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Exploring Bitcoin Valuation Methodologies

March 31, 2022  |  10 minute read
Putting a price on the network.

For traditional asset classes, there are widely accepted ways for estimating future values. To value a stock, open up a handy discounted cash flow model1 and plunk in your assumptions. For bonds, do a little math2 and a bit of credit analysis. Want to know what a house is worth? Look up the comps.

Of course, nothing is inevitable, and each technique can have personal touches that result in widely different results. Indeed, valuation is more art than science. But at least there are guideposts and general rules of thumb.

When it comes to bitcoin, there’s no consensus on how it should be valued, but that doesn’t mean people aren’t trying.

So far, attempts to predict where bitcoin is going have pulled on techniques used in various asset classes. That isn’t surprising. People who have come to bitcoin from the world of finance see bits and pieces of their former lives in the new asset class. Former stock analysts see the network effects so prominent in the biggest tech companies. Some bond traders price it as if it were insurance against sovereign currency defaults. Investors in precious metals think stock-to-flow models are the way to go.

In this article, we take a look at some of the ways for estimating bitcoin’s future price. Ultimately, only time will tell which approach will prove best. With hindsight, perhaps none will provide an accurate forecast. But by considering the different methods, we might establish a framework for mapping what is undoubtedly a new frontier.

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  1. https://www.investopedia.com/articles/stocks/08/discounted-cash-flow-valuation.asp
  2. https://online.hbs.edu/blog/post/how-to-price-a-bond

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