Topic: Fair Value of Bitcoin (Read 297 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.

nope its not
your chosen asic
s19
Specifications    95T 3250W
Price/Unit    $3,230

is worse than this
s19 pro+hyd
Specifications    191T 5252.5W
Price/Unit    $3,629

its a more recent 2022 generation of the s19 range

heck there is even a s19pro
Specifications    100T 2950W
Price/Unit    $1,950

which is lower in unit cost and offers more hash per kwh

math
your chosen s19 = $34/thash and 34watt per thash
s19 pro+hyd = $19/thash and 27watt per thash   <- best cost efficient
s19pro = $19.50/thash and 29.5watt per thash

AntMiner S19   3230   95000000000000   3/1/2020

Isn't this most efficient miner on the market?

you are also not using the most efficient asic for your hardware cost measure, if the value you now measure is still higher then current price

if you are wanting a average of the world cost. then take the bottom efficient as value.. and then use 48 cents for the most expensive measure.. then do the middle of them

however if you are looking for VALUE then thats the bottom

there is nothing wrong with having more then one metric. as long as you explain the methodology that matches the terminology

you could also do region specific measure..
EG 4 cents is for the slavic/asian area
the 8cents is the industrial rate of mainland america.
35cent for UK
48cent is for hawaii/japan

Thanks for the feedback.

I've updated electricity cost to $0.04/kW h and RIO to 730 days. It made value $20K less, but still above the price.

Daily fluctuation happens because for the difficulty change, formula uses last 6 months, which is not fixed amount of periods to take into account (It may be 12,13,14).
I may need to adjust formula to take fixed amount of periods to prevent those fluctuations.

Value&Premium in your terms is something different from Graham/Warren's Value Investing.

Also my idea not to calculate some figure to tell miners it's attractive or not to invest in mining, but to tell what's the current difference in production costs to current market price (as for commodity), which may be used a signal to buy/sell.

You are correct that the fair value of Bitcoin is not necessarily the same as its current market price. Fair value is determined by examining the underlying factors that contribute to the value of Bitcoin, such as its utility, scarcity, and demand.

The market price of Bitcoin, on the other hand, is determined by the supply and demand for Bitcoin at any given time. This means that the price of Bitcoin can fluctuate significantly based on market sentiment, news events, and other factors that may not necessarily reflect its underlying value.

price is not value

value sits below the market

that why when you see the price go down people say the price becomes better value(cheap)

learn the concept of value or premium(cheap or expensive)

lets say we knew bitcoins price would be between 17k and say 100k this year
no imagine the price today was

$20k
$26k
$50k
$75k
$100k

are you saying that $100k is "value"
no
thats premium. thats the ATH. thats the top
value sits at the bottom of the market

and if you can find the bottom of the bottom where no one wants to sell for less and no one can buy for less. thats the ultimate bottomline value

so if no one on the market can buy(acquire) for less than $20k in 2023.
yet some people on the planet can mine(acquire) coin for $16k in 2023

the ultimate bottomline value is $16k

yes value is not seen on the retail spot market. its below the spot market.
but it exists because its the bottomline no one on the planet goes below in 2023

if you want to argue "market price" .. tell me this..
WHICH market
coinbase, binance, bitfiniex, OTC? DEFI?
all of those markets are speculative stuff ABOVE value.
markets are suppose to be above value. thats the whole point

in all types of market for anything the price is always
value+speculative profit=price
no one sells at a loss unless they are doing silly things

and the amount of people on the market not wanting to make a loss helps give the bottomline support value level a margin gap where the market sits above the value but never completely drops down to or below value

..
as for price discovery
people do not just pick a random number
people look at their costs of acquiring and set a prefered profit margin ontop. and then refuse to sell for less
yes each persons personal amounts differ.. this is the market speculation

but again if you can find the bottom. the lowest someone can acquire for on the whole planet currently .. you have found the bottomline value of the whole network/world

everything above that is speculative and volatile.
EH japans market price is higher than coinbase
OTC can be less than spot market
but the most cheapest way to acquire bitcoin in 2023 is efficient economic mining.
so mining by the most efficient miner is the underlying acquiring cost

the amount of coins a cheap miner can acquire for does not personally crash markets with their coin. but no one can mine for less then the lowest cost acquisition. so no one sells below that. again the retail spot market sits above value

please put all the individual perceptions of individuals costs on a scatter chart of all methods of acquiring bitcoin in 2023.
then notice there is a VOID below a certain amount.
take that lowest number of all possible methods to acquire bitcoin. and you will see the bottomline value.. which is non zero

or view the number in another fashion
|    |******************|
or view the number in another fashion
   value                        premium
|||||||||||||||||||||||||||||||
0                                   118


hawaiian, japanese miners are in the red area for mining
iceland/slavic/asian region miners are in the green area for mining
america/europe residential miners are in the orange
america/europe industrial miners are in the green/orange
spot/otc/futures/defi markets are in the green

NO ONE is in the grey/blank void area

You're confusing the types of products you're talking about. You're trying to apply an analogy that doesn't make sense.

Products like milk are produced and sold and consumed, so yes of course the cost of production creates a basis for the market cost. But we're talking about Bitcoin here (a currency), not milk (a consumable).

