Hi friends! I was just thinking about fair market value, and I decided to take a different look at BTC. When it comes to the purpose of the global marketplace, I believe that the market's primary job (other than providing a means of buying and selling securities) is to always determine fair market value. The market price of securities will always vary (sometimes dramatically) above or below what is the true "fair market value." However, market participants will ALWAYS eventually force the price of securities back to the fair market value.
With that in mind, how can we possibly KNOW what fair market value really is? That is a question that is nearly impossible to answer, unless you're able to look at balance sheets, earnings reports, EPS numbers and so forth. For cryptocurrencies, none of that information exists. The only thing we can rely on is price. What are people willing to pay for this stuff? In order to know that, for Bitcoin, we can simply look at the average price for the entire history of BTC. As you can see, here on the BNC Bitcoin chart, there are 3,058 daily bars of data. So, I threw up a 3,056 day moving average, in order to find the average price of BTC. As you can see, there is a tiny pink line, right at the $1530 level. That is what investors have been willing to pay, on average, for the entire history of BTC. Interestingly, that number is pretty close to the $1177 number that I proclaimed is the primary downside target, if/when the $3000 level falls. Since price can overshoot "fair," or in this case "average" market value, it isn't outrageous to think that price could fall slightly below $1530, toward 1175ish. Knowing that there is major support there (red trendline) and knowing that it's right around the average price of what investors have been willing to pay, if I had to estimate where a floor could be, I would say it is likely to be right around there. However, it's always best to let the market show you where the floor will be.
In other words, we have been WAY above what investors have been willing to pay, on average, for Bitcoin. Now, it appears as though the market is doing it's job, and BTC is returning to the pink average, which could be seen as an estimate of "fair market value." Obviously, as price continues to fall, so too will the average price of BTC. I just think that somewhere around the $1500-$1175 area, the bulls could see enough "fair value," to defend prices at those levels.
On a side note, "fair market value" is constantly evolving, based on fundamentals and market sentiment. In the case of BTC, the average value will also continue to evolve, possibly dramatically higher or lower. Regardless, we are closing the gap between price, and what investors have been willing to pay on average.
I'm the master of the charts, the professor, the legend, the king, and I go by the name of Magic! Au revoir.
***This information is not a recommendation to buy or sell. It is to be used for educational purposes only.***
-JD-
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It's clear that many of the readers are somehow misunderstanding my writing. Never did I say that the current average price of $1530 represented "fair market value." Instead, I specified in the article, that (unlike other securities) it is practically impossible to estimate the fair market value of cryptocurrencies. I simply used all of the data on the chart, to determine the average price that investors have been willing to pay over time, absent the volume of people willing to pay those prices. Admittedly, the average is a bit skewed, since it doesn't account for volume, but it is in the general ballpark. That number roughly correlates to the major support at $1175, which I have noted as a downside target (should 3000 fall) in prior analyses. That is what I found so interesting, and that is why I believe that the bulls are likely to defend the market at those prices.
Please do not let those that over complicate the simple but true report you have submitted above sway you from providing further insight into how you view markets. I think it is brilliant and almost mathematically correct; considering you are making use of the the data available. Appreciate it
MagicPoopCannon
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@OmarHalawi, Thanks for the kind words Omar. Good luck, friend.
MagicPoopCannon
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It's clear that many of the readers are somehow misunderstanding my writing. Never did I say that the current average price of $1530 represented "fair market value." Instead, I specified in the article, that (unlike other securities) it is practically impossible to estimate the fair market value of cryptocurrencies. I simply used all of the data on the chart, to determine the average price that investors have been willing to pay over time, absent the volume of people willing to pay those prices. Admittedly, the average is a bit skewed, since it doesn't account for volume, but it is in the general ballpark. That number roughly correlates to the major support at $1175, which I have noted as a downside target (should 3000 fall) in prior analyses. That is what I found so interesting, and that is why I believe that the bulls are likely to defend the market at those prices.
jch888
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Fair market value should be based on mining. How much electricity does it cost to produce a bitcoin. It's fair if that value is at least break even or a little more to make it worthwhile in being part of the network. A price average does not reflect this as the mining reward and equipment/electricity price changes over time.
MagicPoopCannon
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@jameshassall888, I disagree. I believe that mining and or mining costs are mostly irrelevant to price, where as price is definitely relevant to mining activity. To elaborate, the only way I could see mining costs having anything to do with price is if 1. The supply from miners was enormous and the market became oversupplied (not the case) or 2. Mining collapsed and put the security of the network at risk, causing investors to flee from the asset.
I took the liberty to look at the numbers. Currently, there are 17,414,175 bitcoins in circulation. Miners are currently producing 1,800 BTC/day. This means that miners are currently effecting global BTC supplies, by only 1/100th of a percent on a daily basis. At this rate, it would take 100 days for the miners to move supply by 1%. Now, if demand continues to fall, that woukd become a slowly increasing problem. But currently, I don't think it is. Also, I have recently realized that miners in China are hedging their mining costs by selling mined BTC in the futures markets at higher past prices. So, the cost of mining vs profitability, for miners who do that, occasionally depends on what they're selling for on the futures markets. The more popular that becomes, the less likely bear markets are to negatively impact the profitability of miners, on a certain scale.
jch888
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@MagicPoopCannon, This is simply not the case. Although there are 17,414,225 bitcoins in total; many of them are lost, seized or held in cold wallets and not contributing to the circulating supply distributed on the market place. The total amount of bitcoins transacted within the last 24 hours for example is 1,404,919 according to volume from coinmarketcap and this will include the same bitcoins transacted again and again by exchanges. It will be no way near 1,404,919 even. Of course this does not account for OTC and all of this will vary from day to day obviously. I cannot give you the exact figures for the amount of bitcoins lost, seized or held in cold wallets (I'm pretty sure no one can) but I can guarantee you the circulating supply is no way near 17 million. Anyway I feel these metrics are irrelevant nonetheless as fair value for bitcoin should consider the amount of work required to keep transactions secure. After all, we are using a network which is entirely dependent on mining and it is only but fair to pay the charges. All of this contributes to the fact that an average based on previous price history does not represent fair value.
MagicPoopCannon
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@jameshassall888, I think the term "circulating supply" is misleading, since transaction rates are so low. It's more like just a "supply." Sure, there is some lost btc in the world, which is probably relatively insignificant. In terms of dormant wallets or seized btc, those coins are still owned by someone, and they are able to be used, which means they are still a part of the supply. So, I still stand by my prior argument, that btc supply is hardly effected by mining activity, in the current state of the market.
Again, I never said that the average price of btc represents "fair market value." Rather, I only showed how the average price that investors have paid over time, is very close to a critical support level that I see in the market.
s3cr3t44
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"Obviously, as price continues to fall, so too will the average price of BTC ." Really? If we are still far above average price how the fock will average price continue to fall?