Topic: Fair Value of Bitcoin (Read 298 times)

thank you for finally being part of the conversation where you now realise the cost is beneath the market price for a few lucky few.. welcome to economic fundamentals, im glad you finally arrived into the conversation with your realisation

thank you for realising the mining competition then pushes up the underlying cost, where the rise in cost leaves a non zero bottom no one goes below.. where the market then sits above the cost bottom

now run your scenario through a few competition and halving cycles as if your running it through 14 years of value rising and "price discovery".. and come to a position of 2023

where a few lucky people get to mine at $18k.. no one below..  and the rest speculate above $18k on the spot market

do you finally see it.. ?

what you need next to realise, is these lucky few most efficient miners on the planet are not paying bills per block. nor changing asics per block

they buy asics in bulk that have a 2 year lifecycle before upgrading
they also dont pay electric monthly. they instead prebuy lumps of MWH to cover a 6-24month running period. to get the best electric contract deals

and so this set 2 year cost is set. and they look at how much coin they have acquired in that long period. to come to their $18k cost per coin

now i hope you can see where the whole ROI part comes into the economics of the underlying value line

If you assumed that the mining cost would somehow stay at 1 cent per BTC, still only 6.25 BTC per 10 minutes would be available at that price. Total trade volume is 1000's of times that. Only a tiny fraction of people could get that price and the rest would have to pay full price.

But, the mining cost would not stay at that price. Like you said, every man and his dog would mine BTC if the production cost were that low, and the result would be a swift rise in the difficulty and the production cost. So, whatever affect of production cost on price you think there might be would be temporary at most.

bitcoin production costs have a flaw and a ceiling.. that moves over time dependant on competition

the MARKET PRICE moves within that window. INBETWEEN the floor and ceiling

yes if the market stays up in the higher half of the window long enough then the competition sustainability also moves up quicker.. or if the market price does not move into the upper half then the floor ceiling window moves slowly based on the halving cycle alone

i know people get obsessed with only looking at market data and only want to point finger at the market data as the sole function of bitcoin. but there are more elements and more fundamentals outside of the market data that actually cause the price discovery


after all if every man and his dog could cpu mine bitcoin at an average of 1cent per btc cost. do you really think the markets will be at $28k speculation today.. nope every man and his dog would be selling down the market to correct the price down to cpu mining cost with only a small profit margin of speculation.

no one would even dare want to buy bitcoin for $28k if they could self mine for 1 cent
its called economics, common sense, logic

There are two big differences between Bitcoin and commodities that invalidate the dependence of its price on production costs.

1. Unlike commodities (and gold), Bitcoin production does not vary and is not affected by the production cost or the price.
2. Unlike commodities, bitcoins are not consumed.

The price of a commodity tends to move toward its production cost because the production cost acts as a floor and competition drives the price to the floor by changing the supply.

In contrast, the production cost of a bitcoin tends to move toward its price because the price acts as a ceiling and competition drives the production cost to the ceiling by changing the difficulty.

Thus, the price of a commodity may ultimately depend on the production cost, but the price of a bitcoin does not. Instead, the production cost of a bitcoin ultimately depends on its price.

This is how intrinsic value of commodities is being measured based on production costs.

Construction is a bad example.
Gold is a good one.

I am unable to understand this concept i mean just because creation of something took a certain amount it's not necessary that this value will be it's fair market value always. For example if construction of a building takes a certain amount it's obviously hard to say that this value will be it's fair market value because cost of an exact new construction might have increased due to inflation or gone down due to some pricing revisions of material.

how many times can people shout market. but not realise they are talking about market which has nothing to do with value

value is not seen on the market so when talking about value stop saying market
you wont find a value measure on the retail spot market

PRICE is on the market and PRICE is speculative

value sits below the market and is underlying value of the world metrics of costs

yes different people have different costs but again think about costs not the retail market

then when viewing only the costs find the most cheapest efficient cost you can and you will see that number is non zero

if anyone mentions market in the same sentiment as value. they have already missed the point

Difference between market price and market value; one is certain and definite, other one is changing depending on the demand. In market value, there's no such thing as fair number. Likewise with Bitcoin wherein market price is changing from time to time. Actually, market price volatility should be a disadvantage for a currency but it happened that investors of this technology managed to adapt with this caharacteristic and was able to make use of the changes in order to generate profit in a long run. Just like with other assets such as stocks and properties, Bitcoin happened to have a MORE volatile market price simply because investors making these changes. Same thing would happen with stocks' value but agreement and regulation plays a role with its price, unlike definitely with cryptocurrencies.

i do laugh when people think price is value
i also laugh when people think that value does not exist or is a whole random set of numbers that become meaningless

its like they think a pint of milks value is the retail price
even though the actual value starts at the cost to milk the cow an pasteurise it

what happens after that is where middle men make profit and sell and resel until it reaches the retail market

yet if people can get milk for less then retail then the retail price is not the underlying value

the PRICE is the speculative thing.. not value
the PRICE changes and has unpredictability. but the underlying value is measurable and not volatile

heck even back in 2010 when markets were first being made. they knew about value vs price

people in the CPU solo mining era worked out their PC would have a lifespan of 5 years so they calculated how much that would be per month/week/day

then they calculated how many blocks/coins they would get per day/week/month

and also how much electric they used over the period

..
then and only then they would work out how much profit they wanted. and how much demand their was and how much they wanted to keep hold of vs sell. to come up with a preferential(emotionally driven) PRICE they would want to sell for and refuse to sell below

back then it worked out as cents per btc..

costs have increased over the years and now the bottom is many many thousands of dollars underlying cost

and again. working out of all the peoples different costs. you see a void area at the bottom where no ones costs can come below. and thats the bottomline value

but hey if codebear wants to think currency has no value and is just random.. thats on him for not thinking outside of the retail market

If only value would be market value, whole idea of Investing in any asset wouldn't have existed.

