A few weeks ago, @elvismercury shared a Bitcoin valuation simulator. This simulator uses what it calls a Schrodinger model, named after the famous physicist. I haven't done a particularly systematic exploration of the model, but I said I would write up some thoughts about it and I've fiddled around enough to do that.

The Model

This model describes how Bitcoin should be valued in the present for its future potential to serve as a store of value. The premise of the model is that Bitcoin has a probability of usurping from other assets their roles as stores of value.
  • For each asset, it's assumed that Bitcoin either absorbs it's role as a store of value completely or not at all, with a probability attached to those binary outcomes.
  • Each asset also has its own timeframe for Bitcoin usurping its role as a store of value.
  • There's a discount rate that allows calculating present discounted value, based on the estimated future value.
  • Each asset has a market cap and estimated monetary premium.
I would prefer a model that used a continuous variable for the probability of capturing shares of each asset's monetary premium. However, that would require making a bunch of assumptions about the exact shape of the distribution. Still, I think you could roughly interpret the probability as the share of monetary premium you expect Bitcoin to absorb after a certain amount of time.

Estimated Valuations

The site has four preprogrammed scenarios: Bearish, Base, Bullish, Hyper. Those range in present discounted value from about $150k to $6,000k. That's a pretty wide spread, but even the "bearish" scenario suggests Bitcoin is still well under half of its proper valuation.
The simulator allows you to adjust all of the aforementioned parameters. According to @grayruby, you can get Bitcoin's present valuation as high as about $300 million, but that has more to do with just how unrealistic of parameters the simulator allows.
From what I've seen time matters more than probability. Halving all of the probabilities of capturing the monetary premia has much less effect on the valuation than doubling the time to capture.

How to Proceed as though We're Right

I would say approximately 1000x as much discussion has taken place about eventual valuation than time to adoption. In a way that makes perfect sense. We have much better tools for doing these back of the envelope future valuation calculations than we have for estimating when people will finally see the light.
The problem is that acting rationally in the present requires an estimate of present discounted value and that hinges more on when than how much.
Where we can resolve some uncertainty (at least if we have the courage of our convictions) is to say that Bitcoin will absorb every other asset's monetary premium. There are good theoretical reasons for thinking that in equilibrium there will be one money and it will act as the store of value for society (as well as unit of account and medium of exchange). So, if we believe Bitcoin is the best money, then we should conclude it will eventually eat every other assets monetary premium.

