Jointly produced by Tongzhengtong Research Institute × FENBUSHI DIGITAL

Special Advisors: Shen Bo; Rin

Special Advisors: Shen Bo; Rin

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By comparing BTC, gold and fiat currency, we found that BTC has great potential to become an excellent value reserve, and further analyzed the value range of BTC using the value reserve valuation method.

Summary

Summary

According to the definition of a value store, the main characteristics that an ideal value store should have include universal acceptance, durability, stability (scarcity) and liquidity.

Gold: an excellent store of value. Different value reserves have their own advantages and disadvantages. Gold is recognized as an ideal value reserve, and it occupies an important position in both international reserves and private reserve assets of countries around the world.

BTC has great potential to develop into an excellent store of value. According to the main characteristics that the value store should have, we compared BTC, gold and fiat currency. Generally speaking, BTC has significant advantages in terms of scarcity, portability, divisibility, verifiability, etc., and has good durability. Although BTC is currently at a disadvantage in terms of general acceptance and stability, but With the gradual maturity of the BTC market, the public's acceptance of BTC is growing rapidly, and its price volatility is gradually decreasing.

BTC value reserve valuation method: As the price of BTC changes, the market share of BTC market value in value reserve gold or offshore assets changes accordingly. Therefore, the expectation of BTC's market share of value reserve gold or offshore assets can reflect the expectation of BTC's price fluctuation range.

Risk warning: the growth of gold value reserves and offshore assets is less than expected, the stability of BTC is less than expected, and quantum computer technology is advancing by leaps and bounds

Table of contents

Table of contents

1 What is a store of value

3 Estimation of BTC price range based on value reserve valuation method

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1 What is a store of value

Store of Value is one of the main functions of currency. According to the definition of Wikipedia, value store refers to the function that assets can be preserved and used for exchange in the future. Anything that can maintain purchasing power in the future can become value Reserves, common value reserves include currency, precious metals, etc.

• According to the definition of a value store, the main characteristics of an ideal value store include universal acceptance, durability, stability (scarcity) and liquidity:

• Universal Acceptability: It is generally recognized and accepted that assets can be exchanged with other items in the future.

• Durability: Assets are able to last for a long time.

Stability (scarcity): The purchasing power of assets can remain relatively stable, and scarcity is the source of value for assets that serve as value reserves.

Portability (easy to transport and store), divisibility (easy to divide) and verifiability (easy to quickly identify and verify the authenticity) are not necessary for an asset to be used as a value store, but it determines the value of the asset when it is used for exchange. level of convenience.

Can 2BTC be used as a store of value?

Gold: an excellent store of value. Different value reserves have their own advantages and disadvantages. Gold is recognized as an ideal value reserve, and it occupies an important position in both international reserves and private reserve assets of countries around the world. According to data from the World Gold Council, central banks around the world hold a total of nearly 34,000 tons of gold. The top five countries with the largest gold reserves in the world are the United States, Germany, Italy, France and Russia. Gold accounts for 73.8% of the foreign exchange reserves of the United States. In 2018, global gold demand increased by 4%, mainly driven by central bank gold purchases. In 2018, the total net gold purchases of central banks reached 651.5 tons, an increase of 74% year-on-year. purchase amount.

There are many similarities between BTC and gold, such as limited total amount and long-term storage, etc. The "mining" mechanism makes it easier for people to associate BTC with gold, so some people call BTC "digital gold". Gold is recognized as a good store of value, so can BTC be used as a store of value?

According to the main characteristics that the value store should have, we compared BTC, gold and fiat currency. Generally speaking, BTC has significant advantages in terms of scarcity, portability, divisibility, verifiability, etc., and has good durability. Although BTC is currently at a disadvantage in terms of general acceptance and stability, but With the gradual maturity of the BTC market, the public's acceptance of BTC is growing rapidly, and its price volatility is gradually decreasing. BTC has great potential to develop into an excellent value reserve.

