UPDATE: EV ANALYSIS FOR BITCOIN
Expected value (EV) is the probability-weighted mean (average) of possible future outcomes.
We are talking Bitcoin, and about 5 years timeframe here, so 8/2022.
1. Let's start by everyone asking themselves: "
What is the probability of Bitcoin price being lower in 2022 than what it is now?"
This scenario includes everything from total technology/network failure to a total breakdown of law and order, or unanimous draconian regulation by every government in the world to kill off everyone who has possession of a string of letters or part thereof, to just a multi-year downtrend in Bitcoin price coupled or uncoupled with increased adoption (2014 is a prime example that price (-80%) and adoption (+100%) do not correlate 1:1).
In a meeting with respected people in the area, 2.5 years ago, the answers ranged from 20-50%, with a clear bias to 20%. On the other hand, the 2.5 years elapsed since, act as a further proof to the downside (smallness of this figure). Let's use
33% as a median nevertheless, since we ARE at ATH now, which might hinder new ppls from buying unless properly instructed (as in here). (The longest time Bitcoin has ever been below its ATH is ~3 years, so history is not supporting 5 years of flatlining really, despite ath'ish cap now.)
2. Then, "
What is the probability that we will not reach a new, higher, ATH in 5 years?"
Counting the major surges alone, we have set a new ATH at $32, $266, $1242 and '$4350 and counting'. The first three were taken, each with a 5x or 10x, and 3.5x (and counting). Now, to be realistic, it may still happen that they all were isolated incidents, not happening again, but also it's possible that they were not, and there is some merit in the coin, the technology, etc. Of course I could give (and have given) several fundamental reasonings why I believe the latter, but for the purpose of this, let's keep it simple and assume that it can as well happen or not, so 67%.
This naturally includes the case
1., therefore this scenario,
and also the (first) that the price will be lower than $4,000, are equally probable as the
remaining, >"New ATH" (higher than the one set this year).
3. Now, "
what will then happen?"
To assess the average value of a bitcoin in 5 years, we will have to play out the sub-probabilities of different outcomes 'inside' the scenarios outlined above.
=>
What we get is 3 scenarios with equal probability:
i) $0-4000
ii) $4000-'2017 ath'
iii) '2017 ath' ++
So, therefore, we dismantle each of them:
i) about $1000, esp considering that '0' occupies a swath of this scenario
ii) Utilising Stetson-Harrison method to my advantage, I decide that $7,000 is exactly in the middle of $4k and $10k (which the method decided to make the chism between this, and the most obscenely profitable scenario: exactly at $10k).
iii) Since 'anything is possible', the scenario universe may as well be collapsed to a round figure $50k average, for this scenario. The doubters may eat cake, as usual(x2).
The EV for BTCUSD in 2022 is therefore $58k/3 = $19,300/
BTC. This is 400% (5x) higher than the current price. Even if we made gross errors in assessing the probabilities, it's hard to argue that the scenarios themselves are ill-constructed. It is very hard to make holding a position in Bitcoin a losing proposition from here. As people realize what I am saying, it is likely that this will become a self-fulfilling prophecy. Beware - 5 years is a long time!
(Earlier versions of this method have been used to justify
non-holding in 10/2010, and
holding, in 11/2011, 3/2013, 2/2015.)