While Bitcoin may not be widely accepted as a medium of exchange, its investment value is being increasingly recognised. From asset allocation point of view, introducing Bitcoin into one's investment portfolio can increase diversification, thereby maximising the Sharpe ratio of the investment portfolio.
Apart from the diversification effect, the question is what else could drive the value of Bitcoin? My answer to this question is really around its scarcity value.
In order to understand the scarcity value of Bitcoin, we need to discuss more about Bitcoin mining. Why does people mine Bitcoin in the first place? The answer is actually pretty simple: financial benefits. Everytime a miner successfully mines bitcoin, the miners get rewarded. The reward is that they get to write the next block in the Bitcoin blockchain and they get rewarded with a certain number of bitcoin (so called "Subsidy"). Today, the Subsidy is approximately 6.25 BTC, vs 12.5 BTC four years ago (2016) vs 25 BTC four more years ago (2012). This is known as the Bitcoin Halving (ie. the phenomenon that the Subsidy for mining Bitcoin halves every four years).
Bitcoin Halving limits the supply of Bitcoin, thereby increasing its scarcity value. One valuation methodology for Bitcoin is therefore the stock-to-flow ratio, which measures the production volume of an asset vs the total availability of an asset. Historically, there is a strong correlation between Bitcoin price and its stock-to-flow ratio, that's because every time Bitcoin Halving occurs, the flow (production) of bitcoin is reduced, increasing Bitcoin' scarcity value while the stock-to-flow ratio jumps.
Source: https://francistapon.com/Work/WanderLearn-Podcast/8-Flaws-in-Bitcoin-s-Stock-to-Flow-Model-Will-Doom-It
In the previous Halving cycle, the bitcoin price overshot the stock-to-flow ratio before coming back down and averaging along the stock-to-flow ratio. Currently, the bitcoin stock-to-flow ratio indicates that bitcoin should hit a price of $100,000 by the end of 2024. Of course, the Bitcoin price can entirely overshoot this theoretical value of $100,000 if investment sentiment is bullish.
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