How To Value Bitcoin, Starting From The Failure Of The PlanB Model

Author：Weisha Zhu

——Answers to the concepts in the article "Invite Satoshi Nakamoto to Welcome the New World"

8.1 A single mathematical formula cannot make long-term valuation predictions for Bitcoin

8.2 Hybrid Index Forecasting Method

8.3 Valuation methods suitable for retail investors

1. Observe empathy

2. Comparative method

      Select the proper object and think deeply

      Example of comparative law: Bitcoin is no match for gold as a store of value

3. Users can quickly evaluate the leading indicators of Bitcoin's price rise

8.4 The rise of Bitcoin is driven by demand

written in the back

In Chapter 13 of the original text, we talked about the failure of the PlanB model. Readers thought it was reasonable but not thorough. Since this chapter discusses Bitcoin's natural growth curve, it did not expand. Here, Through the discussion of Bitcoin valuation, readers can have a deeper understanding of the design logic in Bitcoin growth curve prediction.

8.1 A single mathematical formula cannot make long-term valuation predictions for Bitcoin

Mathematical formulas are suitable for statistical predictions, such as moving averages and Bollinger bands, representing states that have occurred and conforming to Newton's first law. That is, the original form will continue without external force intervention. Unfortunately, these empirical formulas generally correspond to the short term, and the longer the time, the less effective it is. Furthermore, because the probability of emergencies increases over time, for example, it will break Bollinger band original statistical balance law, and the likelihood of breaking through the forecast curve will increase.

Mathematical formulas generally predict based on a principle. For example, the famous PlanB's S2F prediction. His prediction is based on a 4-year Bitcoin halving. The first halving occurred on November 28, 2012, and the closing price on December 1 was $4.7. The first price was 0.005 US dollars on May 22, 2010, and the first halving increased by 940 times. The second halving was on July 9, 2016, and it was $621 on July 1. Increased 132 times. The difference between 940 and 132 is 7.1 times. It was halved for the third time on May 12, 2020, and the price on May 1 was found to be $9454. up 15 times. The difference between 132 and 15 is 8.8 times. If the difference is 7 times higher, the bitcoin price should be $21,400 after the halving in 2024, which is slightly higher than the current computing power. This forecast is based on the difference in the rise and does not consider market fluctuations. Readers will think it is ridiculous. In fact, it is the same as the prediction principle of PlanB.

Bitcoin has natural growth factors, but it is not a purely physical phenomenon, and mathematical predictions do not consider the impact of manpower on the results. In October 2021, Bitcoin peaked at $67,000, corresponding to a new high in U.S. stocks. Obviously, the rise in Bitcoin was caused by the release of water by the Federal Reserve. The market factors that must be considered when using mathematical inference, as long as it is a system with human participation, simple mathematical formulas cannot be used as a forecasting tool. There is probability theory in predicting irregular motion, which is only statistically significant, and it is a lagging index bound by Newton's first law. There is no mathematics to predict the stock market's movement accurately, so there are only analysts and no forecasters in the stock market. The analyst's job is to comprehensively analyze corporate behavior and use various tools to give forecasts and expectations. You can see traces of analysts in the blockchain; PlanB is said to be an analyst. I don't know what his real name is. His method does not reflect the stock market analysis method. Where is his the skill of the analyst? The literal interpretation of PlanB is Plan B, which is the plan B of his life, that is, the alternate plan. I guess PlanB is an ordinary analyst in his industry.

PlanB's model is based on an index rise model; the greater the market value, the greater the energy needed to drive the rise. And the rising power must rise exponentially to match his model. Without the release of U.S. dollars, there will be no energy. Where will the new energy come from? The PlanB model is not without value. Its value is to give people a crutch and a goal, which is just a placebo for people's psychological hints.

The blockchain is superstitious about the four-year halving and believes it will rise sharply in 2024. planB thinks that in 2024, the SF hardness value of Bitcoin will reach 56, and the market value of Bitcoin will reach 5.5 trillion U.S. dollars, converted into a price of 288,000 US dollars per Bitcoin. I'm afraid the market will be disappointed. This goal would not have been possible without a new narrative.

In fact, with the reduction of coins get from per block, the four-year halving market will gradually disappear.

In a system with human participation, the changes produced can have statistical laws, which curves and formulas can express. Still, purely mathematical predictions, especially long-term predictions such as PlanB, rainbow graphs, and other exponential predictions, are wrong.

8.2 Hybrid Index Forecasting Method

Those who enter Bitcoin from the traditional financial industry will bring their thinking and methods. They are part of the regular army with a relatively high level, and they quickly occupied the position of KOL opinion leaders.

In mid-August 2020, Grayscale Investments released the latest report, "Valuating Bitcoin," valuing Bitcoin from the perspective of relative value and evaluating the value of Bitcoin from the perspective of supply and demand.

Supply indicators include the number of active tokens, currency day destruction index, actual market value, S2F model, the number of bitcoins held by exchanges,

Demand indicators include Bitcoin's mining cost, whale index, and daily active addresses (DAA).

