By John Kelleher
Bitcoin offers an efficient means of transferring money over the internet and is controlled by a decentralized network with a transparent set of rules, thus presenting an alternative to central bank controlled fiat money. There has been a lot of talk about how to price bitcoin and we set out here to explore what bitcoin’s price might look like in the event it achieves some level of widespread adoption.
In this article, we seek to lay a framework for calculating a medium to long term value for bitcoin, and to empower the reader to make their own projections on the value of bitcoin. (Haven’t filed your taxes yet because you don’t know how to declare your virtual currency? Check out Investopedia’s definitive Bitcoin IRS Tax Guide.)
As part of our framework, we make several key assumptions.
Our first assumption is that bitcoin will derive its value both from its use as a medium of exchange and as a store of value. As a footnote to this assumption, it should be stated that bitcoin’s utility as a store of value is dependent on its utility as a medium of exchange. We base this in turn on the assumption that for something to be used as a store of value it needs to have some intrinsic value, and if bitcoin does not achieve success as a medium of exchange, it will have no practical utility and thus no intrinsic value and won’t be appealing as a store of value.