Topic: Price calculation -- Which assumption is wrong or could we really go to $50k? (Read 1587 times)

Bump.

According to this article, the number is closer to 280,000 at the end of 2013 when there was a lot of activity:
http://blog.p2pfoundation.net/who-owns-all-the-bitcoins-an-infographic-of-wealth-distribution/2015/01/24

According to this the Gini is .877 (back in 2014)
https://twitter.com/mbauwens/status/447715800481542144

You also have to factor in 12% inflation currently.

I am not sure I fully understand your question. The full quote is:

"If we are at Gini = 0.9, N = 1M, which is where I think we are now, then price could easily be $50k today!"

All this says is that if the assumptions are true, then the conclusion should be true. The conclusion is not true. So maybe some of the assumptions are wrong. Or maybe price has not yet moved to where it "should" be.

I make assumptions about the following quantities.
* Gini - How evenly or unevenly coins are distributed among individual with a positive number of coins.
* N - The number of people who own a positive number of coins. I used the term "holder". However, I see that this was confusing or not quite correct. I don't mean "long term holders as opposed to other users of bitcoin". I mean everybody who has a positive number of coins.
* USD.BTC - The amount of dollars that the median user of coins is holding in coins. Actually, if I knew this amount for a user in ANY percentile, I could do the calculation. I just figured the median should be the easiest to guess.

I assume these three quantities. Based on these three, I can calculate the price of coins. IF (that's a giant IF) Gini = 0.9, N = 1M, USD.BTC = $100, THEN price = $50,600 per coin.

IF Gini = 0.8, N = 1M, USD.BTC = $100, THEN price = $111.

Yup. This calculation is extremely sensitive to the value of Gini. That's really what's driving the whole thing.

So maybe if Gini changes, price can change dramatically. If current Gini is around 0.85 and it rises to 0.9, price could explode.

Could you please answer me here

https://bitcointalksearch.org/topic/m.11877450

What would you set the number of holders to? 1M is someone else's estimate, not mine. It's the only one I've seen though.

Even if that estimate is wrong by 10 times, and the number of holders is really 100k, price could / should still be a lot higher than it is now.

I would lower the amount of holders and remove all of the exact 50 btc wallets and top holding accounts (>100 btc in one wallet) to get a better indication of a single persons avarage bitcoin holdings.

 ???Wtf? Johnie, la gente esta muy loca.

You would need over 100k coins for a 10-15% drop.  Far more then a weeks worth of coins.

3% is nothing. a decent mining farm can make the price go down more than 10-15% easily by dumping weeks worth of coins. exchanges have always had bad orderbooks. one large trader or pool can cause massive panic.

We need far more liquidity on the exchanges.  A chinese mining farm should not be able to drop the price 3% on any given day simply by dumping there weeks worth of coins.

Makes a lot of sense, thank you

I see 50K as possible as well. When? Maybe in 10-15 years.
https://bitcointalksearch.org/topic/m.11881249

The exchange rate between USD and BTC is pretty independent from amount and distribution of BTC. It is what some people are willing to pay, and other people are willing to accept. Demand varies with perceived usefulness and speculative future value, supply of old coins somewhat depends on previous price levels and mining costs, while supply of fresh coins is pretty much fixed by the block rewards. Miners will try to sell fresh coins above cost if possible, some might withhold their mined bitcoins if they feel the price is too low, but they can't withhold indefinitely since they have bills to pay.

All of these factors are not part of your computation, so I'd suggest that whatever values you use for your unknowns, the results will be meaningless.

Apart from that, I still think BTC is undervalued, and a serious increase in exchange rate is quite realistic. We need more actual use and easier accessibility for this to happen, though. Just my opinion.

Onkel Paul

We have to also understand the mining dynamics.
If BTC were at $50k a pop, and mining rewards at 3600BTC / day, the total mining revenue will be $180million a day, $66Billion a year.
If we assume a 10% mining profitability rate, then BTC network will consume $60Billion worth of electric energy to mine.
Clearly BTC is unlikely to reach $50k a pop at the current reward rate.

You didn't get me Elwar.

What I wanted to say is, why we aren't at $50K today ?

I think we can see $50K in 7-10 years, but not nowadays.

well based on the total volume of all exchanges, one should be able to estimate, roughly, the total amount of coins that are used and thus calculating the coins that are sitting in cold storage or are not used

then from that number you can somehow reach an estimate on the number of holders, which also i don't believe is 1M when the total users that are holding bitcoin are 3M

probably much less than that because basically everyone is playing with a portion of his coins in gambling site , trading or any other random investments, very few people are leaving all their coins do nothing

I don't believe there are 1 million holders.

A lot of people go buy wallet downloads but I have personally downloaded the wallet several times. You have to figure just the amount of people that have upgraded to a new computer or just download it thinking they are downloading some magic money program onto their computer.

Is there a way to calculate a minimum per holder? I would imagine each person would hold at least .001 or so. Closer to .5

That's his conclusion at the bottom of OP.

