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Bitcoin Price Forecasting Using Quantitative Models Part 2



This is the second part of a multi-part series that aims to answer the following questions: What is “Bitcoin Fundamental Value”? Chapter 1 is about the value of scarcity, part two — market moves in a bubble, part three — adoption rate And the fourth part — Bitcoin hash rate and estimated price.

The market moves in a bubble.

In the past few months or years There has been a lot of discussion about bubbles Developments in the bond market Both financial and non-financial newspapers discussed the matter with specialized television stations and Well-known “macro economists”

; from all over the world who talk about how negative interest rates are in the world’s debt.

It is against the financial instinct to pay or lend money to someone even if that person is state. We are faced with an unprecedented absurd situation in the financial markets landscape. The main reason is linked to the enormous liquidity that central banks inject into the market. which they use as funds to avoid bankruptcy of their own. Then gradually returned to the states. (They themselves have problems)

Finally, John Maynard Keynes’ famous phrase reads:

“Financial markets can stay unreasonable longer than you can be a solvent.”

in fact This absurdity made it possible to avoid bankruptcy of the financial system. So it’s a pleasure. Even if it causes an irrational phenomenon such as the bond market that yields negative returns. (and meaningless bond prices) and the stock market touches (not all, but most) new highs every day.

One phenomenon that is not really caused by central bank money. What everyone calls the huge, meaningless bubble of 2017 was Bitcoin (BTC). The price of Bitcoin soared as high as $20,000 in December 2017, roughly in line with the launch of Bitcoin Futures by the Chicago Board Options Exchange and CME Group. It is the largest commodity exchange in the world. And then it hit a low of $3,100 in 2018, effectively losing over 80% of its value.

Does it represent the bursting of a bubble? Alright, does it represent the end of Bitcoin? Of course not. Could there be more Bitcoin bubbles in the future? Of course.

As always, we want to approach the problem in the most analytical way. We created a new table created by Bitcoin founder Satoshi Nakamoto using Excel to ensure that Bitcoin is deflation and inflation-free.

inflation

The US Dollar (and all real world currencies, including the Euro) due to inflation. is getting less and less over time We can better understand this phenomenon if we think about the value of property. Buying a car 40 years ago costs about 13 times less than it does today, so a good car that cost $10,000 in 1980 will cost $130,000 today.

This phenomenon is called inflation. And it arises from a rule that connects the total value of goods in the world with all currencies in circulation. If the number of USD in circulation doubles The same commodity doubles in price. It is “trend” because currency is not a linear phenomenon. And it may take a while to happen.

In the 1970s and early 1980s, inflation in the United States reached close to 12% annually, creating a host of problems for those without the knowledge and methods of coping.

deflation

Bitcoin was built with deflation logic. Similar to commodities like gold and silver, this is why many see it as the new digital gold. because it maintains its value attributes. It’s not poverty, like dollars or euros.

Related: Is Bitcoin a store of value? BTC experts are like digital gold.

Let’s look at how it is possible to create and what are the consequences of these options.

Nakamoto decided that the maximum number of Bitcoins created and available should be 21 million (the number 21 will occur multiple times). in greek Phiwhich we will talk about later), he can decide to enter the exact amount of Bitcoin for each block that can be mined. But doing so will not produce the exponential growth effect that characterizes Bitcoin, or at least not as marked as it is today.

Thus, he decided to halve the number of new Bitcoins issued every four years to create a remarkable and interesting stock flow impact that would drive the price higher and higher.

Related: Bitcoin Halving Explained

For the first 210,000 blocks, miners are paid 50 BTC for each block written on the ledger at the time the Bitcoin value fluctuates from a few cents to a few dollars. So the pay is incomparable with today’s — and it’s not hard to win the challenge. In fact, in the early years, a simple computer was enough to mine.

