Price Estimation

The potential capitalization, and therefore potential unit price, of Bitcoin is estimated in various ways. A common approach is to imagine Bitcoin replacing all state money or even gross world product. Other approaches that use models of past price to predict future price are economically irrational and therefore not considered here. The presumption of Bitcoin as global reserve currency is dismissed for reasons discussed in Reserve Currency Fallacy. The effects of speculative hoarding on price are not considered, based on the Catallactic disproof of speculation as a determinant of price.

Given that Bitcoin is money and not credit, the "money" approach is a more rational starting assumption. Yet without a clear understanding of the essential distinction between money and credit, this approach is often flawed in practice. As shown in Credit Expansion Fallacy, Bitcoin cannot limit credit expansion. If it eliminated credit expansion (hypothetically), there would be no production whatsoever and it would be worth nothing. The most rational starting assumption regarding credit expansion, is that Bitcoin is reserved at the same rate as other monies. The rate of credit expansion is driven by human time preference alone, so this is an assumption that production is therefore consistent with historical norms.

Let us consider five possible choices for "money" replacement by Bitcoin:

• Tangible money.
• Base money (M0).
• Bank credit (M3-M0).
• All credit (bank, debt, equity).
• Gross product.

Using tangible money ("vault cash") only is an irrational approach. The money that is accounted for as a money equivalent must also be included if one is to consider tangible money, since they are of the same supply. Central banks print and coin tangible money when required, against a base of "obligations" to do so, and all credit in the money is expanded against this base. This concept is discussed in State Banking Principle. Using credit is also an irrational approach, since Bitcoin is not credit. As a money it is used to settle credit obligations. This concept is discussed in Debt Loop Fallacy. So of course using any combination of money and credit (such as M1, M2 or M3, as these include M0) is irrational by the same reasoning. Gross product is similarly unjustifiable for substitution as it is neither money nor credit.

However, for the sake of comparison, let us estimate each of the five options listed above. Base values for the following table are U.S. Dollar amounts borrowed from Credit Expansion Fallacy. These are expanded by an estimate of relative size of the the world economy by equity market capitalization. The U.S. market is approximately 40% of global markets. Therefore these values exceed U.S. numbers by a factor of 1/40%. This favors simplicity over precision, as the only objective is to demonstrate a rational method of estimation. The amount of Bitcoin assumed is 18,952,500 given 95% mined (~10 years future) and 5% lost (e.g. Satoshi lost private keys).

Valuations are based on 2019 numbers though Bitcoin inflation is based on 2029. This implies that values should be higher based on the assumption of economic growth and U.S. Dollar monetary inflation. The latter can be eliminated by considering this a constant 2019 dollar projection. Assuming 2% annual real economic growth compounded for 10 years, the 2029 values have been increased by ~22%.

Substitute	Size (2019)	USD/BTC (2029)
Tangible money	$4,347,460,000,000	$279,852
Base money	$8,187,102,500,000	$527,016
Bank credit	$36,018,735,000,000	$2,318,578
All credit	$236,812,492,891,206	$15,243,965
Gross product	$80,270,000,000,000	$5,167,097

The global base money replacement estimate is $527,016. Determination of net present value requires an estimate of capital cost. Using a conservative value of 7.2% interest implies a 100% opportunity cost of speculation over a ~10 year term, or a present price of $263,508.

Now we consider the primary assumption, of replacement of all money. Bitcoin offers no security against state prohibition of its use in trade. Under the assumption that states intend to retain seigniorage and censorship, we might multiply by the fraction of the global black market, which is estimated to be ~28% of the global market. The base money estimate includes all market activity in the money (credit estimates do not). At 100% replacement for estimated black market trade the price is $73,782.

However given the assumption that state monies are in exclusive use in the white market, we cannot assume 100% of black market activity in Bitcoin. There is no obvious basis for estimating this proportion, but the 2019 price of ~$10,000 implies a projected 2029 black market adoption of ~7.4%.

This estimate does not consider the stability property of Bitcoin. It is possible that trade would be forced into monetary substitutes before the currently-implied future adoption can be reached.