This kind of prediction is too complicated for the operability of the user. People prefer to accept PlanB's predictions because simplicity meets the expectations in mind. In addition, these indicators used by Grayscale are the same as the Bollinger Bands, which only have statistical significance. They are lagging indicators and have short-term accuracy. In the stock market, analysts are often used as reference indicators and used in conjunction with other factors, which is scientific to a certain extent.

Catherine Wood, ARK's wooden sister, added hypothetical forecast categories, remittances, gold, private deposits, and the formation of standard currencies in underdeveloped countries in addition to indicator forecasts. Her approach is problem-oriented modeling.

Prediction is based on the model, estimating what results will occur under what conditions. This forecasting method is similar to that of stock market analysts, highlighting its professionalism. The forecasting method in Section 13 of the original work is the forecasting method of stock market analysts. Chapter 13 If there is a problem with the prediction method, it is a problem with the modeling.

8.3 Valuation methods suitable for retail investors

1. Observe empathy

The method required by retail investors must be simple, which is why PlanB's predictions are so popular. The big V is to say what the user loves to listen to, generate empathy, forward if they love to hear, and accumulate energy so that the trend is close to the target. This method is suitable for the short term. However, since retail investors are not professional speculators, they generally cannot watch the trade at any time; therefore, they need a judgment method and hope that the judgment will last longer.

2. Comparative method

The comparison method comes from life, just like comparing prices when we buy things. Most retail investors have price comparisons when purchasing consumer goods, but they usually only compare yesterday's prices when buying bitcoins. If you don't lose money because the general upward trend remains unchanged, otherwise you will be out of the game with a loss. The charm of the rise of small coins in the blockchain is that the price cannot be compared, nor can it be compared with competitors. Confused people think he is more intelligent than others, and it is impossible not to lose money.

Don't touch the coin you haven't compared the price of; you do not earn money beyond your cognition.

Select the proper object and think deeply

Ms. Wood listed several categories that are the use of Bitcoin and used modeling methods to make predictions. In the end, practice proved that her predictions were too optimistic. The reason is that the categories she used for modeling did not match the reality of Bitcoin. For example, gold, and bitcoin purchased by underdeveloped countries, can be combined into stored value. Private transfer and international remittance have not changed much because international remittance is already a stablecoin's business; private remittance, bitcoin is not safe; the FBI has long mastered cracking technology. Currently, the FBI is already cracking down on mixed currency traders, which shows the level of awareness of the FBI. Ms. Wood's method is the traditional method of the stock market. The problem is that the modeling is wrong. The reason is that she lacks a deep understanding of Bitcoin and the skills of Bitcoin analysts, so the conclusion is false.

The core of the comparative method is to choose the proper object and think deeply. The value of Bitcoin as a store of value is the central narrative now. If you understand the comparison of the value of gold and Bitcoin as a store of value, you will know how high Bitcoin can rise.

Example of comparative law: Bitcoin is no match for gold as a store of value

In the previous chapters, I said that if Bitcoin does not have a Bitcoin standard, it would have a stored value of 4-5 trillion U.S. dollars at most. However, some readers hope I will explain it again because it shocks their thinking.

I have already said it in Section 7.5. First of all, because the volatility of bitcoin is far greater than that of gold, the central bank, the largest user of stored value, prefers gold when choosing to hedge against the risk of dollar depreciation. It can be seen from the trend charts of Bitcoin and gold: Gold fell from a high of $2,078 to $1,618 in February 2022, and has now returned to $1,928, basically recover. Bitcoin fell from a high of 67,000 in October 2021 to $15,482 and returned to $22,480 today. The fall is more profound than gold, and the rise is slower than gold. Those who understand stocks know that this is an awful trend.

Currently, the market value of Bitcoin is more than 430 billion U.S. dollars, and gold is 11 trillion. Bitcoin is about 4% of the market value of gold. The latest market value of silver has not been found; it should be less than 100 billion U.S. dollars. The two add up to less than 5%. Gold has a monopoly. Once a monopoly is formed in the market, according to Newton's first law, if there are no new factors, the trend will not be broken. Ask the bitcoin believer, why does bitcoin rise? If you don't understand this question, what you believe in is a dream! In other words, why should the price go up if Satoshi Nakamoto can't come out? There is no new narrative, and it will be halved again in 2024; if Bitcoin does not rise, it will shake the primary market of the entire Bitcoin because the 4-year halving rule has been broken. The PlanB model has gone wrong, indicating that the market rise in the next year will not exist.

In addition to stored value, gold also has jewelry and industrial uses. The current use of Bitcoin is relatively single, basically storied value. According to the current narrative of Bitcoin, it is not enough to challenge gold. It is a very depressing conclusion drawn from analysis and comparison.

