What is the actual price of Bitcoin?
According to a recent JP Morgan report, It’s “fair value” lies between $1260 to $2800. I don’t know but such a wide range seems absurd to me. What’s interesting is how they reached that conclusion.
They used a form of commodity valuation called marginal cost pricing. However, that financial model is useless for Bitcoin. The marginal cost of production only matters to physical commodities because, in economics, supply is elastic to price. If the price of a physical asset falls, higher cost producers lose money and eventually turn off production. The level of production goes down with price until it falls below expected demand and by then it begins to stabilize.
This doesn’t apply to Bitcoin because It’s production is inelastic to price. New BTC is minted with every block, and the block timing is set by an average of one every 10 minutes. If the network deviates from this protocol due to changes in hash power capacity, the difficulty algorithm resets the block time and the production schedule. Bitcoin is not like any other commodity, the rate of Bitcoin production never changes including the amount of mining.
Bitcoin can go up to 1 million this year or fall to 1 dollar, and the rate of production would average 12.5 BTC every 10 minutes. Therefore, JP Morgan focuses on the cost of mining, but the cost of mining is irrelevant to price because the price has no impact on the rate of production. This is called perfect inelastic supply.
Source: Bits on Blocks
As you can see, the expected BTC supply doesn’t go out. It’s not possible.
I think these guys know it. Maybe they made that valuation as a form of price manipulation and FUD or they don’t even understand the technology, who knows?
Cryptocurrency bull and co-founder of Fundstrat Global Advisors Thomas Lee said:
“The fair value of Bitcoin (BTC) is significantly higher than the current price”
- Bloomberg, Dec. 13.
The guy is right, see for yourself: CoinFairValue
If you clicked the link, you can see that the fair value is higher than the price. This tells us that BTC is undervalued. However, keep in mind that we can’t speculate about future prices based on this because It’s based on the current usage.
Also if you look at the P/E ratio of BTC It is way below 15. The average P/E ratio of the S&P 500 is 15; This is considered a standard ratio in investing. The P/E ratio is under average, this tells you the same. Bitcoin is very undervalued everywhere you look at it and Its fair value represents the potential price that It could reach. Don't believe the FUD generated by the mainstream media.
Open your eyes.