Predicting Bitcoin prices using quantitative models, part 2

This is the second part of a multi-part series designed to answer the following questions: What is the “fundamental value” of Bitcoin?The first part is about Scarce valuePart two-market turmoil, part three-adoption rate, part four-hash rate and estimated price of Bitcoin.

Market turbulence

In recent months and even years, there has been a lot of bubble Develop in the bond market. Both financial newspapers and non-financial newspapers have discussed this, and there are special TV stations and prestigious “macroeconomists” from all over the world discussing how the world’s debt brings negative interest rates.

Even if someone is a state, it is financially counterintuitive to have to pay or borrow money from someone. We are experiencing an absurd situation, which has never happened before in the financial market landscape. The main reason is related to the large amount of liquidity injected by the central bank into the market. The central bank uses this liquidity as funds to avoid bankruptcy before carefully transferring it back to the state (they are in trouble).

After all, the famous quote of John Maynard Keynes read:

“The irrationality of the financial market may be longer than you are solvent.”

In fact, this absurdity makes it possible to avoid bankruptcy of the financial system. Therefore, although this practice has produced irrational phenomena, for example, the bond market has negative yields (so bond prices are meaningless), while the stock market has Reached (not all, but most) is a new high day after day.

Bitcoin (Bitcoin).Bitcoin price Rise to a high of $20,000 In December 2017, it happened Chicago Board Options Exchange with CME Group, The world’s two largest commodity exchanges, then reached a minimum of about $3,100 in 2018, actually losing more than 80% of their value.

Does it represent a bubble burst? of course. Does it represent the end of Bitcoin? of course not. Will there be more Bitcoin bubbles in the future? of course.

As always, we hope to solve this problem in an analytical manner as much as possible. We used Excel to reconstruct the table created by Bitcoin founder Satoshi Nakamoto to ensure that Bitcoin is deflationary and not inflationary.


Due to inflation, the value of the U.S. dollar (and all currencies in the world, including the euro) decreases over time. If we consider the value of assets, we can better understand this phenomenon. The cost of buying a car 40 years ago was about 13 times higher than it is today, so a beautiful car that cost US$10,000 in 1980 would cost US$130,000 today.

This phenomenon is called inflation, and it is caused by rules that link the total value of commodities in the world with the total currency in circulation. If the number of dollars in circulation doubles, the price of the same commodity will often double. Because money is not a linear phenomenon, it will “tend” and it may take some time to achieve.

In the 1970s and early 1980s, the inflation rate in the United States reached a level of nearly 12% per year, which caused many difficulties for those who did not have the knowledge and means to deal with it.


Bitcoin was created using deflationary logic and it is more similar to commodities such as gold and silver. This is why it is considered by many to be the new digital gold, because it retains its value characteristics instead of the poverty characteristics like the US dollar or the euro.

related: Is Bitcoin a store of value? BTC as an expert in digital gold

Let’s see how to create and the effect of these choices.

Satoshi Nakamoto decided that the maximum number of bitcoins created and available should be 21 million. (The number 21 appears multiple times. This is a Greek letter phi, We will discuss later). He could have decided to enter a fixed amount of bitcoin for each mined block, but doing so will not have the exponential growth effect characterizing bitcoin, or at least it will not be marked as it is today.

Therefore, he decided to halve the number of newly issued bitcoins every four years in order to create a very obvious and interesting stock inflow effect, thereby pushing prices higher.

related: Bitcoin halving, explained

In the first 210,000 blocks, miners received a fee of 50 BTC for each block written on the distributed ledger. At this time, the value of Bitcoin rose from a few cents to a few dollars, so the reward was comparable. Today-winning the challenge is not difficult. In fact, in the early days, a simple computer was sufficient for mining.

The first halving occurred in 2012, that is, starting from the 210,001 block, the reward for each distributed ledger was halved to 25 BTC. In 2016, the second halving reduced the salary to 12.5 BTC, and again Third halving In May 2020, the reward for each block reached 6.25 bitcoins, and the most recent price correction was about $40,000, which is still about $250,000.

related: 3 reasons why $30,000 could be the bottom of Bitcoin

The next halving plan is to be carried out in 2024, when salaries will be further reduced by 50%. It may last until about 2140, which is the year of the last halving, and less than 1 Bitcoin will be distributed during the last year.

But how does this halving phenomenon affect the price of Bitcoin? Will the so-called “flow” halving or the inflow of new capital affect the price of Bitcoin itself? As we saw earlier in the first part, Bitcoin seems to follow an inventory-flow model; therefore, while maintaining the same inventory, a decrease in flow should correspond to an increase in price. Now that we have halved, shouldn’t there be so many bubbles?

Do you know how many bubbles Bitcoin has in its short life? Three people died. They are represented graphically below.

These are the three bubbles that Bitcoin has faced so far, and each time the next highest price is at least 10 times higher. Obviously, this does not guarantee that this will be the case in the future. However, there are many factors that make us believe that what we experienced in 2017 will not be the final bubble-there will be more bubbles in the future.

Can this information be used to determine the correct price of Bitcoin? Or at least the possible price based on the model?

In fact, if we look at the graph, in which half is highlighted by the jump on the X axis, corresponding to half of the state change, we can estimate the fair value, that is, the correct price. The price of Bitcoin may trend.

If the price of Bitcoin tends to return around the line shown in the figure above, it is obvious that we can estimate the future target price of Bitcoin based on the various halvings waiting.

It can be clearly seen from the figure that the target price of Bitcoin is between US$90,000 and US$100,000. This information is very useful, not only because it guarantees that we can reach these prices, but also because we should consider our investment decisions because it may actually reach or exceed those price levels.

Obviously, these estimates must be taken as a wise attempt to understand the dynamics of Bitcoin and must not be regarded as the author’s suggestion. It is not easy to understand how Bitcoin achieves such a value. It will be difficult for anyone to come into contact with this fascinating world for the first time to imagine how a seemingly worthless asset can have such a high price, especially if you are stuck in thinking The trap is used as a dollar denomination currency.

For this, it is important to understand its various aspects. An absolutely important factor in determining the price of Bitcoin is the adoption rate, which will be described in the next section.

This article is co-authored by the following authors Ruggero Bertelli with Daniele Bernardi.

This article does not contain investment advice or recommendations. Every investment and trading action involves risks, and readers should conduct their own research when making a decision. The views, thoughts and opinions expressed here are only the authors, and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Ruggero Bertelli Professor of Financial Intermediary Economics at the University of Siena. He teaches bank management, credit risk management and financial risk management. Bertelli is a member of the board of directors of Euregio Minibond, an Italian fund specializing in regional SME bonds, and a member of the board of directors and vice president of Italian bank Prader Bank. He is also an asset management, risk management and asset allocation consultant for institutional investors. As a behavioral finance scholar, Bertelli participated in the National Financial Education Program. In December 2020, he published Cherry tree hill, This is a book about behavioral finance and financial market crises.

Daniele Bernardi Is a serial entrepreneur who is constantly seeking innovation. He is the founder of Diaman, an organization dedicated to developing profitable investment strategies. The organization recently successfully issued PHI Token, a digital currency designed to merge traditional finance with encrypted assets. Bernardi’s work is geared towards the development of mathematical models that simplify the decision-making process for investors and family offices to reduce risk. Bernardi is also the chairman of investor magazines Italia SRL and Diaman Tech SRL, and the CEO of asset management company Diaman Partners. In addition, he is also the manager of crypto hedge funds. he is” The origin of crypto assets, This is a book about crypto assets. Because of his European and Russian patents in the field of mobile payments, he was recognized as an “inventor” by the European Patent Office.

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