How would you invest in something if you don't know what value this asset has?

its not about the price they sell at
value is not even associated with the market

their selling of the coin has nothing to do with market price
value is a metric outside and away from the market price

it sits below the markets but has a cascading affect

if no one can acquire bitcoin for less than X by any means at all via net method. thats the value line

now guess whats the best method to acquire coin today..
work it out

Franky why are you still trying to use mining cost as some sort of way to calculate a value for bitcoin??

I already pointed out the obvious reasons why that doesn't work and why it is meaningless to even talk about a fair value.

As soon as miners sell their bitcoin those bitcoin no longer have any tie to what they cost to produce. They are now in the open market and trade simply by market forces, completely disconnected from miner cost of production. Cost of production has a negligible effect on market price, as the number of bitcoin sold by miners is tiny compared to what trades in the market at all time.

I know its enticing to try to give some base value to bitcoin, and if you were to do that it would make sense to do it based off mining costs, but as I pointed out earlier it simply makes no sense to do that and you're just making pointless calculations. There is no base value of bitcoin. The only value is the market value. To try to come up with a base value is to misunderstand basic principles of a currency and the idea of value in general.

whom ever said nothing changes

i was using an example of TODAYs cost per btc.. thus the costs need to be broken down to per btc amount based on.. TODAYS number of todays hashrate

yes you can change the hashrate to be tomorrows hashrate. but tomorrows number would be tomorrows number.

next weeks number would be next weeks number.
but todays number is todays number


the hashrate for TODAYS number was taken into account because it used TODAYS hashrate

---

now with that said
i personally dont do daily valuations. i prefer valuations of 6-24 month averages
this is because asic farms of the most efficient variety are stuck in contracts of such lengths so they only value their rewarded coins based on such periods

they dont count in 6.25btc per block. they count in 6-24month amounts

but for simple math. becasue you perfer the difficulty period premiss

knowing there are 336 hours per period
knowing there are 2016 blocks of 6.25btc = 12600

and the hashrate is average of 315exa(per second) for this current period

lets do the math for the period and then break it down to per btc rate

hardware life cycle =2 years meaning 52 periods

so
315exa / 190thash asic
= 1657894 asics  x $3629
= $6016497326 2 year life cost /52
= 115701871.6538462

which of the 12600 of same period
=$9182.69 hardware cost per btc based on a fortnight period

now electric
= 1657894 asics  x 5.2
= 8621048.8kwh x 336(2 weeks of hours)
= 2896672396.8kw per fortnight x $0.04
= $115866895.872 electric per fortnight /12600 btc
= $9195.79 electric per btc based on fortnightly period

which is $18378.48/btc based on fortnightly average

which is still not much different to daily average.
unlike your math showing a number at $28k


im sorry to tell you this but if the most efficient asics ON THE PLANET can only mine at $28k(your math) they would not be mining right now

the reason we have miners right now is because the efficient miners can mine for profit so your numbers are still too high to be VALUE

Your calculation is for today, but it would be very wrong to calculate earnings for the next 2 years and expect that hashrate/difficulty won't change.
So, difficulty/hashrate change should be taken into calculations.
Current calculation of the difficulty change may be not perfect, but I'm open for the ideas

difficulty does not change daily
but you can do some better math to show a different number at the next change. where you are measuring it out per day/fortnight

but at this periods difficulty and resultant of hashes. thats the math for TODAY

It doesn't take into account difficulty change, which may be very volatile.

ok lets do some math

320exahash network today
190thash $3639 and 5.2kw per asic
=1684210 asics
=$6112000000 hardware / 105000 blocks* / 6.25btc
=$9313.52 per btc hardware cost

..
1684210 asics x 5.2kwh
=8757895 kw/h  x  $0.04
=$350315.7894736842 per hour  /  6blocks**  / 6.25
=$9341.75 per btc electric

total = $18,655.27 hardware+electric per btc for todays hashrate of 320exa

*2 years of blocks
** blocks per hour (even if you multiplied to the fortnight then divided by 2016 = same $ amount)

You're right, updated to Pro+ Hyd.

UPD: Fair value got pretty close to market price.

the XP is a $6k unit with a 46 price per thash rating

i just showed one that is half the price per thash.. .. why are you using inefficient metrics/measures if you are trying to claim "value".. i still dont get your methodology

Thanks, added AntMiner S19 XP since 12/01/2022, now Fair Value is $4K less.