Thank you for thread OP.

But, I've a question if you don't mind.

Could you elaborate more about this please

Bitcoin is made up of early adopters with a large percentage in the world's top 1% (most Americans fall in that category). This would likely put us at a higher than world average.

tl;dr. Given various assumptions about the distribution of coins and the amount of fiat people hold in coins, I attempt to calculate the price of coins. Depending on the assumptions, I get insanely wildly different results.

If we are where I think we are, price should be $50k per coin. The fact that it's not means that at least one of the assumptions is wrong. But which one?

Intro. In a previous post (https://bitcointalksearch.org/topic/how-many-coins-is-a-lot-finally-answer-inside-946938), I discussed the distribution of wealth, the Gini coefficient, and the number of people who have bitcoins and used those quantities to calculate the number of coins that you need in order to have "a lot". That result is independent of the price of coins. It just tells you how many coins is "a lot" relative to other people who have coins.

Here, I use the same principles to calculate the price of coins.

The Gini coefficient (https://en.wikipedia.org/wiki/Gini_coefficient) is a single number that measures the inequality of income or wealth. Gini = 0 represents "perfect equality", where everyone has the same amount. Gini = 1 means that a single person has everything and the rest have nothing.

Wealth Gini varies from the more "egalitarian" 0.55 for Japan and China, with Spain and South Korea close by, to the very unequal 0.85 for Namibia and Zimbabwe, with Denmark, Switzerland, and United States close by, all at 0.80+. For the world as a whole, wealth Gini is 0.80.

In my previous post, I also tried values of Gini = 0.90 and even 0.95. The reasoning is that the distribution of coins might be even more ruthless than the distribution of fiat wealth.

How many people? rpietila (https://bitcointalksearch.org/topic/distribution-of-bitcoin-wealth-by-owner-316297) still guesstimates that there are currently 1.0 million holders. I have no idea what his methodology is. Based on this, we can see what happens when the number of holders is 1 million, above, and below.

Calculation.


x = 0.5 means that we are looking at the median holder. g is the wealth Gini. N is the number of coin holders. p is the proportion of all coins held by our median holder. Right now, there are 14.38M coins. In the "long term", the total number of coins will be 21M. This gives us the number of coins held by the median coin holder.

How much wealth does a median coin holder have? The median coin holder is probably American / Westerner. According to (https://en.wikipedia.org/wiki/Wealth_in_the_United_States), a median family's wealth is $80k. However, bitcoins are still a long way from being mainstream, so the median coin holder and the median person is not the same thing. Maybe once coins are mainstream, we could say that the median coin holder has $80k in wealth, but not now.

Most bitcoiners are probably young. For those under 35, the median wealth is $10k. What percentage of one's wealth does the median holder hold in coins? No idea. Let's say 1%.

To simplify the table, I assume that the dollar value of wealth held in coins is $100 in call cases, which is also $10k * 1%. If you think this values might be different / bigger, multiply the prices accordingly.

The dollar value of wealth held in coins divided by the number of coins is the price per coin. Let's see what we get.


Here is what the table says. Let's say Gini = 0.9, which is what I would consider to be a ruthless coin distribution. The number of coin holders stays the same at N = 1M. This means that the median holder has this proportion of coins: p = 0.000000000137. This means that he has 0.00197 of a coin. (Tiny!) If he is storing $100 of his wealth in bitcoins, that gives us a price of $50k per coin.

The more unequal the distribution of coins (higher Gini), the fewer coins the median holder has, the higher the price of each coin. Yey for inequality! Put another way, when a few big holders hold most of the coins, there are fewer coins in circulation for the average holders to buy.

The higher the number of coin holders, again, the fewer coins in the hands of a single holder, the higher the price. However, even if the number of holders collapses by a factor of 10 from rpietila's guesstimate, price can still easily go to $5k.

Holding $100 of wealth in coins seems pretty small, but remember, we are talking about the median holder, so maybe it's right. I don't know. As bitcoin goes more mainstream, both the number of holders (N) and the amount of wealth held in coins will increase -- both of these have a positive effect on price.

The huge problem with the table is that it gives an insane range of prices, depending on the scenario. According to the table, price per coin can range all the way from the seemingly impossible $1.89 to the completely laughable $252 BILLION per coin!  

If we live in a somewhat "egalitarian" world (gini = 0.7), which I don't think we do, and if the number of holders collapses by a factor of 10, then price could go below $2.

If we live in a very ruthless world (gini = 0.95), and the number of holders goes up 10x, price could really be -- I won't even write it again it's so ridiculous.

If we are at Gini = 0.9, N = 1M, which is where I think we are now, then price could easily be $50k today! The fact that it's not means that one or more of the assumptions is seriously off. Is the distribution of coins a lot less ruthless than I think? Is the number of holders a lot less than rpietila thinks? Does the median holder hold a lot less than $100 worth of coins? Where are the assumptions wrong?