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Valuation of Crypto-assets

Posted in Currency Trading

Is there a way to predict the value of a crypto-asset like Bitcoin? In their March 2018 paper entitled "An Equilibrium Valuation of Bitcoin and Decentralized Network Assets", Emiliano Pagnotta and Andrea Buraschi model the value of Bitcoin and similar blockchain network tokens via a model that characterizes:

  • Demand, described by current/future number of users and their strength of preference for privacy (trustworthiness), reflecting the economic strength of the network and its tokens.
  • Supply, described by number of miners in the associated proof-of-work competition and cost of mining, reflecting network trustworthiness.

They consider a quantitative version of the model calibrated to the properties of the Bitcoin network at the end of 2017. Based on mathematical derivation/interpretation and the properties of Bitcoin at the end of 2017 (price $14,200), they find that:

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