How Is Bitcoin’s Future Value Calculated?

Analysts use different models based on certain assumptions to calculate the possible future value of Bitcoin. Depending on the assumptions they choose, and the general likelihood of the model they make, the more success they’ll have predicting the right price.

For example, one can choose 4 assumptions and create a model. The following model is just a basic explanation of how this works and it is not an actual model that would be used by an analyst.

The first assumption could be that bitcoin will derive its value both from its use as a medium of exchange and as a store of value (a store of value refers to any form of wealth that maintains its value without depreciating, like gold for example).

The second assumption could be that the supply of bitcoin will approach 21 million as specified in the current protocol.

The third assumption could be that as bitcoin gains legitimacy, larger scale investors, and adoption its volatility will decrease to the point that volatility is not a concern that would discourage adoption.

The fourth assumption could be that the current value of bitcoin is largely driven by speculative interest. One can assume a speculative interest in bitcoin will decline as it achieves higher adoption rates.

The simplest way to approach the model would be to look at the current value of all mediums of exchange and stores of value that are comparable to bitcoin and calculate the value of bitcoin’s projected percentage. The next steps would include adding other variables mentioned in the above scenarios. The final product will be a model with parameters that could estimate the price of bitcoin in the future.

So far, there is no right model for predicting bitcoin’s future value but a wrong model is better to have than to not have a model at all. Of course, there are both relatively good and bad models. The better models are those that have smaller aberrations from the actual price. An experienced analyst would probably make a better model than some beginner.

Subscribe for New Krown Content! 

Advertisements

Leave a Reply