Considering the fundamental value of Bitcoin

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Bitcoin is a superior store of value due to its portability

The offshore banking market can be seen as an indicator of store of value

Given these valuation metrics, Bitcoin may still appreciate significantly

What is the core value of? It is difficult to provide the answer using traditional valuation metrics because Bitcoin does not generate any revenue stream and therefore is impossible to value based on discounted cash flows. However, in a recent Market Hive podcast with Bilal Hafeez, Ari Paul co-founder of crypto firm BlockTower, offers an interesting approach to visualizing Bitcoin on a fundamental basis.

Paul argues that if we think of Bitcoin as essentially a “Swiss bank” in your pocket, then there is an objective way to assess the economic value of cryptocurrency.

Suppose you accept Bitcoin as a store of value – and given its near universal adoption around the world – it’s reasonable to say that it has achieved that status. In this case, Bitcoin becomes a much superior form of gold. Just like Bitcoin is unlicensed and allows the bearer of the asset to convert it into any good or service anywhere in the world. Granted, this is nothing more than a social convention, but so is gold because it has no intrinsic value and generates no cash flow. The main advantage of Bitcoin over gold is its portability.

Unlike the owner of gold, the owner of Bitcoin can store billions of dollars in assets is nothing more than a USB stick or a phone app. The portability advantage of Bitcoin is so immense that it could ultimately completely replace gold as a store of value. Although just like fiat, Bitcoin is a digital rather than a physical asset, unlike fiat, the supply of Bitcoin is limited. In fact, conceptually, Bitcoin is, in fact, a greater store of value than gold because its supply can never be extended.

Even if we accept that Bitcoin is a store of value – a modern version of digital gold – the question of valuation still remains open. However, Paul offers a new way to determine the possible fundamental value of Bitcoin. If we accept the offshore banking market as an indicator of the value of all the assets that investors seek to protect against arbitrary state foreclosure, then this market is currently estimated to be around $ 35 trillion.

Most of these assets are not just fiat cash and gold, but productive economic assets such as stocks and bonds, so a simple one-to-one comparison would not be accurate. Nonetheless, if we accept the general valuation metric, Bitcoin, which currently has a market cap of less than $ 1 trillion, has many fundamental advantages. If we just assign a value of 10% of the offshore banking market to Bitcoin, then the cryptocurrency has the potential to triple in the foreseeable future.

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