Thread by @thisiswhyimhotz

With the same reasoning as a DCF stock valuation model, you can use a discount rate in this model to calculate a valuation at any point in time. Instead of using dividends, one uses transaction fundamentals.

I present the DTF 😏(Discounted Transaction Fundamentals) model.

https://twitter.com/thisiswhyimhotz/status/1072022755070173184

2/ The dividend discount model (DDM) values a stock as the present value of future dividends.

Vo = Dt/(1+r)^t

3/ Applying the same logic, you can value a (crypto)currency as the present value of velocity and supply-adjusted future transactions.

Discount rate is the required rate of return for an investment.

Per @Awe_andWonder's log trend, bitcoin is curently returning about 5% per month or 80% per year. So depending on how far in the future you are forecasting, 60-80% discount rate seems safe

medium.com/coinmonks/bitc…

5/ Annual velocity estimate is up to you.

If you think bitcoin is money, average US dollar velocity is about 1.8 quarterly (7.2 annual)

6/ If you think it's digital gold then bring that number down a bit. Historical average bitcoin velocity @woonomic is around 1 (4 annual)

Example:
Say we believe bitcoin will transact $1 billion per day in one year.

Sticking with historical average velocity, a 70% discount rate and 18,000,000 #bitcoin outstanding we get a current value of:

((1,000,000,000×365)/(4x18,000,000))/1.7)^1

= $2,982 today

8/ We can also estimate what the market is already pricing in.

Current $BTC price is around $3,800. At the peak in 2017, the Bitcoin network was processing $4 billion per day. Solving for time sees when investors believe the network will process $4 billion daily transactions.

$3,800 = (($4,000,000,000 × 365)/(4 x 18,500,000))/(1.7)^t

t~=3.1

The market is implying that the Bitcoin network will consistently process what it did in December 2017 in transactions per day in just over 3 years i.e. Q1-2 2022.

10/ Based on my previous charts I still believe $BTC is undervalued at the moment. This model simply provides a way to find a present value of cryptocurrencies in a similar to the way one values stocks.

Thanks again @cburniske for the thought leadership.

Note/ We can easily disprove charlatans like @officialmcafee predicting $1,000,000 BTC by 2020 this way.

1,000,000 = ((Tusd)/(4 x 18,000,000))/1.7^1

Tusd ~= $42,350,000,000

The Bitcoin network needs to process !!! $42 billion in transactions per day !!! to justify that price

Correction to Note/

Needed to annualize and adjusted expected supply in Jan 2020.

1,000,000 = ((Tusd x 365)/(4 x 18,250,000))/1.7^1

Tusd ~= $340 Billion PER DAY by NEXT YEAR to justify BTC $1 million today

Today daily tx value is about 1000x less...good luck @officialmcafee