The first halving took place in 2012, i.e. from block 210,001 onwards, the compensation was halved to 25 BTC for each write in the ledger. In 2016, a second halving took place which reduced the compensation. down to 12.5 BTC and again with the third halving in May 2020, bringing the payout for each block to 6.25 Bitcoin, the latest price adjustment of around $40,000 is still around $250,000.

Related: 3 Good Reasons Why $30,000 Could Be Bitcoin’s Low

The next halving is scheduled for 2024, when compensation will be reduced by another 50%. It is expected to continue until 2140, the year when the last halving is expected, which will distribute less than 1 Bitcoin in last year

But how does this halving phenomenon affect the price of Bitcoin? Halving of what is known as a “flow” or the flow of new capital into the market. Does it affect the price of Bitcoin itself? As we saw earlier, at first glance, Bitcoin seems to follow a stock-to-flow pattern. Therefore, the declining flow while keeping the stock intact should be consistent with the price increase. Now we can divide in half three times. Shouldn’t there be that many bubbles?

Do you know how many bubbles does Bitcoin have in its short life? three deaths They are shown graphically below.

These are the three bubbles Bitcoin has faced, and each time the next highest price is at least 10 times higher, this is clearly not a guarantee that it will be in the future. But there are a number of factors that lead us to believe that what we experienced in 2017 won’t be the last bubble – more will follow in the future.

Can this information be used to determine the correct price for Bitcoin? Or at least a possible price based on this model?

Actually, it is possible if we look at this graph where the halving is highlighted by a jump in the X-axis corresponding to the halving state change. We can estimate the fair value price, i.e. the correct value, the price that Bitcoin can tend to.

If the price of Bitcoin tends to return around the line described in the figure above. It is clear that we can estimate Bitcoin’s future price target based on the halving that awaits us.

From the graph, it is clear that the Bitcoin price target is between $90,000 and $100,000. This information is very useful. Not only because it guarantees that we will reach those prices. But because we should also take into account our investment decisions. Because such information can really get there. and even exceeding those price levels

Obviously, these estimates require intellectual effort to understand the dynamics of Bitcoin and cannot be regarded as a recommendation or recommendation from the author. Understanding how Bitcoin can reach that value is not easy. And anyone who approaches this incredible world for the first time will find it difficult to imagine how such a seemingly worthless asset can be so expensive. Especially if you fall into the trap of thinking. in dollar currency

To do this, it is important to know the different aspects. The absolute fundamental factor in the pricing of Bitcoin is its adoption rate. which will be explained in the next section.

This article was co-authored by Ruggero Bertelli and Daniele Bernardi Bern.

This article does not provide advice or investment advice. Every investment and trading carries a risk. And readers should do their own research when making decisions. The opinions, thoughts and opinions expressed herein are the authors only. and does not necessarily reflect or represent the views and opinions of Cointelegraph

Ruggero Bertelli is a professor of intermediary economics at the University of Siena. He teaches banking management. Credit Risk Management and Financial Risk Management Bertelli is a board member of Euregio Minibond, an Italian fund specializing in regional SME bonds, and a board member and vice-president of Prader Bank of Italy. risk management and asset allocation for institutional investors As a behavioral finance scholar, Bertelli participates in national financial education programs. In December 2020, he published hill of cherry blossoms, A book on financial behavior and financial market crises.

Daniele Bernardi Bern Be an entrepreneur who constantly seeks innovation. He is the founder of Diaman, a group devoted to developing profitable investment strategies. Bernardi recently successfully issued the PHI Token, a cryptocurrency with the goal of merging traditional finance with digital assets. Bernardi’s work focuses on developing mathematical models. This makes the decision-making process easier for investors and family offices. Bernardi is also the president of investor magazines Italia SRL and Diaman Tech SRL and CEO of asset management firm Diaman Partners. He is also a manager of a crypto hedge fund. write Origin of Crypto Assets, a book about crypto assets, he is recognized as the “Inventor” by the European Patent Office for European and Russian patents related to the mobile payment field.

This article has been submitted to the World Finance Conference..