Topic: Toknormal's February Bitcoin Analysis (Read 3264 times)

Thought-provoking analysis as usual, tok.

Regarding #1:

I think you may be underestimating the "scrap value" of the network.   I'm not sure VC money is any less speculative in nature than the hardware cost of securing the network, as in both cases the money invested is lost if the market suddenly tanks.  This is especially true with Bitcoin, because those SHA256 ASICs can't really be repurposed.

Using numbers from Coingecko:

BTC: $1.5 billion in hardware securing the network
LTC: $91 million in hardware  securing the network
DRK: $28 million in hardware securing the network

If you divide that by the market cap, we can estimate that the current hardware cost securing the Bitcoin network is worth 43 percent of the market cap, or $110/coin.  Darkcoin, by contrast has $5 of HW per coin securing it but only has a $3 current price, which could be attributed to either price speculation or (more likely) the fact that the mining hardware is repurposable (video cards and FPGAs).

I'm sure there are other factors at play that I'm not considering here, but it seems like you could add some of the hardware value into your theoretical bottom.  When pondering the bottom myself, I've always thought it might be the heavily-invested miners who would more likely be the ones to keep the price from dropping too low in order to protect their investment.

Following the analysis I proposed earlier with the three valuation elements:

 - residual asset value (measured nominally by VC capital)
 - monetary premium (measured by adoption)
 - speculative value (measured by forecast ROI based on growth of the previou 2)

...then of the 2 fundamental elements (residual asset and monetary premium), monetary premium is by far that largest. The question is how to measure it so that there's some basis for a genuine market valuation. This would mitigate bubbles like the one we had in December 2013.

If growth in infrastructure continues, we're probably headed for something similar to the internet dotcom bubble of 2001 which is not a very tempting prospect for anyone but a few speculators who will "get off at the top".

What's needed is some kind of worldwide adoption index. A few months ago Overstock published their turnover from bitcoin sales. If that figure could be captured for worldwide retail turnover then we'd have the basis for a very instructive bitcoin valuation index which would serve as a guide to monetary premium.

How do we get such an index established ?

It could be called something like "bit-radex" for "Bitcoin retail adoption index" and would be quoted either informally or formally if it grew to be authoritative.

So +EV of $698/coin given those probabilities over the next 12-14 months.

Hey tok, whether amateur or legendary, people are known for their opinions...
I think you should carry on with it, as we need it and we are here to watch everything, and this is something very interesting, so just make the most out of your "amateurism" and don't forget to share it here with us...

Damn good question! I thought the same. Well, one should not forget that any technical indicator is not 100% reliable.
I would feel much more secure, if there was at least some fundamental reason to fuel the growth (vague statement of BoE is not one for me). Speculatively it can grow any day and no technical analysis would be able to predict that.

Thanks for the correction. I thought I'd better keep things conservative. Don't want to become responsible for anyone loosing their shirt (/house /private plane etc)  

Tok, Nice read as always, thanks. I still don't have time to read all your post, but just want to correct something:
The total amount of VC flowed in BTC last few years excess 500mil already. It must be around 1bil in some estimation (check coindesk for the source, I will post it again if I found it).

Regards,

******* What is Monetary Premium ? *********

This is the difference between the utility cost of a monetary token and its value when used as money. Take, for example, a kids funpark. You usually don't pay the guy at the ride - rather you go to a kiosk and buy a "chip" that gets you on the rides. That centralises the funpark monetary function so the guys working at the rides don't have to deal with change and the likes.

Lets consider for a moment, the cost of one of those plastic tokens in the hardware shop - maybe about 5 cents ? Then consider the cost at the funpark - about 2 dollars ? That's some difference. We pay 5 cents in one shop and 2 dollars in the other for the same worthless plastic token with no intrinsic value. What's the difference ? The difference is that in one case, the cost carries a "monetary premium" because you are paying for monetary adoption of the token by the funpark economy. (b.t.w. this is also the answer to the question of bitcoin having no "intrinsic value" - a meaningless subjective term at the best of times).

There are only 2 types of value: utility value and monetary value. The monetary premium could be considered to be the premium paid for the monetary value over the utility value (no small premium !!!!).



