This post is the continuation of the previous one "BITCOIN: Bitcoin flows, is Bitcoin a bubble? (Part I)" where we talked about the recent trends in Bitcoin and the formation of a bubble about it. We observed that despite the current rise of Bitcoin price, the situation in relative terms with the volume of transactions as remained the same, that means that following this analysis we are in an equally good scenario today as we were 2 years ago (obviously not considering the future evolution of the Bitcoin transactions).
In this post however we are going to try to analyze the value of Bitcoin not in relative terms but in absolute ones.
To start with we will observe the current volume of transactions, to date 16/07/2017 we observe that it has a value of 461,3 M$, if we put it in annual terms we get a volume of transactions per year of 168400 M$. This figure will be one the metrics that we will use to value if Bitcoin is cheap or expensive.
We also need to present another metric called Velocity of Money which refers to how fast money passes from one holder to the next.
We obtain this metric dividing the volume of transactions per year by the total market capitalization of Bitcoin (finer adjustments of this value could be made since there is a significant portion of that mass that is not into circulation, being this much larger than in other kind of currencies).
The market capitalization at 16/07/2017 is 31700 M$. With this value we obtain a velocity of money for Bitcoin of 5,3.
To be able to analyze this value would need to compare it with the one of other currencies.
In my analysis we have decided to use the US Dollar, having decided that we will have 3 possibilities using M1, M2 or M3 to calculate it. In my opinion the most accurate one would be M3 since due to the intrinsic properties of Bitcoins the money multiplier of Bitcoin would be really close to 1. However to try to avoid the lose of generality of our argument we will work with a range of values for velocity of money for the dollar that vary from 1 to M3 to 4 to M1.
If we apply those numbers we obtain that for a velocity of 4 the market capitalization should be of 42100 M$ (1 BTC = 2564 $) and for a velocity of 1 the market capitalization should be of 168400 M$ (1 BTC = 10256 $). These two value give us a revaluation in a range between 33% and 431%, which looks like some pretty attractive figures... but that's actually not up to me to judge ;)
In the previous numbers we have considered a 0% growth of the volume of transactions in Bitcoin. We have used this supposition in order to simplify the data. In a future post we will try to take that fact also in consideration providing a more general view of the problem.
I hope you liked it ;)
In this post however we are going to try to analyze the value of Bitcoin not in relative terms but in absolute ones.
To start with we will observe the current volume of transactions, to date 16/07/2017 we observe that it has a value of 461,3 M$, if we put it in annual terms we get a volume of transactions per year of 168400 M$. This figure will be one the metrics that we will use to value if Bitcoin is cheap or expensive.
We also need to present another metric called Velocity of Money which refers to how fast money passes from one holder to the next.
We obtain this metric dividing the volume of transactions per year by the total market capitalization of Bitcoin (finer adjustments of this value could be made since there is a significant portion of that mass that is not into circulation, being this much larger than in other kind of currencies).
The market capitalization at 16/07/2017 is 31700 M$. With this value we obtain a velocity of money for Bitcoin of 5,3.
To be able to analyze this value would need to compare it with the one of other currencies.
In my analysis we have decided to use the US Dollar, having decided that we will have 3 possibilities using M1, M2 or M3 to calculate it. In my opinion the most accurate one would be M3 since due to the intrinsic properties of Bitcoins the money multiplier of Bitcoin would be really close to 1. However to try to avoid the lose of generality of our argument we will work with a range of values for velocity of money for the dollar that vary from 1 to M3 to 4 to M1.
If we apply those numbers we obtain that for a velocity of 4 the market capitalization should be of 42100 M$ (1 BTC = 2564 $) and for a velocity of 1 the market capitalization should be of 168400 M$ (1 BTC = 10256 $). These two value give us a revaluation in a range between 33% and 431%, which looks like some pretty attractive figures... but that's actually not up to me to judge ;)
In the previous numbers we have considered a 0% growth of the volume of transactions in Bitcoin. We have used this supposition in order to simplify the data. In a future post we will try to take that fact also in consideration providing a more general view of the problem.
I hope you liked it ;)
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