My model that pegged Bitcoin $3100 now says zero

I use the words “model” and “nailed” a bit loosely. There was a time, and it was more of a logical guess than a prediction, but the method I used in June 2018 to estimate bitcoin’s “value” at $3,142 was surely eerily close to the actual bottom that it found six months later at $3,120.

It is a process that considers a moving target rather than asserting a mathematical truth. Think less valuation, more trend forecasting. It’s easy if you accept one big starting assumption: that 90% of non-bitcoin crypto tokens are worthless. With that established, consider the dollar-for-dollar rate at which bitcoin loses value relative to all other coins, and we can project bitcoin’s value as whatever market value is left when all the worthless coins are (theoretically, perhaps) at zero.

Here’s how it works today, defining “altcoins” as any non-bitcoin token: this market is worth $484 billion, down 70% from its peak. Bitcoin’s market cap is $310 billion, down 74% from its peak of $1.2 trillion. You may already see where this is going – bitcoin erodes faster than non-bitcoin. So if 90% of altcoins are worth zero, that means a total true value of around $48 billion. If we continue to sell at the current bitcoin-to-altcoin ratio, the implication is that bitcoin is worthless; technically negative.

That might sound ridiculous, until you remember that’s what happened with crude oil. The main point of the analysis is that cryptocrashes in the past year have hit bitcoin harder than the broader market, and that’s a big difference compared to the bear market of 2018.

It actually makes quite a bit of sense. Bitcoin’s failure is very obvious compared to other cryptoassets because most tokens don’t even purport to have a purpose other than speculation. However, the crypto community spent five years making a specific promise that bitcoin would be an inflation hedge similar to gold. Since inflation bottomed out last year, bitcoin has fallen 60% and gold just 7%. So it looks quite unnecessary.

It also seems reasonable to believe that the true value of all crypto could be around $48 billion. It’s the size of Nintendo. From what I can see so far, nothing in crypto provides a product or service as high quality as one of the world’s greatest game inventors. To be honest, it seems like an ambitious goal.

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