8. How to value Bitcoin, starting from the failure of PlanB model

Post a comment / Author: Zhu Weisha / February, 2023

——Answering the concepts in the article "Please bring out Satoshi Nakamoto to welcome the new world"

8.1 A single mathematical formula cannot make long-term valuation predictions for Bitcoin

8.2 Mixed indicator prediction method

8.3 Valuation methods suitable for retail investors

1. Observation and empathy

2. Comparison method

  Choose the right object and think deeply

  Example of comparison method: Bitcoin is not a rival of gold in terms of storage value

· Leading indicators for users to quickly evaluate the rise of Bitcoin 8.4 The rise of Bitcoin is driven by demand. Written at the end. In Chapter 13 of the original text, the failure of the PlanB model was discussed. Readers think that the discussion makes sense but is not thorough. Here, through the discussion of Bitcoin valuation, readers can have a deeper understanding of the design logic in the prediction of Bitcoin growth curve. 8.1 A single mathematical formula cannot make long-term valuation predictions for Bitcoin. Mathematical formulas are suitable for statistical predictions, such as moving averages and Bollinger bands. These are all representations of states that have occurred, and they conform to Newton's first law. That is, it will continue to be in the original state without external interference. These empirical formulas generally correspond to the short term, and the longer the time, the less effective it is. Because the probability of sudden events is high over time, thus breaking the original statistical balance law and breaking the prediction curve. Mathematical formulas are generally predicted based on a principle. For example, the famous PlanB's S2F prediction. His prediction is based on the 4-year Bitcoin halving. The first halving occurred on November 28, 2012, and the closing price on December 1 was $4.7. The first price was $0.005 on May 22, 2010, and the first halving increased by 940 times. The second halving was on July 9, 2016, and it was $621 on July 1. It increased by 132 times. The difference in the increase between 940 and 132 is 7.1 times. The third halving occurred on May 12, 2020, and the price on May 1 was 9454 yuan. It increased by 15 times. The difference between 132 and 15 is 8.8 times. If the difference is 7 times, the price of Bitcoin after the halving in 2024 should be $21,400. This price is slightly higher than the current computing power base. This prediction is based on the difference in the increase and does not take into account market fluctuations. Readers will find it absurd at first glance.In fact, it is the same as PlanB's prediction principle. Bitcoin has natural growth factors, but it is not a pure physical phenomenon. The use of mathematical methods to predict does not take into account the impact of human power on the results. In October 2021, Bitcoin hit a high of $67,000, which corresponds to a new high in the U.S. stock market. Obviously, the rise of Bitcoin is caused by the Fed's easing. The market factors that must be considered when using mathematical inferences. As long as it is a system with human participation, simple mathematical formulas cannot be used as prediction tools. There is probability theory for predicting irregular movements, but it is only statistically significant. It is a lagging indicator and is constrained by Newton's first law. There is no mathematics that can accurately predict the movement of the stock market, so there are only analysts but no forecasters in the stock market. The job of an analyst is to use various tools to give forecast expectations through comprehensive analysis of corporate behavior. In the blockchain, you can see a little trace of analysts. PlanB is said to be an analyst, but his real name is unknown. His method does not reflect the stock market analysis method. Where is the analyst's skill? The literal interpretation of PlanB is Plan B, which is his Plan B in life, that is, the backup plan. I guess PlanB is an analyst who is not in the mainstream in his industry. PlanB's model is based on exponential growth. The larger the market value, the greater the energy required to drive the rise. And the rising energy must rise exponentially to match his model. Without the release of US dollars, there will be no energy. Where does the new energy come from? PlanB's model is not without value. Its value is to give people a crutch and a goal. It is just a placebo that gives people psychological hints. Blockchain is superstitious about the four-year halving and believes that it will rise sharply in 2024. PlanB believes that in 2024, Bitcoin's SF hardness value will reach 56, and Bitcoin's market value will reach 5.5 trillion US dollars, which is equivalent to 288,000 US dollars per Bitcoin. I am afraid the market will be disappointed. If there is no new narrative, this goal is impossible to achieve. In fact, as the number of coins sent per block decreases, the four-year halving market will gradually disappear. For a system with human participation, the changes produced can have statistical laws, which can be expressed by curves and formulas, but as a pure mathematical prediction, especially long-term predictions such as PlanB and exponential predictions such as rainbow charts are wrong.8.2 Hybrid indicator prediction method People who enter Bitcoin from the traditional financial industry will bring their thinking and methods. They are part of the regular army with a relatively high level, and they quickly occupied the position of KOL opinion leaders. In mid-August 2020, Grayscale Investments released its latest report "Valuing Bitcoin", which valued Bitcoin from the perspective of relative value and evaluated the value of Bitcoin from the perspective of supply and demand. Supply indicators include the number of active tokens, coin-day destruction index, actual market value, S2F model, and the number of Bitcoins held by exchanges. Demand indicators include Bitcoin mining costs, whale index, and daily active addresses (DAA). This kind of prediction is too complicated and has low operability for users. People would rather accept PlanB's prediction because it is simple and meets their expectations. In addition, these indicators used by Grayscale are like Bollinger Bands, which are only statistically significant and are lagging indicators with short-term accuracy. In the stock market, analysts often use them as reference indicators and use them in conjunction with other factors, which is scientific. ARK Catherine Wood's method is problem-oriented modeling.

8.3 Valuation methods suitable for retail investors

1. Observation empathy https://chainless.hk/zh-hans/2023/02/04/8-%e5%a6%82%e4%bd%95%e7%bb%99%e6%af%94%e7%89%b9%e5%b8%81%e4%bc%b0%e5%80%bc%ef%bc%8c%e4%bb%8eplanb%e6%a8%a1%e5%9e%8b%e5%a4%b1%e8%b4%a5%e8%b0%88%e8%b5%b7/