Cryptocurrency News

Bitcoin Price Forecasting Using Quantitative Models, Part 3


This is part three of a multipart series that aims to answer the following question: What is the “fundamental value” of bitcoin? part one is about depreciation value, part Two – market moves in bubble, Part Three – Adoption Rate, and Part Four – Hash Rate and Estimated Price of Bitcoin.

adoption rate

If more and more people want a certain good, and the same quantity of units are in circulation, the price will obviously have a tendency to rise. It is the law of supply and demand that governs any market in the world.

If one year, a hailstorm destroys a tomato crop and there are fewer edible tomatoes than expected, it makes sense for the price of tomatoes to rise in the market if demand remains the same. However, imagine for a moment that suddenly, people want to buy a lot more tomatoes than in years past. The demand increases and the availability of tomatoes decreases, so the price will go up much more than before.

Demand may increase due to two factors: participants are stable and the volume of requests increases or the volume of requests is constant but the number of participants increases. A combination of these two is also possible

In the following example, we just assumed that the number of participants increases for the same amount of goods. So, on the one hand, we have Satoshi Nakamoto who defined that bitcoin (B T c) should become increasingly scarce over time, and on the other hand, there may be a potential increase in the price of bitcoins coming from newcomers that progressively enter the market.

So in order to understand where the value of bitcoin is headed and, overall, where the cryptocurrency asset class might go in the future, it is a question of studying the adoption rate of cryptocurrencies in the world markets.

The increase in the number of wallets is not exponential at all, but close to it. To predict its development in the future, you need to use the “power law” function that is able to best estimate its curvature. To do this, first we place the graph in a logarithmic scale, then calculate the function that best approximates it.

While this function does not consider any potential future growth based on the increase in interest that may appear in 2021 following the unexpected increase in bitcoin, the practice is used to estimate the increase in the number of wallets over time. is done for.

To estimate the increase in the value of bitcoins using the number of wallets in circulation, we would need to estimate the average amount contained in each individual wallet using a fairly simple function:

bitcoin capitalization / number of wallets

Now, we have an estimate of the average bitcoin value of each wallet. However, the data says An entirely different story: 70% of wallets hold 0.01 BTC or less, while 2% of wallets hold more than 95% of bitcoins in circulation, and exchanges have about 7%.

These reports help us understand the huge growth potential of bitcoin in the future, as those who have a large share obviously don’t sell it because they know bitcoin and its potential very well. Those with 0.01 BTC or less will be tempted to buy more, and of course, there are always new wallets opening every month.

However, by taking the average, we can highlight the average value, expressed in US dollars, of the contents of these wallets:

Since the average of these deposits is conditioned by the value of bitcoin’s price, to best estimate the “range” of prices where bitcoin may go, the red dotted line represents one-tenth of the wallet’s US-dollar deposits. ; Whereas the dashed blue line represents the 90th percentile. This “range” allows us to frame the overall capitalization of bitcoin over time based on the estimated adoption rate of bitcoin.

This estimate does not consider many factors that could make it too prudent. For institutional investors entering the market, the average amount per wallet may be much higher than the blue band identified in the example.

Obviously, these estimates should be taken as an intellectual effort to understand the dynamics of bitcoin, and cannot be construed as a suggestion or advice on the part of the authors.

This graph shows that the goal of reaching a trillion or even $1 trillion in capitalization is far from impossible, especially if interest in bitcoin continues to grow in the coming months.

A similar increase has been predicted by the makers of Rainbow Chart:

This graph is very useful as it summarizes the estimated growth rate of bitcoin’s value and its bubble trend after each halving.

Clearly, there is no guarantee that bitcoin will continue to advance with this argument, but it is important to note that it may also do so in order to make objective, reasonable investment decisions based on these assumptions.

This article was co-authored Ruggero Bertelli and Daniel Bernardik.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making a decision. The views, opinions and opinions expressed here are those of the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Ruggero Bertelli Professor of Financial Intermediary Economics at the University of Siena. He teaches Banking Management, Credit Risk Management and Financial Risk Management. Bertelli is a board member of Euregio Minibonds, an Italian fund specializing in regional SME bonds, and a board member and vice president of Italian bank Prader Bank. He is also an asset management, risk management and asset allocation consultant to institutional investors. As an applied finance scholar, Bertelli is involved in national financial education programs. In December 2020, he published La Colina de Siligi, a book about behavioral finance and the woes of the financial markets.

Daniel Bernardik is a serial entrepreneur who is constantly on the hunt for innovation. He is the founder of Dimon, a group dedicated to the development of profitable investment strategies, which recently successfully issued the PHI token, a digital currency that aims to merge traditional finance with crypto assets. Bernardi’s work is oriented toward the development of mathematical models that simplify the decision-making processes of investors and family offices for risk reduction. Bernardi is also the chairman of investors’ magazines Italia Srl and Dymon Tech Srl, and CEO of asset management firm Dymon Partners. In addition, he is the manager of a crypto hedge fund. She . is the author of Origin of crypto assets, a book about crypto assets. He was recognized as an “inventor” by the European Patent Office for his European and Russian patents related to the mobile payments sector.

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