After the article was published the day before yesterday, many readers left comments asking what the reasonable valuation of Bitcoin is.
This is also a question I have been contemplating, as it determines the actions I may take next year.
Let me first state my answer: actually, up until now, I can't give a clear valuation. But I have roughly outlined a thought process for everyone's reference.
Since we need a valuation, we must first have a time limit.
I still believe the peak of this market cycle will be next year, so the valuation discussed in today's article is my estimate for the peak value of Bitcoin next year.
With a time limit, we then need to find a reference point, which is the hardest part of valuing Bitcoin.
- Based on the characteristics of Bitcoin, it is like gold, but it also has significant differences from gold—it has a periodically decreasing output.
- It is a cryptocurrency, but unlike other cryptocurrencies (like Ethereum), it has little to no service functionality or value empowerment.
The only information we currently know is this, so my reference points can only start from these two angles.
Some readers mentioned comparing Bitcoin's total market value to that of gold.
This is indeed how I calculate during long-term valuations.
In a previous article, I mentioned: in my vision, Bitcoin's market value will eventually exceed that of gold. But that is the 'future' and not the near term.
That 'future' I think conservatively is at least 13 years away. If we consider a doubling every four years over these 13 years (not counting this year), that means $250,000 in 2029, $500,000 in 2033, and $1,000,000 in 2037.
This doubling refers to the increase from the peak of the previous cycle to the peak of the next cycle.
From the data of the last two cycles: the peak in 2017 exceeded $19,000, and the peak in 2021 was $67,000.
So I believe this pattern is approximately applicable so far.
From this perspective, if the price of Bitcoin reaches or even exceeds $250,000 next year, I think that would clearly be considered a bubble.
From the perspective of cryptocurrencies, we pay close attention to a metric in past bear and bull markets: Bitcoin's market share, which is the proportion of Bitcoin's total market value to the total market value of all cryptocurrencies.
At the peak of the 2017 bull market, Bitcoin's market share was approximately 33%; at the peak of the 2021 bull market, Bitcoin's market share was approximately 44%.
So from this perspective, if the price of Bitcoin peaks next year, assuming the above market share pattern still applies, then Bitcoin's market share would likely be between 30% and 50% (greater than 30%, less than 50%).
The above two standards are purely conclusions drawn from data.
In addition, I think personal experience and intuition are also very important reference indicators.
Generally speaking, when we clearly see that almost all sectors in the entire ecosystem have rotated, that’s about when this market cycle is nearing its end.
I believe many participants will have this feeling. However, at that frenzied moment, our inner greed will deliberately avoid this feeling, intentionally numb ourselves, thinking that the dance continues and the horse keeps running.
So, in summary, the three standards above (two data standards, one experiential standard) represent a thought process I use for Bitcoin's reasonable valuation.
However, this thought process is quite limited because it only estimates the upper limit of Bitcoin's valuation, not the lower limit. So it's entirely possible that Bitcoin's peak value might not reach or could be far below the upper limit, leading to a market crash.
