This was written back when Bitcoin was trading at $241. So it’s come a long way since then, and who knows if Bill still thinks the same way. But nonetheless a valuable read, simply to understand how one of the industry’s most respected and consistently successful value investors approaches this particular investment opportunity.
He uses three methods to triangulate a present value for Bitcoin.
- If Bitcoin achieves the gold market cap, each coin would be worth $314K USD. Assume a 0.25% chance that this happens
- If Bitcoin replaces the 3 dominant payment processors Visa, MasterCard, and American Express, each coin would be worth $17K USD. Assume a 2.5% chance that this happens
Thus each coin has a probability weight value of $1210, which, interestingly, is equal to its current value as of March 2017.
And his third method? Comparing Bitcoin’s potential and liquidity to fiat currencies:
One other point of comparison may also suggest the currency is meaningfully undervalued. The total value of all outstanding Bitcoin is $3.4B, which puts the stock of the cryptocurrency between the total money supply of Fijian dollars ($3.1B) and Haitian gourdes ($3.5B)1. Bitcoin has far greater potential than either of these currencies, yet Bitcoin is valued similarly despite being much more liquid with a tighter bid/ask spread.