Note: According to the performance of BTC, gold and fiat currency in each characteristic, it is divided into three levels: A, B, and C from high to low

(1) Universal acceptance

BTC is inferior to gold and fiat currencies. Gold has a long history. As a symbol of wealth, gold has formed a deep-rooted concept in people's minds. In contrast, the history of legal currency is much shorter, but the purchasing power of legal currency is guaranteed by the national law, and the use of compulsory circulation is therefore used unless there is severe inflation. For exchange, in a certain period of time, the legal currency of some countries can be generally accepted around the world. In contrast, BTC has appeared for the shortest time, and the development of the blockchain is still in its early stages. Under the current legal currency system, BTC has not yet established extensive connections with the real world.

BTC is gaining more and more recognition. Trust and consensus are gradually established, according to the Lindy effect (Lindy effect, which means "for some things that will not die naturally, their life expectancy is proportional to the time they have existed"), the value of valuable things The vitality will become stronger and stronger. The longer BTC exists, the more confidence people will have in BTC. This is also true of the reality. After ten years of development, more and more countries have begun to recognize BTC, more and more people have begun to understand BTC, and more and more merchants have begun to accept BTC for payment.

According to coinmap data, on March 5, 2014, there were only 3 merchants in the world that accepted BTC payments. On March 5, 2019, the number had risen to 14,420, and the five-year CAGR (compound annual growth rate) reached 310. %.

(2) Durability

BTC is theoretically the most durable, and it needs time to test. The vast majority of gold that has been mined still exists today and will continue to exist in the future. The durability of fiat currency does not depend on the durability of the fiat currency itself, but on whether the government that issued the fiat currency can maintain its purchasing power for a long time. BTC does not have an issuing institution and does not have a physical entity, so in theory, as long as the system supporting BTC exists, BTC will be the most durable. Short, its "durability" needs further testing.

(3) Stability

The stability of BTC is gradually increasing. With the increasing trend of the BTC market value scale, the BTC market is becoming more and more mature, the public acceptance is getting higher and higher, more and more professional institutions are participating, compliance operations are gradually becoming the mainstream, and BTC is gradually becoming stable. Comparing the volatility of gold and BTC, it can be found that in the early stage of the decoupling of the US dollar and gold, the price fluctuation of gold was also relatively violent. As the market matures, the fluctuation of gold price gradually decreases.

(4) Scarcity

In terms of scarcity, BTC has the most advantage. The total amount of BTC is constant at 21 million. The total amount of gold on the earth is also limited, and the amount that can be mined is even less. However, the current gold stock on the ground is still growing every year, and there is still the possibility of increased supply of gold, such as seabed or asteroid mining. , As for legal currency, there is almost no scarcity at all.

(5) Portability

BTC is the best for portability. BTC also has incomparable advantages over legal currency and gold in terms of portability, and it is extremely convenient for storage and transportation. Legal currency exists in different forms, and the storage and transportation costs of cash are relatively high. Digital legal currency is also very portable, but large-scale value transfer is difficult to achieve due to government control and other reasons. Gold is far from BTC and legal tender in terms of portability due to its physical form and weight.

(6) Severability

BTC is the easiest to divide. The smallest unit of BTC is Satoshi, which is one hundred millionth of a BTC, which provides the possibility of small payments. Fiat currency can usually be divided into small change with extremely low purchasing power. Gold can be divided to the most limited extent among the three.

(7) Verifiability

BTC verification is convenient and reliable. There are endless ways to counterfeit legal currency, and gold is also not immune to counterfeiting, such as gold-plated tungsten. In contrast, the decentralized, non-tamperable and open and transparent features of the blockchain make the verification of BTC more convenient and reliable.

3 Estimation of BTC price range based on value reserve valuation method

Based on the historical growth of the value of gold and offshore assets and the current price of gold, the value of gold and offshore assets can be estimated 10 years later (that is, in 2029). As the price of BTC changes, the market share of BTC market value in value reserve gold or offshore assets changes accordingly. Therefore, the expectation of BTC's market share of value reserve gold or offshore assets can reflect the expectation of BTC's price fluctuation range.

