in the same ballpark as the M1 money of USD, EUR or JPY. This would put 1mBTC=$300.
Time will tell though, and in the meanwhile it's usefull to have a summary of possible scenario's
Fantastic intelligently calculated analysis repietilla, was a good read.
C seems like the likely scenario at the moment, D sounds like gold in the past 2 years.
C seems like the likely scenario at the moment, D sounds like gold in the past 2 years.
Bitcoins have various uses. An arbitrage argument implies that the values derived from all uses equalize. One use is as a circulating currency. In that use, the value is described by PQ=MV. In this case, M can be taken as the fraction of the bitcoin which is in use as a circulating currency. In that application V is approximately 6, which is consistent with fiat economies and the current blockchain turn-over. Gresham's law dictates that bitcoin are hoarded in preference to fiat. My best first estimate of M therefore is 10% of supply. Let's be conservative in valuation and lazy in math, and allow it to be 1/6 to balance V. PQ is the volume of goods and services transacted times the price at which they are transacted, using bitcoin. On this basis, the market cap of bitcoin should be approximately equal to the bitcoin annual GDP. As a best-effort first guess, I would call it, say, France, about 2.6 tln USD2013. For a semi-durable bound, we take the all-uses bitcoin supply at 18mn. Thus, 1 mBTC = $15.
The parameters of the model are up for debate, but the model itself is inescapable.
The parameters of the model are up for debate, but the model itself is inescapable.
+1
Statistically speaking, your bitcoin-as-currency assumptions are fairly adequate. Chances are it's missing a strong point here. This is the physical meaning of BTC. This is the most important aspect IMHO. IF (and that's a strong one) it evolves to a currency the approach you've came along with, will be possible. If it remains as a vague multi-system (as it is now) then the parameters are totally different and it requires *a lot* of work to be done in order to predict a realistically fair price...
You can already rule out scenario A and B because China expressed as openly as they possibly could that Bitcoin is NOT a currency and is NOT money. Good luck trying to be the worldwide anything without China's backing.
This is nothing but a political statement IMHO. Political statements can be different from one day to another (especially to political systems like the Chinese). So, I wouldn't hold my breath on the todays announcement. After all, it's a vague one. People are free to use it; while monetary corps are not? Something is *REALLY* fishy here if you change the optical angle you're looking at it... Hint: Ever tried to make a *corporate* exchange account on Gox or Kraken?
You can already rule out scenario A and B because China expressed as openly as they possibly could that Bitcoin is NOT a currency and is NOT money. Good luck trying to be the worldwide anything without China's backing.
Bitcoins have various uses. An arbitrage argument implies that the values derived from all uses equalize. One use is as a circulating currency. In that use, the value is described by PQ=MV. In this case, M can be taken as the fraction of the bitcoin which is in use as a circulating currency. In that application V is approximately 6, which is consistent with fiat economies and the current blockchain turn-over. Gresham's law dictates that bitcoin are hoarded in preference to fiat. My best first estimate of M therefore is 10% of supply. Let's be conservative in valuation and lazy in math, and allow it to be 1/6 to balance V. PQ is the volume of goods and services transacted times the price at which they are transacted, using bitcoin. On this basis, the market cap of bitcoin should be approximately equal to the bitcoin annual GDP. As a best-effort first guess, I would call it, say, France, about 2.6 tln USD2013. For a semi-durable bound, we take the all-uses bitcoin supply at 18mn. Thus, 1 mBTC = $15.
The parameters of the model are up for debate, but the model itself is inescapable.
The parameters of the model are up for debate, but the model itself is inescapable.
Great post. I actually would give the 5th option ( bitcoin fails) A much higher probability, maybe 50%.
All 4 other options mean bitcoin has succeeded with different outcomes so they get 50% together.
All 4 other options mean bitcoin has succeeded with different outcomes so they get 50% together.
Congratulations on the ingenious approach. I like it.
My thoughts:
Scenarios A and E can be statistically ruled out (percentage wise) due to their extreme nature. I'd give both of them 1-10% at best.
Scenarios B and D have more possibilities to exist than A and E since there's already evidential data for both of them. I'd give both 10-30%.
