Bitcoin Price Forecast Using Quantitative Models

Abstract

Bitcoin was designed to grow in value indefinitely. The smallest quantity, known as a Satoshi, is equal to 0.00000001 of a Bitcoin. It’s obvious that its creator imagined a deflationary system for his creation, one that could help it reach ever increasing values.

In the moment that a Satoshi has grown to be worth a dollar, a Bitcoin will equal to $ 100,000,000 (one hundred million dollars!). This is the value that Mr. Satoshi Nakamoto had in mind for his own Bitcoin.

Why is it possible for Bitcoin to reach this value? What is the “fundamental value” of Bitcoin?

In this paper we aim to build a framework that permits to answer this question.

First step of our framework in based on “The value of scarcity”. The concept of scarcity is well present and known in Commodities, such as with Gold, Silver, Palladium or Platinum.

These precious materials are all the more precious the more scarce their production is.

In fact, there is a mathematical model known as Stock to Flow, that estimates price based on the quantity already present in the world (Stock) with the quantity that is extracted every year (Flow).

Second step is explaining the “bubbles” (or the “waves”, considering Shiller’s narrative environment) in a fundamental picture based on the “halving rule”.

Third step is the determinants of the Bitcoin demand and price. The “rate of adoption” model.

Fourth step is the “cost and revenues of production” model based on mining process, and the hash rate. The supply chain of bitcoin model is built to create price growth.

Keywords: Bitcoin, Crypto, Blockchain, Adoption, Forecast, prediction, analysis, Cryptoassets, Cryptocurrencies, Diaman, PHItoken