A currency is nothing like a consumable. The units of a currency stick around and are not consumed (used up) or degraded ('used' bitcoin don't sell for less) and the older units are not connected to the cost of producing the latest units. While the latest units are so small in quantity compared to the total supply that they have very little effect on the market. Mining only produces the latest few bitcoins each block, which is a tiny tiny fraction of the amount of bitcoin that are traded in the market while that block is being made. The cost of mining has nothing to do with the cost of the rest of the bitcoin on the market.

So you're flipping this upside down in your mind. Miners rely on the market cost of Bitcoin - as in, if bitcoin goes too far below that miner's cost of production they may have to shut down. It doesn't work the other way. The market rate of Bitcoin DOES NOT rely on the cost of production for miners.

You would be correct if every satoshi could only be used once, but of course that is not how currencies work.

You're getting too narrowly focused on trying to come up with some base price of Bitcoin, when in reality, of course, there is none. By 'none' I of course don't mean $0, I just literally mean none. There is no value that can be given as a "fair" or "base" or "intrinsic" value. All those concepts are meaningless and are just used in subjective arguments. The only $ value Bitcoin has is the market value.

Bitcoin has two types of values. One is its $ value, which is the market price. There is no other $ value for a bitcoin. The other is its utility value, which is of course based on its features, those features in comparison to similar things in existence, and people's desire to specifically use Bitcoin for its features. It is this value that drives the market to find a $ value, but no $ value can be specifically given to the utility value because utility is a concept, not a quantity. The overall movement of the market ($) value of Bitcoin is what we can call price discovery which is the market finding an accepted price for Bitcoin's conceptual utility value. Naturally, this changes, and as Bitcoin is more widely adopted it continues going up as part of its price discovery. But there is never any base value 'holding up' the market derived from some cost of production. What holds up the market is the market itself - the unwillingness of people to sell bitcoin for low prices when they know its utility demands a much higher market value in the future as price discovery continues. No where in this does the cost of mining matter. Only miners care about the cost of mining, the market does not (except in so far as it makes negative or positive news in the media when miners are doing really well or are having a hard time, but they are doing really well or having a hard time BECAUSE of the market value, not the other way around).

individuals values(emotions desires) differ

as for people personal numeric value:premium
thats speculative and variable
but if you plot them on a chart.. you would then see a gap at the bottom.
draw a line along the bottom and thats the networks VALUE

because value is at the bottom. premium is at the top

bitcoin does have intrinsic values and value. based on its own desires/features and cost

the value bottom is the line where no one wants to sell below.. and no one can acquire(via any method) for less..
this is the non-zero support aka VALUE

The value of things is subjective (according to each person feelings), it changes with time (needs) and space (location); never static. Cost to make, doesn't matter, time to make, doesn't matter. There is no intrinsic value.

This is one of the fundamentals from the Austrian School of Economy.

you might want to check on that..
all products have an underlying value amount below the retail market rate

no one wants to sell at a loss if actual cost. which is where bitcoin has a non-zero bottom
its not just speculation of emotional values(sentiments) there is a bottom value that supports and underlays the speculation

if the most economically efficient dairy farmer can only produce 1 pint of milk for $0.30. you will not ever see a retail store bought milk for $0.25 a pint
retail milk would be more like $0.45-$1

Any calculation of fair value is pretty stupid and is just to get clicks on articles.

Only value that matters is market value. Bitcoin's actual utility value to society is enormous and that would be the only way to get its "fair value" and the tool to get to that is the market value, but because few people understand Bitcoin's utility value the market value is currently many times under this value. "Fair" value, "intrinsic" value, these are just terms people use to get eyeballs to articles and they are meaningless. What matters is market value, and utility which will drive further increases in market value.

And no cost of mining has nothing to do with Bitcoin's "fair" value. Mining is its own economy and that economy depends directly on the market value price, mining doesn't create a $ value for Bitcoin.

good question from odolvlobo
because i too have coins from that period too

there is a thing called REALISED price.. (and realised value)
the price of the time of acquiring coin

i have realised price of $6 and also some in 2014,18,22(basically after each correction)

this value measure the OP made, is a bit off.. by not using real world situation to decide ROI, or a base electric cost of the real world.. .. im not sure why he chose $0.08 as its not representing the lowest(value) cost
but is supposed to be about the realised value of todays acquired coins. not estimating todays value of all coins of circulation based on past acquisition to set a value today for past coin

also

VALUE is not the cost of all miners. value is a BASE/cheapest cost of the most efficient miner. whereby its the cheapest(aka value)
where everyone on the planet cannot mine cheaper than that point thus no one would want to sell coins acquired for more, to sell for less. thus becomes a great support


there are many other potential miners that if they mined today they would make a loss. EG those living in japan and hawaii which would be a premium measure
those people are not miners today. they are buyers. after all why would you mine for $118k a coin when you can market buy for 21% of premium

todays numbers are $18k value(cheap).. $118k premium
dont expect markets to want to go below value or speculate above premium

its why 2021 didnt top $75k because that was the premium then (value: $10k premium$75k)
2022 was $15k value 95k premium but the market only speculated $15.5-$50k

in 2012 it was $3-$40 (value-premium) at the start and then $7-$90 (value-premium)
by winter .. it was a halving year ofcourse

the market of the time of the realised value only trades within that range but never exceeds it

your $5 and my $6 of 2012 were not at "value" (base cost) because our electric were not the cheapest for that year to be the most economic/efficient to be value

the value of 2012 was start of year $3 value end of year $7 value
the premium of 2012 was start of year $40 premium end of year $90 premium
the market moved inside that value-premium window

moving on
so there is this other thing called "store of value" which is subjective to individual coins like realised value is