The most possible scenario is IMHO the C. This is happening already and we're witnessing every day. More data will value it with more percentage in the future, but I strongly believe that this will be the case. I'd give it a 40-80% of existence.
I have already posted in the very beginning here of a thought I had about a world wide currency. This was a case study among friends back then. You might find it entertaining...
My thoughts:
Scenarios A and E can be statistically ruled out (percentage wise) due to their extreme nature. I'd give both of them 1-10% at best.
Scenarios B and D have more possibilities to exist than A and E since there's already evidential data for both of them. I'd give both 10-30%.
The most possible scenario is IMHO the C. This is happening already and we're witnessing every day. More data will value it with more percentage in the future, but I strongly believe that this will be the case. I'd give it a 40-80% of existence.
I have already posted in the very beginning here of a thought I had about a world wide currency. This was a case study among friends back then. You might find it entertaining...
I so much enjoy reading this thread; really. Before learning about BC, I've discussed an idea with a friend of mine (he's into stock exchange business). I've asked him to imagine how the perfect monetary system would look like. I proposed a saying from Alvin Toffler who predicted ''the society in order to preserve itself should be evolved into a hypersociety and declare money obsolete''.
There was a huge brainstorming that night; I guess the red wine from Nemea, Greece helped a lot; but there was a conclusion. We've came along to the fact that a certain productivity factor should arise. One that should baptise each and everyone's effort for the community to evolve, with a certain grade. Not one should be left without one. Grades should be given to everyone, regardless how small or big they were. Even animals and plants should be graded.
We agreed that the grades should reflect money... well not really; points taken should get you more to the ''respect'' rate of the society system. The more respected, the louder the voice you'd had in order to make a decision for the society to maintain its evolvement. And then... it came to me. I've proposed that the ''points'' should be measured in ''Energy''. Joules, W/h, kW/h and so forth. For instance you are a plumber and fixed a hose; how much hours did you spend? A. Your points should be: (A_hours_spent x Productivity_Factor)=Points_taken. Productivity factors should -of course- include the quality of work done; but that's a different chapter...
The only worry of ours was how could you fix a system that incorporates high security, viability and most important; the 'inability' of someone to create some points out of thin air... and then came BitCoin... and here I am!
There was a huge brainstorming that night; I guess the red wine from Nemea, Greece helped a lot; but there was a conclusion. We've came along to the fact that a certain productivity factor should arise. One that should baptise each and everyone's effort for the community to evolve, with a certain grade. Not one should be left without one. Grades should be given to everyone, regardless how small or big they were. Even animals and plants should be graded.
We agreed that the grades should reflect money... well not really; points taken should get you more to the ''respect'' rate of the society system. The more respected, the louder the voice you'd had in order to make a decision for the society to maintain its evolvement. And then... it came to me. I've proposed that the ''points'' should be measured in ''Energy''. Joules, W/h, kW/h and so forth. For instance you are a plumber and fixed a hose; how much hours did you spend? A. Your points should be: (A_hours_spent x Productivity_Factor)=Points_taken. Productivity factors should -of course- include the quality of work done; but that's a different chapter...
The only worry of ours was how could you fix a system that incorporates high security, viability and most important; the 'inability' of someone to create some points out of thin air... and then came BitCoin... and here I am!
To understand the purchasing power of 1mBTC in the future, one way to do it is to group the possible outcomes into a few scenarios, describe what must happen in order for them to take place, and then assess the probabilities to each of the scenarios.
By multiplying the percentage probabilities with the future values and summing up, we have the weighted average future value ("expected value", EV). We may discount it to present value if we like, however in this model I don't do it but rather assume that the sums measured in dollars represent the purchasing power in today's dollars.
**
A. Money becomes ubiquituous coupled with the proliferation of altcoins (thousands of them, perhaps everybody having his own coin), yet continues to have its functions in value storage, measurement and transactions as much as applicable. The world will be very much different and nobody anywhere will be poor in the sense of not having his basic needs met. In this utopian and hard-to-desribe scenario it does not really matter what the price of mBTC is, and it may have evolved to other forms. At any rate, we can evaluate that mBTC buys minimum $1,000. Dollars have of course been forgotten in this scenario.
