Demand is driving the price of Bitcoin to 0K
Demand is driving the price of Bitcoin to 0K

In any market, be it fruits and vegetables or financial assets, prices are determined by the intersection of supply and demand.

If tomatoes were scarce due to the flood, then supermarket prices would inevitably be higher for the same demand – just as twice as many people wanting to buy tomatoes would pay more for the same supply Same.

In financial markets, if the supply is infinite, the price cannot change due to demand, as is the case with mutual funds.

related: Don’t Be Naive — BlackRock’s ETF Won’t Be Bullish on Bitcoin

If more subscribers want to buy the fund, they simply issue more shares at what’s known as the net asset value (NAV) — the correct value of the fund’s assets.

For example, assume a fund with a capital value of $100 million consists of 10 million units valued at $10. If an investor wants to invest $10 million, 1 million units are issued at $10 and the capitalization of the fund is $110 million.

It’s a different story if available shares are limited to 10 million shares, so anyone looking to buy shares has to find someone willing to sell them. In this case, the price may no longer be $10, but depends on how much the buyer is willing to pay and how much the seller wants to make. This will create a situation where prices fluctuate due to supply and demand imbalances. Obviously, if an asset is in high demand, the price may be much higher than it should be.

But how can you estimate the correct price?

In 2021, I published data trying to estimate the fair value price of Bitcoin, as shown in the figure below. It shows that in June of that year, we had reached a relative maximum for Bitcoin (BTC). (I was hoping this wouldn’t turn out to be true, but it is.) How did I estimate this value?

The preceding fund example helps us understand the logic behind this estimate.

If a fund’s capitalization is derived by multiplying the number of units outstanding by the NAV or price, it can also be estimated as the average number of investors in the fund held by each investor.

So, in terms of Bitcoin, if I can estimate the average amount held in each wallet by:

Based on the number of wallets in circulation, I can also estimate the capitalization of Bitcoin, which I then divide by the number of Bitcoins in circulation to arrive at its price.

Luckily for us, the transparency afforded by blockchain allows us to collect large amounts of this information with a high degree of reliability. For example, the number of Bitcoin addresses with a non-zero balance can be easily tracked simply by running a network node.

As can be seen from the graph, the average amount (USD) in a wallet fluctuates due to supply and demand (many wallets hold bitcoin but never move it), so if we take the 90th percentile and the 10th percentile Quantiles, we can find that this range can lead us to subsequently estimate the price of Bitcoin.

Now, once the growth curve (on a logarithmic scale) of wallets in circulation has been estimated, the range of bitcoin price movement can be estimated.

The model is simple, but simplicity is its strength: we don’t know if a user owns different addresses, or if an address is “owned” by multiple users—as is the case with cold wallets on exchanges—but we These relationships can be relied upon, especially when making a large number of comparisons and comparing them over the time frame of a full price cycle.

related: Bitcoin ETF: Worse for Crypto than Centralized Exchanges

For example, in the last days of the crypto winter (as we have in recent months), we can usually detect an increase in withdrawals from cryptocurrency exchanges and a decrease in balances held in these centralized platforms. Since putting crypto assets in custodial custody is generally considered more risky, the signal is considered bullish as it suggests that investors prefer to hold long Bitcoin positions for the long term rather than holding it in trading accounts for the benefit of the doubt. Long-term speculative opportunities to take advantage of short positions.

This phenomenon is thus accompanied by address accretion (withdrawals from a few accumulated cold wallets to fill many single addresses controlled by individuals) and sets the stage for periodic price appreciation also based on the model described in this paper.

The chart and the data in the model suggest that Bitcoin’s price could reach its next upper limit of $130,000 in the fall of 2025, and possibly even higher.

As always, it’s important to note that this forecast is not financial advice. It can only be used as an expected value based on some assumption with a certain degree of confidence. But other forecasting models have emerged with similar price growth estimates. The recent surge in interest in the asset class from institutional players such as BlackRock, the world’s largest asset manager, which is seeking approval for a bitcoin spot exchange-traded fund, may indicate a commitment to the models. A certain amount of confidence.

Daniel Bernardi is the founder of Diaman, a group dedicated to developing profitable investment strategies. He is also Chairman of Investors’ Magazine Italia SRL and Diaman Tech SRL, and CEO of asset management firm Diaman Partners. Additionally, he is a manager of a cryptocurrency hedge fund.he is Origin of Crypto Assets, a book about cryptoassets. He has been recognized as an “inventor” by the European Patent Office for his European and Russian patents related to the field of mobile payments.

This article is for general informational purposes only and is not intended and should not be construed as legal or investment advice. The views, ideas and opinions expressed here are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.


Leave a Reply

Your email address will not be published. Required fields are marked *