Forecasting Bitcoin price using quantitative models, Part 4



That is Half 4 of a multipart sequence that goals to reply the next query: What’s the “basic worth” of Bitcoin? Half One is about the value of scarcity, Half Two — the market moves in bubbles, Half Three — the rate of adoption, and Half 4 — the hash fee and the estimated value of Bitcoin.

Hash fee and the estimated value of Bitcoin

In knowledge mining, the time period “hash fee” is a safety metric. The better the hashing energy, the better its security and resistance to exterior assaults. It’s one factor for a hacker to assault your house pc, but it surely’s one other when a hacker tries to assault tens of hundreds of computer systems around the globe on the identical time.

The hash fee progress is because of the ever-increasing computing energy of mining servers, which additionally means rising prices to mine Bitcoin (BTC). A easy rule tells us {that a} given exercise will need to have financial comfort to ensure that it to be sustainable over time. Those that extract oil from the bottom should promote it at a price better than the price of extraction, those that produce electrical energy should promote it at a price better than the price of manufacturing, and so forth.

The identical rule applies to Bitcoin mining, whereby the price of electrical energy, the amortization of more and more highly effective servers, and many others., should be decrease than the revenues generated by receiving Bitcoin for the exercise carried out.

Associated: Is Bitcoin a waste of energy? Pros and cons of Bitcoin mining

Due to this fact, the rising problem of mining Bitcoin should be matched by financial comfort.

Within the first months of 2010, Bitcoin paid miners about $10,000 per thirty days. Right now, due to the expansion within the value of Bitcoin, the community of miners on this planet are distributed a wealth of over $500 million per thirty days — and this worth is destined to develop.

The determine is gigantic, even when partially commensurate with the consumption of electrical energy, but it surely permits us to grasp the era of wealth that this “social experiment” is ready to create. As we are able to see from the graph, the expansion of the hash fee is larger than the expansion of month-to-month remuneration. Due to this fact, with a purpose to estimate the proper value of Bitcoin primarily based on hash fee, it’s first crucial to grasp the development of remuneration for every unit of hash over time.

As we are able to see, the greenback remuneration of the hash fee is in sharp decline. Which means safety will increase virtually exponentially over time, however the price of safety drops significantly over that point.

For a greater understanding, whereas the remuneration for every block grows — regardless of or due to the halving that will increase shortage — the issue of undermining a brand new block will increase far more shortly, at the least for now. Due to this fact, the worth/hash fee ratio goes down as a result of the denominator goes up extra considerably than the numerator.

So, to estimate the (non-linear) development of decline in remuneration for hash fee, the perform that greatest represents this development is, as all the time, the facility regulation perform, as proven within the following determine.

As soon as we get hold of this perform by multiplying the 2 capabilities of hash fee progress and cost by a single hash fee, it’s attainable to acquire the perform that approximates the month-to-month remuneration in U.S. {dollars} over time.

This end result doesn’t approximate the worth of the worth of a single Bitcoin however of the month-to-month remuneration that’s rising over time, as could be seen on the earlier graph.

To estimate the Bitcoin value, corrected in response to this hash fee metric, it’s essential to divide this worth by the typical variety of Bitcoin that’s mined in a given month. By doing so, we get hold of the everyday stepped development of the stock-to-flow mannequin described earlier.


We are able to conclude that even within the face of robust volatility and apparently incomprehensible value actions, the principal three components that transfer the worth of Bitcoin — the shortage, the demand and the price of manufacturing — could be actually helpful to grasp the dynamics of Bitcoin value actions.

We are able to argue that there are long-term basic worth tendencies that may assist to contemplate Bitcoin a “strategic asset class” of funding.

This text was co-authored by Ruggero Bertelli and Daniele Bernardi.

This text doesn’t comprise funding recommendation or suggestions. Each funding and buying and selling transfer entails danger, and readers ought to conduct their very own analysis when making a choice. The views, ideas and opinions expressed listed here are the authors’ alone and don’t essentially mirror or signify the views and opinions of Cointelegraph.

Ruggero Bertelli is a professor of monetary intermediaries economics on the College of Siena. He teaches banking administration, credit score danger administration and monetary danger administration. Bertelli is a board member of Euregio Minibond, an Italian fund specializing in regional SME bonds, and a board member and vp of the Italian financial institution Prader Financial institution. He’s additionally an asset administration, danger administration and asset allocation adviser for institutional buyers. As a behavioral finance scholar, Bertelli is concerned in nationwide monetary teaching programs. In December 2020, he revealed La Collina dei Ciliegi, a e book about behavioral finance and the disaster of monetary markets.

Daniele Bernardi is a serial entrepreneur continually looking for innovation. He’s the founding father of Diaman, a bunch devoted to the event of worthwhile funding methods that just lately efficiently issued the PHI Token, a digital foreign money with the purpose of merging conventional finance with crypto belongings. Bernardi’s work is oriented towards mathematical mannequin growth, which simplifies buyers’ and household places of work’ decision-making processes for danger discount. Bernardi can also be the chairman of buyers’ journal Italia SRL and Diaman Tech SRL, and is the CEO of asset administration agency Diaman Companions. As well as, he’s the supervisor of a crypto hedge fund. He’s the writer of The Genesis of Crypto Property, a e book about crypto belongings. He was acknowledged as an “inventor” by the European Patent Workplace for his European and Russian patents associated to the cellular funds subject.

This text has been efficiently submitted to the World Finance Convention.