By Allan Ewart
As of today, right now Bitcoin apparently has a value of $6,460, as that is the current market price measured in USD. But what is the value of a US Dollar?
Today, a US Dollar is almost worthless as it has lost over 96% of its base value since 1971 when it came off the gold standard. So, it really depends on what we are valuing it against and whether it is backed by anything tangible.
It’s therefore meaningless to try and value bitcoin against the USD. So, how else can we determine its value? Let’s examine some of Bitcoin’s attributes:
- It has scarcity as there will only ever be 21 million bitcoins.
- And it has to be mined into existence because it takes computational power to solve the hash equations necessary to produce a block of bitcoins.
- Furthermore, that computational computing power requires a lot of electrical energy.
- It has useful underlying blockchain technology that provides immutable peer-to-peer transactions.
- It is decentralised eliminating the need for banks and allows us to transact with anyone in the world who has a wallet, cutting out the middle man.
- It can be used as a store of wealth.
In comparison, fiat currency is practically worthless because it takes very little effort and almost zero cost to produce, and has an unlimited infinite supply. Thus it has very little value. That’s the difference between Bitcoin and fiat currency.
But that still doesn’t help us quantify the real value of bitcoin, so what do we do?
Given the attributes of Bitcoin outlined in the bullet points above, it is possible to compare it to gold in many respects. But then how do we value gold?
The spot price of gold is meaningless also because it too is measured in worthless USD as well as being related to an unlimited supply of paper contracts. It’s also manipulated but that’s a topic for another discussion.
Nevertheless, while people still have some (albeit somewhat misguided) faith in the worthless fiat, let’s examine how much gold really should be worth. It involves a fairly simple equation by dividing the quantity of gold in existence by the amount of debt measured in USD. By the way, that’s essentially what the USD is. It is debt. But in the absence of any other measure we have no other option but to use the USD for the sake of this exercise.
Lynette Zang of ITM trading did this calculation and she arrived at a figure of around $10,000 per ounce of physical gold.
Thus, I believe we can value bitcoin by measurring it against gold at Lynette Zang’s valuation of $10,000 per ounce. So, how much gold is there?
The World Gold Council estimates that all the gold ever mined totaled 187,200 metric tons in 2017
So now we have some numbers to work with as follows:
- 187,200 metric tons of gold – (x)
- 1 metric ton of gold = 32,150.75 oz t (y)
- 21 million Bitcoins (z)
- Gold = $10,000 per ounce (v)
Therefore, we can now use the following equation to arrive at a valuation for Bitcoin as:
Total value of gold TGV => x * (v * y) = 187,200 * $321,507,500 = $60,186,204,000,000
=> $60.186 trillion
BTC = TGV / z = 60,186,204,000,000 / 21,000,000 = 2,866,009
- x = 187,200
- y = 32,150.75
- z = 21,000,000
- v = 10,000
- TGV = 60,186,204,000,000
- BTC = $2,866,009
Therefore, the real value of Bitcoin measured in terms of the real value of gold (in my opinion) is $2.86 million per Bitcoin.