Economists to Develop BTC 'Equilibrium Price' Paper

Emiliano Pagnotta and Andrea Burasch have proposed a theoretical structure for networks based on proof of work, which include bitcoin and ethereum.
17 April 2018   1044

Two economists have developed a model for estimating the price of bitcoin and other assets in decentralized financial networks. This is reported by CoinDesk.

Emiliano Pagnotta and Andrea Buraschi, professors of finance at Imperial College London, presented a theoretical framework for evaluating networks using the Proof-of-Work consensus mechanism, including Bitcoin and Ethereum.

In their model, analysts use two main variables: the number of users representing the demand side, and the hash-rate of the miners representing the supply side.

The authors draw attention to the fact that decentralized financial networks are unique, since the crypto-currencies in them "simultaneously perform two functions". In addition to being an asset, they also encourage the miners to maintain the network. The equilibrium price of a crypto currency is a solution to a "fixed-point problem, characterized by the interaction of consumers and miners."

Researchers write that this problem has 2 solutions under any set of conditions, one of which is $ 0.

Indeed, if the price of bitcoin were zero, miners would not provide any resource to the network, and its trust would be zero. Consumers would derive no utility from the system and would not pay a positive price for bitcoins.
 

Emiliano Pagnotta and Andrea Buraschi

Professors of finance, Imperial College Business School in London,

But there is a place in this model for a positive equilibrium price. What that figure is depends on the network's hash rate, the expected number of future network users, and the value users place on the network's resistance to censorship, they argue.

According to Pagnotta and Buraschi, a change in regulation in China will have a greater impact on the cost of bitcoin than the same changes, for example, in the UK. Despite the fact that the number of bitcoin users in both countries is approximately the same, there are more miners in China, which means that the restriction of their activities will have a stronger impact on the hashrate and, consequently, the price.

Factor the authors did not take into account is "pure speculative motives," which arguably affected the price of bitcoin more than any other development in 2017.

Bitcoin May Pass Gold Market Cap, - Novogratz

Mike Novogratz continues to be Bitcoin and cryptocurrency optimist 
25 March 2019   86

The founder of Galaxy Digital, Mike Novogratz, expressed the opinion that over the next 20 years, Bitcoin’s capitalization would “easily” surpass the gold market, currently estimated at $ 7.5 trillion. It is reported by The Daily HODL.

In a conversation with the founder of Morgan Creek Digital, Anthony Pompiano, Novogratz stressed that the inflow of institutional money to the cryptocurrency market is only a matter of time, and major players like Goldman Sachs and the Intercontinental Exchange (ICE) are already mastering a new industry.

I know Goldman for instance is gearing up around securities tokens. They’re not doing anything yet, but they’re getting really ready and looking at all the questions on – where would you store them? Do you have to build your own custody, or can you use someone else’s custody? How to get them to work.
 

Mike Novogratz

Founder, Galaxy Digital

According to him, the growth potential of Bitcoin is strong and therefore it is advisable for investors to include the first cryptocurrency in their portfolios:

I think the macro case for [Bitcoin] is pretty strong. And so, if you can put a couple percent of your portfolio in, there’s a decent chance it catches wind. Fidelity is just getting set up. Bakkt continues to get delayed a little bit, but it’s not going to be delayed forever. They’re going to be in the game. And there’s lots of other players coming.
 

Mike Novogratz

Founder, Galaxy Digital

According to him, the volume of the gold market is $ 7.5-8 trillion and in order to outperform this market, the first cryptocurrency needs to grow in price at least 100 times.

Gold’s got an $8 trillion market cap, or a $7.5 trillion market cap. And so, we’re 100x off on that. We’re not going to get there in Bitcoin in the next year or two. But over a 20-year period, could that happen? Easily. Easily. And that’s giving zero optionality to all the other stuff. And so I think it seems like a pretty smart portfolio bet.
 

Mike Novogratz

Founder, Galaxy Digital

The founder of Galaxy Digital also touched on the topic of bitcoin futures.

The reality is, the CME kicked their butts. And these guys have limited resources on what they’re going to spend their focus, and they decided to spend it elsewhere. Finding leverage in Bitcoin is going to get easier as the architecture in the space gets better. You’re already seeing the lending market around Bitcoin went from 10% to like 3%. So once you can borrow you can short. And so now it’s not so hard to short Bitcoin. It used to be almost impossible to short Bitcoin in 2016… It wasn’t great, but it’s not critical. 
 

Mike Novogratz

Founder, Galaxy Digital

In February Mike expressed the opinion that, thanks to institutional money, Bitcoin will reach $ 8,000.