Bitcoin-Digital Gold

Content

Recently, in the analysis course of Xiao Lei, I saw that there was a unique perspective to analyze the valuation of Bitcoin and share it with everyone. At the same time, I will summarize my own thinking in the follow-up.

Find a benchmark to evaluate the value of Bitcoin

For any investment, its price cannot rise indefinitely, and it will always have a price ceiling. For a new thing, when it was born, we were full of expectations for it, but its final price still had to match the actual value.

The same is true for Bitcoin. We are full of expectations for it because its characteristics will make it replace the unsatisfactory or defective things in our existing lives and bring us greater convenience and value.

Then we can start from this perspective and see what things in our existing lives can be replaced by Bitcoin. What is the current value of the things that may be replaced, then when Bitcoin replaces them, the market value that Bitcoin can occupy can be estimated.

What are the things that Bitcoin can replace?

Every time we talk about Bitcoin and its disruptive nature, we always talk about its three major characteristics: payment, anonymity, and decentralization.

So can these three characteristics find their counterparts in real life?

1. Payment function. At first, Bitcoin has always been expected to be widely used in the field of micropayments. So which company or business format corresponds to micropayments in reality? We Chinese will soon be able to think of two answers: Alipay and WeChat.

Since the main function of Alipay is payment, I will compare the payment functions of Alipay and Bitcoin. What is the current valuation of Alipay? In May 2018, Alipay’s parent company, Ant Financial, completed a US$14 billion financing with a valuation of US$150 billion.

Note that here is Ant Financial’s overall valuation of US$150 billion, and Alipay is only its subsidiary, so the current valuation of Alipay is at most US$150 billion.

There are two other payment companies that were established earlier and cover a wider area in the world: VISA and MASTER CARD. So what is the current market value of these two companies? The current market value of VISA is about 360 billion U.S. dollars, and the market value of MASTER CARD is about 260 billion U.S. dollars.

Among these three companies, the largest market capitalization is VISA, which amounts to 360 billion U.S. dollars.

Bitcoin as a payment tool currently cannot be compared with the above three companies in terms of the number of users or the scope. If the payment function of Bitcoin reaches the level of VISA, the valuation in this item may be close to 360 billion US dollars.

Anonymous privacy function

Anonymity mainly means that the identity of the holder of Bitcoin is anonymous. In real life, we can also find this benchmark, it is the famous Swiss bank.

Due to its unique geographical location and historical factors, UBS has always been known globally for its anonymous protection of account privacy, attracting countless wealthy individuals around the world to deposit a large amount of private wealth in UBS.

So what is the market value of UBS? At its peak in 2007, it was close to 240 billion U.S. dollars. Therefore, if the anonymity of Bitcoin is applied to the level of Swiss banks, the upper limit of its valuation is about $240 billion.

Decentralized function

The so-called decentralization refers to the feature that it does not rely on the authority of the intermediary, specifically, it can become its own currency without relying on the government. This is the top priority emphasized by Satoshi Nakamoto in the Bitcoin white paper, and it is also the most important feature of all people who understand blockchain and Bitcoin in the world.

In real life, we can also find a target. This is the king of commodities that has formed a consensus after thousands of years of human history, what Marx called "natural currency": gold.

Regardless of whether gold was used as a currency or as an object of value storage in ancient times, it naturally did not rely on any government for credit endorsement. All mankind recognizes its "decentralization" characteristics.

In the circle, Bitcoin is most favored and analogized by the public is the gold in the virtual world.

But gold itself contains many characteristics. It is not only an industrial metal that can be used for certain specific purposes, but also a commodity used in the jewelry industry. It is also a value store and risk hedging tool used by major institutions including global central banks to hedge risks and Protect assets.

When we benchmark the decentralization of Bitcoin against gold, we must remove the industrial and commodity attributes of gold, and only look at the value it represents as a store of value and risk hedging tool, that is, investment value. Then the value of this part of the investment accounts for about 30% of the total value of gold. At present, the total value of global gold is 8 trillion U.S. dollars, and 30% is 2.4 trillion U.S. dollars.

So if we look at the decentralized characteristics of Bitcoin and use it as a decentralized value store and risk hedging tool, its value is comparable to gold, then the valuation is about 2.4 trillion US dollars.

Therefore, if Bitcoin can completely replace gold as a decentralized value store and risk hedging tool, the upper limit of its valuation is probably US$2.4 trillion.

In summary, Bitcoin's payment function, anonymity function and decentralization function are valued at 360 billion U.S. dollars, 240 billion U.S. dollars, and 2.4 trillion U.S. dollars, respectively. The corresponding Bitcoin unit prices are 21,000 U.S. dollars and 14,000 U.S. dollars, respectively. And $140,000.

The current market value of Bitcoin is approximately US$100 billion on May 4, 2019, with a unit price of US$5,800.

Can this kind of thinking lead us to consider the valuation of Bitcoin more rationally? At least we, as an investor, have a rough logical data in our minds, rather than blindly being confused by others.

At least let us understand that there is still good room to invest in Bitcoin.