Bitcoin Price Reaches $130K Due to Demand

In any market, be it fruits and vegetables or financial assets, prices are determined by the intersection of supply and demand.

If tomatoes are scarce because of the flood, with equal demand, the price in supermarkets will inevitably be higher – just as with equal supply, twice as many people want to buy tomatoes.

In the financial market, if supply is unlimited, the price does not change with demand, for example, in the case of mutual funds.

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If more clients want to buy this fund, more shares are issued only at something called the net asset value (NAV) — that is, the true value of the fund’s assets.

For example, suppose a fund with a capitalization of $100 million is composed of 10 million units at a par value of $10. If an investor wishes to invest $10 million, 1 million units are issued at a price of $10, and the fund’s capitalization becomes $110 million.

It would be a different story if the available shares were limited to 10 million, so anyone who wanted to buy shares would have to find someone willing to sell them. In that case, the price may no longer be $10, but it will depend on how much the buyer is willing to pay and how much the seller wants to earn. This will create a situation in which the price will fluctuate according to unequal supply and demand. Obviously, if the demand for an asset was high, the price could be much higher than the true value.

But how can you estimate the true cost?

In 2021, I published data that attempted to estimate the fair market value of bitcoin, as shown in the graph below. This suggested that in June of that year, we had reached a maximum relative to Bitcoin (BTC). (I had hoped at the time that this would not turn out to be true, but it did.) How did I estimate this value?

The previous fund example helps us understand the logic behind this assumption.

If the capitalization of a fund is given by multiplying the number of outstanding units by the NAV or price, it is also true that it can also be estimated as the number of investors in the fund as per the average amount held by each investor. .

So, in the case of bitcoin, if I would be able to estimate the average amount held in each wallet

From the number of wallets in circulation, I can also estimate the capitalization of bitcoins and as a result, dividing by the number of bitcoins in circulation, get its price.

Luckily for us, the transparency offered by blockchain allows us to collect this information with a high degree of reliability. For example, the number of bitcoin addresses with balances other than zero can be easily tracked simply by running a network node.

As can be seen from the graph, the average amount (US dollars) in the wallet fluctuates due to supply and demand (many wallets hold bitcoin without ever transferring it), so if we take the 90th percentile and 10th percentile Taking the 10th percentile, we can find a range that can help us predict the price of bitcoin later.

Now, once the growth curve (on a logarithmic scale) of wallets in circulation has been estimated, it is possible to estimate the range within which the bitcoin price should increase.

The model is simple, but simplicity is its strength: we don’t know if a user has different addresses or if the same address is “owned” by multiple users – as in the case of an exchange’s cold wallet. happens – but we can rely on these relationships, especially when compared in the context of large numbers and over the time horizon of a full price cycle.

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For example, in the last days of crypto winter – as in recent months – typically, we can detect an increase in withdrawals from crypto exchanges and a decrease in balances held in these centralized platforms. Since keeping crypto assets in the custody of third parties is generally considered more risky, this signal is considered bullish as it allows investors to go long in the long term instead of holding it in a trading account to take advantage of the short term. Bitcoin shows the priority of holding a position. -Term speculative opportunity.

This phenomenon is therefore accompanied by growth of addresses (withdrawals from some cumulative cold wallets to fill many single addresses controlled by individuals) and also lays the foundation for cyclical price appreciation based on the model described in this article.

The data from this graph and this model indicate that the price of bitcoin could reach its next threshold of $130,000 in the autumn of 2025 – and possibly even higher.

As always, it is important to note that this forecast is not financial advice. It can only be taken with some degree of confidence as the expected value based on certain assumptions. But similar price rise projections emerge from other forecasting models as well. Recent increased interest in this asset class among institutional players such as BlackRock – the world’s largest asset manager, which is seeking approval for a spot bitcoin exchange-traded fund – may indicate that they are increasingly interested in these models. Some believe.

This article is for general information purposes and should not be construed as legal or investment advice. The views, opinions and opinions expressed here are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.