Bitcoin store of value…fair value ?

Background

With the current bear market, many are asking where is Bitcoin price going, they are basically looking for a bottom.

I think it is a mistake to focus on price, it is only an indicator that account for fundamental value, market conditions, monetary policy, sentiment, speculation, leverage trading, etc…

The actual question for an investment is what is the fair value and am I buying it at a discount ?

The recent situation suggests that the Bitcoin “store of value” narrative has been overtaken by monetary policy, trading, market sentiment, greed and speculation.
A store of value is something of low volatility where nations, corporation or individuals can put their excess saving with a long term capital allocation (HODL).

Despite debasement and inflation, US dollar or any major currencies on a bank account or balance sheet are considered a short term store of value because of their low volatility relative to each other.
Obviously, currency debasement is an issue so as a form longer term store of value there is gold and other hard assets, people treat those as store of wealth for long term capital preservation.
The narrative is that bitcoin belongs to the later category although the current volatility suggests otherwise.

Bitcoin market cap breakdown

If Bitcoin is a store of value then it means its market cap has two components:
1. Store of value: Long term capital allocation (HODL) = low volatility
2. Speculative: Short term capital allocation = High volatility

The question is what is the low volatility capital allocation to Bitcoin as a store of value so that we can infer a minimum price discounted of volatility, let’s say its fair value.

Bitcoin fair value

A store of value means economic actors (government, corporation and individual) would allocate some of their long term saving to Bitcoin.

A metrics called “Gross National Saving” (GNS) estimates the proportion of the GDP saved on a yearly basis by the economic actors of a nation.
Wikipedia defines it as:

Gross national saving is derived by deducting final consumption expenditure from Gross national disposable income, and consists of personal saving, plus business saving, plus government saving, but excludes foreign saving.

(see https://en.wikipedia.org/wiki/Gross_national_savings_by_country)

Let’s consider the 20 countries with the highest GDP since they account for 89% of the world GDP.

(see https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal))

Base on Wikipedia those 20 nations have a cumulative yearly GNS of 23.36 Trillions$.
At the start, I think 0.1% of the yearly GNS would be allocated to Bitcoin. The proportion could grow 30% a year but I think it is unlikely that more than 5% of the yearly GNS would ever be allocated to a single asset class.
So we can consider an increase from 0.1% to 5% over 16 yrs then plateau at 5% yearly allocation after that.

We can then make a projection of this cumulative capital allocation over 25 yrs and estimate the bitcoin minimum “fair” value as a store of value.

My assumptions is that Bitcoin hasn’t been of significant interest as store of value before 2018 ATH so we are 4 to 5 yrs in the store of value capital allocation flow.
Based on this assumption it means the fair value of Bitcoin as store of value in 2022 is within the 6 700~10 000 US$ bracket.
By 2043 (2018 + 25 yrs) this fair value will be between around 740 000 US$.

Please understand that it is not a price prediction for Bitcoin. It is an estimate of its minimum fair value discounted of volatility from speculation, leverage trading, etc…

These prices should guide us to asses whether we’re buying at a discount, fair or over valued price if our objective is long term capital preservation.