According to the data of the World Gold Council, at the end of 2017, the global above-ground gold stock was about 190,040 tons, of which jewelry was 90,718 tons, accounting for 47.7%, private investment was 40,035 tons, accounting for 21.1%, official sector investment was 32,575 tons, accounting for 17.1%, and others were 26,711 tons, accounting for 21.1%. 14.1%. In 2018, the world newly produced 3,347 tons of gold, and as of the end of 2018, the global above-ground gold stock was about 193,387 tons.

From the perspective of annual new production, since 2002, the world has newly produced 2,400 to 3,300 tons of gold each year, and there has been an increasing trend in recent years.

Based on the annual new production of 2,800 tons, the global aboveground gold stock in 2029 will be approximately 221,387 tons. Based on the current gold price of USD 1,296.75 per ounce, the value will be approximately USD 10.13 trillion, and private and official sector investment in gold will be worth approximately USD 3.87 trillion.

On the basis of the above assumptions, the corresponding BTC price can be estimated by considering the ratio of different BTC market values ​​to the value reserve gold market value. Under the most conservative assumptions (the market value of BTC accounts for 1% of the market value of value reserve gold), the valuation of BTC is about 1,900 US dollars. Under optimistic assumptions (the market value of BTC accounts for 50% of the market value of value reserve gold), the valuation of BTC up to $95,000.

To put it simply, an optimistic investor may think that the market value of BTC will account for 50% of the estimated market value of gold as a value reserve by 2029 and before. for around $100,000.

At the beginning of May 2019, the price of BTC was around US$6,000, corresponding to the market value of BTC was about US$106 billion, the market value of value reserve gold was US$3.38 trillion, and the market value of BTC accounted for about 3.13% of the market value of value reserve gold.

The above only considers the gold invested by the private and official sectors, and does not include the gold jewelry that accounts for the highest proportion of gold stock. If this part is also taken into account, when the market value accounts for 50%, the estimated value of BTC is about 210,000 Dollar.

Another important driver of BTC's value is as an offshore asset. Offshore bank accounts are used to store wealth because of its security and privacy, but in fact this method is not absolutely safe and private. BTC’s good resistance to censorship makes it a safer and more secret way to store wealth. Buying BTC is easier and more convenient than setting up an offshore bank account.

According to the Global Wealth Report released by BCG in 2018, global offshore assets in 2017 were approximately US$8.2 trillion, an increase of 6% compared to 2016, and the CAGR from 2012 to 2017 was approximately 5%. From 2018 to 2029, the CAGR of offshore assets is calculated at 2.5%. In 2029, global offshore assets will reach 10.8 trillion US dollars.

On the basis of the above assumptions, the corresponding BTC price can be estimated by considering the ratio of different BTC market values ​​to the offshore asset market value. Under the most conservative assumptions (the market value of BTC accounts for 1% of the market value of offshore assets), the valuation of BTC is about 5,300 US dollars. Under optimistic assumptions (the market value of BTC accounts for 50% of the market value of offshore assets), the valuation of BTC up to $260,000.

To put it simply, an optimistic investor may think that the market value of BTC will reach 50% of the market value of offshore assets by 2029 and before, so in his opinion, the price of BTC will be capped at 260,000 by 2029 and before USD or so.

At the beginning of May 2019, the price of BTC was around US$6,000, corresponding to the market value of BTC was about US$106 billion, the market value of offshore assets was about US$8.4 trillion, and the market value of BTC accounted for about 1.3% of the market value of offshore assets.

Further, considering value reserve gold and offshore assets at the same time, when the market value of BTC accounts for 50% of the total market value of value reserve gold and offshore assets, BTC is valued at about 360,000 US dollars (if gold is considered as a gold jewelry part, BTC Estimated at approximately $480,000).

To put it simply, an optimistic investor may think that the market value of BTC can reach 50% of the estimated market value of gold and the total market value of offshore assets by 2029 and before. The previous cap was around $360,000.

Due to some reasons, some nouns in this article are not very accurate, mainly such as: general certificate, digital certificate, digital currency, currency, token, crowdsale, etc. If readers have any questions, they can call or write to discuss together.

Note:

Due to some reasons, some nouns in this article are not very accurate, mainly such as: general certificate, digital certificate, digital currency, currency, token, crowdsale, etc. If readers have any questions, they can call or write to discuss together.

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