My Estimate

In the spirit of "stay humble" and "it's still early", I used the most bearish model, but increased all of the probabilities to 1. That's certain capture over the next 10 to 30 years, depending on the asset.
That yields a present discounted value of over $600k and that's just for the store of value function of Bitcoin. The estimated value for 30 years from now is over $14 million dollars. Incidentally, that's roughly the same as the estimates I've seen for Bitcoin's eventual medium of exchange value.
So, attaching no value to the unit of account function, if we're right about Bitcoin being the best money, then it's almost certainly worth well over $1 million right now. That just happens to be the same sat-cent parity many of us expressed feeling in my first big SN post: #221151.
Zap well!
I stopped considering Bitcoin an "asset". That is fiat mindset. And if we want to get rid of fiat, we should stop thinking like that. Always going back and price BTC in fiat is making things worse.
Bitcoin must be considered simply money. Money that can store energy, for future use.
What people do every day, every minute? People are always in a continuous run for gathering energy, in many different forms: to eat, to store, to trade, to use it as money, to use it as savings. People depend 100% of energy. People are spending also large amounts of resources just for STORING energy.
We should start pricing stuff in sats. Products and services priced in sats. How?
  1. Let the free market decide the price in sats of things.
  2. Simply like this:
  • calculate how much you spend daily/weekly/monthly to live your simply life.
  • divide that into hours, to obtain how much you spend per hour, in sats
  • then calculate how much will take for you to PRODUCE something (it doesn't matter what is it, an item, a service, a poem, a crafted thing etc)
  • then multiply that time with the sats you are spending per hour.
  • then add a 25-30% on top of that amount.
This is your price to sell that item for sats. So nothing is representing the BTC price in fiat. Let's forget about fiat. Concentrate in how many sats are you saving every day. Projecting the BTC price in fiat in x years is meaningless.
reply
I consider Bitcoin to be money and money to be an asset. I take your point, but I don't think it matters much if we use those words slightly differently.
This exercise is about purchasing power, so I could have done it in terms of current Bitcoin value. The simulator provides both values. Maybe it would have been better to say that the model implies Bitcoin's purchasing power "should be" 15x what it currently is.
What I'm trying to figure out (as much for myself as for anyone else) is how should I be treating this thing. How much can I expect the sats I'm saving to buy when I need them in the future? How hard should I work for a given amount of sats?
reply
reply
84 sats \ 1 reply \ @OT 21 Mar
So people calling for a million dollar bitcoin are quite conservative. How long does it take to educate individuals? 10-30 years sounds about right
reply
I thought that time frame seemed reasonable too. If you double it, though, the valuation drops to about $200k.
That's still much higher than present exchange rates, but it also illustrates the sensitivity to adoption time.
reply
This is too much for my brain to handle right now :) But I have a question: why is the current estimate so different from the actual value?
reply
The number of people that truely understand Bitcoin, I mean like really, really understand it is still very very tiny.
And tbh, it's not even correct to say number of people. It's really the amount of wealth. When some orange pilled family in El Salvador allocates thier entire life savings that barely moves the needle compared to a rich billionaire, sovereign nation or some wealth fund allocating 1%
That's not to say everyone needs to fully understand it to see the upside. If you think about it most people on the planet don't really manage their own investments. They leave those decisions to financial advisors and retirement funds.
reply
In this context, we'd say that global capital management attaches almost zero probability to Bitcoin overtaking these assets as a store of value.
reply
deleted by author
reply
It's because most people don't think Bitcoin will emerge as money (or at least that it's not likely to). That leads to a lower valuation.
The fact that Bitcoin is appreciating so rapidly, though, indicates that it's been undervalued.
reply
The fact that so few understand it and yet its market price is where it is at is wild to think about.
reply
I believe that was based on 999T market value for each asset class. You could definitely go much higher.
reply
That's certain capture over the next 10 to 30 years, depending on the asset.
I say only 1 to 2 years
That yields a present discounted value of over $600k and that's just for the store of value function of Bitcoin.
I say 1000k
reply
Plug those assumptions into the simulator. I think you'll find the present discounted value is much higher than $1000k.
reply
Okay. Simulators may present the true value, but I don't like to play around for Bitcoin's value or putting price tags anymore. I am more like 'hey listen everyone, Bitcoin is Bitcoin and it's priceless, let's HODL.' Why this shift in my attitude? All thanks to @DarthCoin, after reading his guides, I must say he is infectious.
reply
I hear you and the price discover process requires those like you and darth to actually be out there using it.
I can't help being an economist and wondering about this stuff though.
reply
Not that l am doubting the math...but how much do you trust the AI to not be biased? Which AI system was used? I mean, it is called the Nakamoto Simulator, right? Also, from what l remember reading, doesnt the Schrodinger model have a few shortcomings?
reply
All models are wrong, but some models are useful.
I mentioned that the binary outcomes were a shortcoming. However, it's a pretty simple model and I'd say it's pretty reasonable for back-of-the-envelope estimates.
The bias I was more concerned about was that of the human(s) who set the parameters. That's why I used their least optimistic settings.
One parameter that I didn't play around with was the discount rate. That would have a huge effect, but they did choose a value that's very common for these kind of economic models.
reply
What does "monetary premium" mean in this context? Does it mean the share of the asset's market cap that comes from being a monetary store of value?
reply
reply
But what if “they” print a gazzilion cuckbucks. I wonder how much fiat will be printed along 30 years…..vs 30 years of Bitcoin adoption…..
reply
That's why you have to do discounted present value. We need the figure in today's dollars. Remember that it's being compared to non-fiat assets that have a monetary premium, like gold and real estate and such. They're not printing up more of that.
reply
That's a very good meow meow. 20% of the supply of a certain... shitcoin... has been created in recent years and of that keeps happening we might very well see the price rise in relation to BTC as it's the only real thing we can rely on.
reply
Zap well indeed! We are still very early. This is either worth nothing or everything divided by 21 million. I don’t see a middle ground! Fiat is dying and has never seen a predator like Bitcoin!!!
reply
I like the predator analogy. Bitcoin's like a boa constrictor: it's strangle will just keep getting tighter.