Now we've got some basic ingredients to start to work out a notional "bottom" for bitcoin. We can consider 3 elements:

[1] - The VC valuation to date
[2] - the monetary premium
[3] - a speculative premium

The speculative premium is simply the expected return on investment over a given time period. To calculate the speculative premium, we first pick a time period and then estimate the VC valuation and monetary premium (based on adoption curve) over that period.

Here's a rough estimate of mine - feel free to plug in your own figures and decide for yourself whether you think the market is oversold or not !!!  



(Source for VC capitalisation: http://www.coindesk.com/bitcoin-venture-capital/ )

So, based on all that, I see 3 possible scenarios (moving from pessimistic to optimistic):

[1] - bitcoin goes to the lowest conceivable value; the VC valuation to date = $35

I see about a 5% chance of this happening given the 3rd graphic I posted at the start of this thread. There's just been too much consolidation and advancement of fundamentals. For this to happen, 2 elements of the price would have to disappear: the monetary premuim (bitcoin retail adoption drops to zero) and the speculative premium would have to disappear (no ROI expected for the next 2 years). Bitcoin would basically amount to the scrap value of the network. Unlikely but we need to include it as a theoretical possibility, so lets give this one a 5% chance.

[2] - bitcoin looses all its speculative value and is left with a low monetary premium - $175

I see about a 35% chance of this happening. Not because I don't think there's a future but because the speculative premium can potentially be cancelled out temporarily by bearish trading.

[3] - bitcoin chunders along horizontally for the next year - $220

Given the market history, we cannot exclude this possibility, so lets give it a 50% chance of happening for 12 months and a 25% chance of happening for the next 24 months (I think that's pessimistic but lets be pessimistic)

[4] - bitcoin gets a factor of 10 increase in VC capitalisation and a factor of 10 increase in monetary premium (driven by retail adoption) over the next 14 months = $5250

This looks like an exciting prospect so alarm bells must go off in our heads ("something must be wrong" !!). All the same, if we are to accept pessimistic numbers we must also accept optimistic ones if thats what the calculator says.

I'm not going to quantify the chance of this happening because it's the optimistic option and could be clouded by wishful thinking. What I suggest people do is look at the VC capitalisation profile for the world wide web for the years 1994 to 2000 and see what's realistic and what isn't, then give yourselves a % chance of your "preferred" ROI !  

Nice post, similar sentiment to sgbett though.

It's great. After reading your post with the technical analysis, I must say it's pretty in-depth with all the considerations put in to justify it. I'll be watching this thread closely for any new development. Hope to get a clue on the next direction on where the price is heading.

Same thoughts here but where are the daily Brady Bunch trolls in this thread or did they get locked out? Troll hunting season looks like it's gonna start soon so it'll be interesting to see when they all bail and go into hibernation to avoid the lulz.

Unfortunately I'm just an amateur. I only post analyses when I notice something of significant interest. Despite that I'll try to post more regular observations if people are interested.

+1 to your post Tok...

Anyways, is it just limited to one day, or are you going to post some daily analysis for traders like us in order to be able to get into the markets at the right time?

Is it the right time though?

Do I like this because its good, or just because I want it to be true

Good Stuff, I totally concur.
I Always enjoy your TA post.

Refreshing post.

Worth saying that the 1w macd didn't cross the third time. But was pushed down instead by heavy short selling to exacerbate the bottom of the bear market and create a massive washout.

I agree with the sentiments. Need blinkers on not to see light at the end of the tunnel now

Great TA Tok
AlienSou but only this month! Next month will be another thread

Great post, Tok.
Thanks, I will watch this thread. 

It's been speculated that the latest couple of rises in the Bitcoin / USD market are simply "pumps and dumps". This looks unlikely to be the case to me...

The longest range measure of buying / selling momentum, the 1-Week MACD, is now in the process of crossing to the upside. This is now the 3rd completion of a corrective price movement there's been in the last year for the 1-week chart. Each such movement has exhibited successively less selling momentum than the previous one, with this last one being absolutely minimal.

Combined with the huge amount of industrial development that Bitcoin has seen during the last months, it's difficult to conclude anything other than that the market is now in a highly oversold condition and will soon start to re-couple with growth in fundamentals.