How To Estimate Bitcoin’s Fundamental Value

by Trefis Team
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Bitcoin pricing has rebounded of late to again approach the $10,000 mark, which is our estimate for its current fair value based on our bitcoin price estimator dashboard. This estimate is based primarily on factors such as the number of unique users and transaction volumes. While the day-to-day price of Bitcoin is undoubtedly impacted by other, less quantifiable factors, we believe that this is a sound method for estimating the currency’s fundamental value.

Utilizing The Price Estimator

This video shows how to leverage our bitcoin pricing dashboard. While the dashboard looks extremely simple, in back-testing – a method to see how well it could have predicted prices in the past – it was about 96% accurate. As shown in the table below, the back-testing results are very similar to the actual figures.

The 96% accuracy figure was especially interesting, so we took a deeper dive. What does Bitcoin pricing depend on? Like the price for anything, it depends on two things: demand and supply, i.e. how many people want it vs. what is available. Demand for Bitcoin is primarily driven by two factors: the number of active users, and how much they transact. On the supply side, the number of available Bitcoins is capped, and about 80% of the capped number is already mined. As such, it is sensible to focus on the demand, both in terms of users and transaction volumes.

Create Your Own Estimate

If a user believes that our transaction volume forecast is too high – for example, if you think that the April volume forecast should be about 1 billion, you can click on the April forecast and enter 1 billion. In this scenario, the Bitcoin predicted price drops to about $8,000 for April. This is fine, but in this case the $16,000 estimate by the end of the year looks high. Accordingly, we can enter a lower uniform growth rate for the rest of the year by selecting the May data point and clicking Advanced. From there, you can select a specific growth rate – such as 2% – for May and beyond.

In this scenario, the Bitcoin predicted price shows about $11,000 by the end of the year. If you think this is too low or too high, you can enter your own expectations for Bitcoin demand indicators – users and transaction volumes – and come up with your own estimate for Bitcoin pricing.

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