B. Bitcoin totally replaces fiat worldwide and becomes the sole reserve currency. Since the valuation of the world is $400T, and most of it is financial assets, which lose their raison d'etre in the non-inflationary Bitcoin-based economy, we can conservatively estimate that the hard monetary stock of bitcoins is worth $100T and thus a mBTC is $5,000. Maybe more, but if more, then it just means that the world will be different than what it is now and conventional valuations (I want a new car!) don't hold, due to the rapidly advancing technology.
C. Bitcoin becomes an important independent world currency or a reserve currency with real bills, moderate fractional reserve, etc. Then it can go to the same value as the stock of world's gold, which is in the same ballpark as the M1 money of USD, EUR or JPY. This would put 1mBTC=$300.
D. Bitcoin's ascent is somehow stopped so that it spends a longer amount of time valued "something in between", not going up, but not losing its potential either. This I don't think can be a permanent situation, but then again - I never believed in 2006 that the fiat money system could be extended for 7 more years (even though there was no Bitcoin then)! Sometimes imbalance persists. A logaritmic midpoint between $1 and $300 (the following target) is $17.
E. Bitcoin fails, resulting in its value going to zero or near zero. It is actually very hard to think of a credible scenario where Bitcoin would do just this But let's have it just as a reminder that it is in beta and also that the world is just becoming so interesting that negative as well as positive things may happen unexpectedly.
**
If all the scenarios receive equal probability of 20%, the future (2015-2020) value of 1mBTC is $1,263.
- Are there possible outcomes that are not groupable to existing scenarios and thus require an additional one?
- Should the percentage probabilities be adjusted and if so, how?
By multiplying the percentage probabilities with the future values and summing up, we have the weighted average future value ("expected value", EV). We may discount it to present value if we like, however in this model I don't do it but rather assume that the sums measured in dollars represent the purchasing power in today's dollars.
**
A. Money becomes ubiquituous coupled with the proliferation of altcoins (thousands of them, perhaps everybody having his own coin), yet continues to have its functions in value storage, measurement and transactions as much as applicable. The world will be very much different and nobody anywhere will be poor in the sense of not having his basic needs met. In this utopian and hard-to-desribe scenario it does not really matter what the price of mBTC is, and it may have evolved to other forms. At any rate, we can evaluate that mBTC buys minimum $1,000. Dollars have of course been forgotten in this scenario.
B. Bitcoin totally replaces fiat worldwide and becomes the sole reserve currency. Since the valuation of the world is $400T, and most of it is financial assets, which lose their raison d'etre in the non-inflationary Bitcoin-based economy, we can conservatively estimate that the hard monetary stock of bitcoins is worth $100T and thus a mBTC is $5,000. Maybe more, but if more, then it just means that the world will be different than what it is now and conventional valuations (I want a new car!) don't hold, due to the rapidly advancing technology.
C. Bitcoin becomes an important independent world currency or a reserve currency with real bills, moderate fractional reserve, etc. Then it can go to the same value as the stock of world's gold, which is in the same ballpark as the M1 money of USD, EUR or JPY. This would put 1mBTC=$300.
D. Bitcoin's ascent is somehow stopped so that it spends a longer amount of time valued "something in between", not going up, but not losing its potential either. This I don't think can be a permanent situation, but then again - I never believed in 2006 that the fiat money system could be extended for 7 more years (even though there was no Bitcoin then)! Sometimes imbalance persists. A logaritmic midpoint between $1 and $300 (the following target) is $17.
E. Bitcoin fails, resulting in its value going to zero or near zero. It is actually very hard to think of a credible scenario where Bitcoin would do just this
But let's have it just as a reminder that it is in beta and also that the world is just becoming so interesting that negative as well as positive things may happen unexpectedly.**
If all the scenarios receive equal probability of 20%, the future (2015-2020) value of 1mBTC is $1,263.
- Are there possible outcomes that are not groupable to existing scenarios and thus require an additional one?
- Should the percentage probabilities be adjusted and if so, how?
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