Bitcoin Valuation Framework and Methods

This technical report discusses various approaches to valuing Bitcoin, addressing the complexities associated with determining its fair value. It begins by noting that valuation methods can differ significantly across asset classes, and emphasizes the necessity for investors to establish a framework for assessing potential investments. The report highlights Bitcoin's unique characteristics as a non-sovereign monetary asset, which lacks cash flows or industrial use cases. It explains how supply and demand curves influence Bitcoin's long-term value, particularly through the lens of Metcalfe's Law. The document also introduces the stock-to-flow model as a supply-side valuation tool, while cautioning that it should not be solely relied upon for price predictions. The report further considers the implications of Bitcoin’s technological adoption curve and network effects as significant factors affecting its valuation. Overall, the paper presents a detailed analysis of the challenges and considerations inherent in valuing Bitcoin, aiming to aid investors in their decision-making processes.