3. Users can quickly evaluate the leading indicators of Bitcoin's rise

How do retail investors surpass large investors? They have to run faster than the big players. We need leading indicators. I said earlier that we need to choose the right target for in-depth thinking; we should not simply apply the existing mature analysis routines but analyze the characteristics of Bitcoin and blockchain. The rise of the blockchain depends on two factors, the number of users and the number of funds. Users have the Internet's Metcalfe's law of value to determine whether the price of Bitcoin is fair. But the law is an afterthought, the lagging indicator. A leading indicator is the Google keyword search curve. This indicator rises, indicating that the number of people concerned has increased. The second leading indicator is the market capitalization of stablecoins, the "central bank" of the blockchain, equivalent to M1. In this crash, the stable currency lost 40 billion, and the market value of the entire blockchain lost 500 billion. That is, the multiplier effect V can understand that the capital amplification effect is 11 times. It is conservatively estimated that 6-8 times can be used. That is, if there is an inflow of $1  of funds, the market value of the blockchain will grow by $6-8. The ratio of apportionment to bitcoin is $3-4. It is assumed here that Bitcoin accounts for 50% of the market capitalization of the blockchain. There is no market value curve for stablecoins, which reflects the relationship between stablecoins and the market value of blockchain. The Fed's currency flow is divided into the industry, finance, stocks and bonds, and international markets. Blockchain has only one financial direction. The relationship between the stablecoin market value curve and the blockchain market value is stronger than the relationship between the Fed's asset value and U.S. stocks.

8.4 The rise of Bitcoin is driven by demand

The reason why I hope to invite Satoshi Nakamoto is to hope that the Bitcoin standard will succeed. It is adding new demand to Bitcoin. Q & A "3. Bitcoin dollar standard is the largest application of Bitcoin, and the largest application in the world" has a detailed explanation.

The first thing I realized about the concept of Bitcoin's financial status was reading someone's introduction to Nik Bhatia's book "Layered Money: From Gold and Dollars to Bitcoin and Central Bank Digital Currencies" and gaining the popularity of the concept. If Bitcoin is the standard, Chapter 12 of the original text says that the central bank directly deals with individual users on a platform. Both sides agree that commercial banks have lost their source of deposits. In the future, banks will compete for the ability to make money for users, as shown in the picture above. It is mentioned in the picture that Bitcoin is only retail, which means that there is no price difference for anyone to buy. It is in line with the practice of blockchain. There are doubts about the central bank's wholesale, meaning there is a price difference. I didn't understand the original text because there was no detailed explanation. In the Bitcoin standard design, the position of Bitcoin at the top has not changed, and the status of stored value has not changed, but Nik Bhatia is still thinking of the gold standard, using Bitcoin as a ruler. It cannot solve the existing defects of fiat currency. The Bitcoin standard is that the stablecoin acts as the medium and ruler of the transaction. It is wrong that Bitcoin does not rise, and Bitcoin plays a role in measuring the economic aggregate. According to the method in Chapter 12 of the original text, the scale is adjusted once a year and issued in the form of interest. Your labor surplus value can be stored as Bitcoin and enjoy the dividends of economic growth.

Gold was decentralized at the earliest stage; There were large households without a central bank and no stratification. There is also no layering in the blockchain ecosystem. I am disturbed by a discrepancy between layering and blockchain practice in my plan. After reading Nik Bhatia's translation book, I recognized his currency stratification and gave myself some confidence. But the function of the Fed needs to be significantly improved.

written in the back

To understand this article, you need to read chapters 10-13 of "Invite Satoshi Nakamoto to welcome the new world" and the Q&A articles in the previous sections 1-7 of this series.

1. Full-text links

This article was published in Bitui Serial.

Chinese link:

https://www.bitpush.news/articles/tag/%E8%AF%B7%E5%87%BA%E4%B8%AD%E6%9C%AC%E8%81%AA

English link: https://en.bitpush.news/?s=Weisha+Zhu

2. Supplementary video explanation (over the wall in China)

This series of articles will be explained on Sun T.V., and the articles and T.V. explanations are complementary. 10 episodes of the program have been made. The following is the program catalog:

Episode 1 Starting from the Bitcoin White Paper

Episode 2: Does Bitcoin Have Value?

Episode 3 The Reason for Satoshi Nakamoto's Anonymity

Episode 4 The Root of All Evils in Fiat Currency

Episode 5: Past, Present, and Future of Bitcoin

Episode 6 Blockchain Opens Pandora's Box; Satoshi Nakamoto Comes Out

Episode 7 Four conditions for the rapid growth of Bitcoin

Episode Eight Satoshi Nakamoto's Age, Gender, and Nationality

Episode 9 Cypherpunk - the birthplace of Satoshi Nakamoto's thought

Episode 10 None of the dead pioneers is Satoshi Nakamoto; he is still alive

T.V. corresponds to the 6 episodes of our article; that is, the program is the explanation of the focus of the article. Broadcast schedule: The broadcast schedule is as follows:

Episode 1 January 22 at 12:00 noon

Episode 2 January 25 at 12:00 noon

Episode 3 January 27 at 12:00 noon

Sun T.V.'s link is as follows:

https://www.youtube.com/watch?v=5dTend6oJ-8

The whole program is divided into two parts. The first part proves who Satoshi Nakamoto is, and the second part is about the Bitcoin standard. The program will continue, followed by discussions and Q&A, hoping to form a Bitcoin-based theoretical system. Users are welcome to leave messages in the T.V. comment area, and viewers will be selected to participate in the conversation.

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