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Is Bitcoin Under or Overvalued? What Fundamental Analysis Tells Us – Brave New Coin


Bitcoin (BTC) is a revolution within modern investing, with a set of characteristics distinct from traditional assets. As we venture into valuing Bitcoin we find ourselves in a landscape where the conventional tools of financial analysis encounter uncharted territory. This article delves into the heart of this new frontier, exploring the fundamental analysis of Bitcoin, a digital asset that defies traditional valuation methodologies. 

We aim to determine whether Bitcoin is over or undervalued, using fundamental analysis valuation techniques. It is a particularly pertinent question today, as Bitcoin investors face an uncertain future in between two major bullish events, a spot ETF approval and an upcoming block reward halving.  

Fundamentally Analyzing Bitcoin

The goal of fundamental analysis (FA) investment research is to ascertain an asset’s true or inherent value. Intrinsic value is calculated without taking into account an asset’s market value or speculative considerations. Instead, analysts employ different types of modeling tools that focus on factors other than market pricing to arrive at an intrinsic value. Fundamental analysis tries to answer the simple question of “what is an asset really worth?”

Fundamental analysis looks at both internal and external factors that may impact a company or product’s value. New changes to a company’s flagship product or the health of the global economy, for example, can have an impact on an investment’s value. Importantly, these elements may have an impact on an asset’s intrinsic worth before they have an impact on its market value.

Using fundamental research, investors can be alerted to purchase assets when they are undervalued and similarly, sell them when their intrinsic value exceeds their market price (overvalued).

The investment philosophy at play is that assets will inevitably move towards a fair market value. This means that there may be a trading opportunity if the fundamental analysis shows that an asset’s intrinsic worth differs from its market value. In this report we explore 5 key fundamental indicators and whether they suggest Bitcoin is currently over or undervalued.  

Fundamental analysis of Bitcoin is not straightforward

Fundamental analysis has been used for decades in the traditional share market, but the challenges of using fundamental analysis for cryptographic assets are distinct. Due to the cryptographic asset class’s numerous distinctive qualities, it cannot be evaluated using the same framework as conventional enterprises or commodities. As detailed in this article, tools do exist, but given the nascent nature of the sector, each of them has its proponents and detractors. For potential investors, this offers both an opportunity and a challenge.

The various crypto assets have a wide range of uses and a useful reference overview is provided by Brave New Coin’s General Taxonomy Of Cryptographic Assets. Since Bitcoin (BTC) assets don’t produce cash flows, it is difficult to evaluate them using typical stock investment indicators, such as future cash flow.

Some protocol tokens may be evaluated using a modified version of a conventional fundamental analysis model such as Discounted Cash Flow (DCF), which provides holders and token stakers a percentage of platform revenue. A DCF model might be used to evaluate a token like the LOOKS token, for example, which gives token holders 100 percent of the trading fees on the LooksRare trading platform.

Bitcoin is not unique in that its intrinsic value cannot be determined based on its cash flows. Hard assets, such as Gold and Silver, are comparable, and this class of assets needs to be evaluated depending on where the asset’s price may be headed in the future. The availability of the asset – and the demand for it – will determine this.

Although none are perfect, several rational and straightforward models have been developed to predict changes in Bitcoin’s intrinsic value. They have all been used to give helpful signals to traders who lean towards a fundamental approach to investing.

Bitcoin’s Supply-based value indicators 

The circulating supply of BTC can be determined quite easily. The predetermined, finite, and fixed monetary policy of the network means future supply is also clearly defined. This means assessing the intrinsic value of the Bitcoin network though its supply is an appealing option.

1. Stock-to-flow

One of Bitcoin’s most popular valuation models, stock-to-flow (S2F), is focused almost exclusively on supply metrics. Stock-to-flow is a measure of how much new supply of an asset is being created over time (flow), relative to the existing supply (stock). 

It measures how many years, at the current production rate, for production to achieve the current stock of an asset. The higher this number is, the higher the expected price. For instance, a commodity where the current stock takes 100 years to produce, S2F suggests, is more valuable than a commodity where the current stock only takes 20 years to produce. 

The more difficult it is to produce a commodity and the less of it there is, the more inherently scarce it becomes and the more its assumed value rises.  Stock-to-flow was around before Bitcoin. It was a model used to determine the intrinsic value of mined hard assets like gold and silver. 

The stock-to-flow model only works for Bitcoin because of its scarcity. Bitcoin’s scarcity means it has value as money. Computer scientist Nick Szabo says scarcity creates “unforgeable costliness” and this in itself, creates intrinsic value for an asset. It should mean that as the supply of Bitcoin tightens and becomes more scarce, then it becomes more valuable. 

Bitcoin cannot be copied, duplicated, pirated, or forged. Bitcoin comes packaged in blocks of ~500 transactions that contain all other necessary information required to secure the network. 

Blocks are 1MB and are generated roughly every 10 minutes. The Bitcoin network has been generating blocks uninterrupted since its inception. When the network was first launched on the 3rd of January 2009, as a reward for validating transactions and publishing blocks to the Bitcoin ledger, miners earned 50 Bitcoins (BTC). This 50 BTC is freshly minted supply. New Bitcoin will continue to be minted until a pre-determined final supply of 21 million is reached. 

Bitcoin was built with a pre-planned deflationary monetary policy. Every 210,000 blocks a halving occurs. The halving cuts the miner’s Bitcoin reward in half, reducing the rate at which new BTC supply is issued.  

The halving events will keep occurring until no new BTC is issued to miners. Bitcoin can be fractioned to a maximum of 8 decimals, so miner rewards can reduce to 0 BTC. This should be around the 33rd halving in the year 2140 when the 21 millionth BTC will come into existence and the final total supply will be reached. 

Bitcoin’s position as a verifiable scarce asset, with some demand, means that as it becomes more difficult to acquire with each new halving, its value increases. This deflationary mechanism has significant implications for BTC’s stock-to-flow model, given the ‘flow’ or production rate of the asset halves every 4 years.  

The conceptualizer of the Bitcoin for stock-to-flow model, a pseudonymous analyst who goes by PlanB, has stated in the past that his model may not work for other proof-of-work altcoins like Litecoin because they do not have the same ‘unforgeable costliness’ that Bitcoin does. 

How To Calculate Bitcoin Stock-to-flow

S/F=Stock/Flow

The stock-to-flow of an asset is equal to the total current available stock of an asset divided by the yearly production. There are presently around ~19,400,000 BTC in existence as circulating supply, and about 328500 new bitcoins are created each year. There may be some debate about the exact value of circulating supply given factors such as lost Bitcoin, or coins that have never moved from Satoshi’s…



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