EG lets say you mined in january 2012.. ($3 value)
your $5 coin had a 60% store of value. where only $3 of your $5 was secured by value where no one would want to sell below value because no one could mine below $3
and so you had a 40% risk of loss in january

by summer your $5 was 100% store of value. by winter it was 140% store of value meaning you were making profit (and today in 2023. just like me, them coins from so far back are worth alot more now.aka mega profits)

but to those buying coins today.. with mining at $18k-$118k dependant on location.. anything $18k is good value to them..

today

   market
      v
    |||||||||||||||||||||
  18                       118
value                   premium

they see bitcoin at $24k is in a GOOD value area. not AT value, but within range of good value. but no where near average or risky premium.

so people are super happy to buy your coin at $24k because its not at todays premium.

note:
i am sceptical of using daily changes/measures of value. because miners accounting is not done daily. they measure their costs over a 6-24 month scale(industrial mining farms). so personally im sticking with a $15k base for now and saying its too soon to concrete state value will remain at/above $18k. but knowing the value window is moving forward on the daily where value is rising in the short term is a good sign.. but $15k is a concrete number that has been tested many times last year

---

the only suggestion i could make to the OP is to use a fairer 2 year ROI. and using a proper base electric cost per KWH

.. he could also use different countries electric rates. and then display multiple lines cost per region. but thats then getting more regionally speculative

What makes it "true"? Perhaps you could explain what you mean by "fair" and "true", and how they relate to mining cost.

I'm still curious about my bitcoin. If it was mined for $5 in 2012 and I sell it today for $25000, is the buyer getting a fair price? Am I?

It is true in nearest term not in too long term.

People are fearful of dumps from people who will receive compensation from Mt. Gox case because they know those victims got their bitcoins at very cheaper price than price in 2023.

Similar story for miners. Different miners have different entries and entry cost to mine Bitcoin so they will have different net profit or net loss at a time. Sometimes I saw whale alerts that very old bitcoins years ago were moved and people felt panic. Maybe it is a same fear as they thought that if a miner from 2011 moved their bitcoins, that can be a plan to sell it on exchanges.

However I am aware that it is part of market manipulation game.

This Realized price is useful for Bitcoin investors and their DCA plans.

Why is the mining cost the "fair" value? Also, I have some bitcoins from when it cost $5 to mine a bitcoin. Does that mean that those bitcoins are worth $5?

BTW, the cost of mining and the price are correlated because the price acts as a ceiling on the cost of mining. In general, miners will not mine when the cost of mining exceeds the cost of buying.

value is below market. premium is above market
it appears your numbers for 2022-23 are average not value

your formulae numbers are subjective
8 cent electric of a 12 month ROI

hmm



my numbers are
from efficient asic farming mining in low electric of $18k for this fortnights mining rate
to an inefficient asic hobby mining in high electric of $118k for this fortnights mining rate

which is an average of ~$68k
value: 18k
average: 68k
premium: 118k

as for your numbers for 2018.. that is way above premium for that period even for high electric regions

my math is based on a 2 year ROI
because industrial mining farms buy hardware that lasts 2 years and electric contracts that are bought for upto 2 years so the number of coins earned over a 2 year period become the math.

and industrial electric is cheaper then $0.08 at $0.04
and the hobbiest is electric is more then $0.08 at upto $0.48

..
that said you have a good bases of looking beyond the markets for underling value. but your math is a lil out, compared to rational expectations of what real mining farms do

and another hint. the math you show saying how you are using 1 year measures of coins earned. and then 6 months and then fortnightly difficulty changes.. yet your charts changes daily so your not exactly sticking to the difficulty steps of one change a fortnight. using average hashrate of that fortnight

most miners dont account for costs on the daily. they take the monthly costs or the 2 yearly costs and compare it to coins earned over those averages

Hey folks,

I've recently resurrected ALFAquotes website with the new name: bitcoinfair.org which was calculating Bitcoin's Fair Value (Price) and was mentioned in
CoinDesk: https://www.coindesk.com/markets/2015/03/02/is-518-the-fair-price-of-bitcoin/
NASDAQ: https://www.nasdaq.com/articles/bitcoin-price-prediction-why-its-only-now-finding-true-value-2015-03-11

The formula may be interesting for long-term investors and correlation is pretty interesting.
Inspiration to create such formula and calculate for the whole period of Bitcoin's existence came after getting familiar with Ben Graham's works.
Fair Value is fully based only on mining costs, price has no influence on it, but correlation between two is pretty interesting.