Bitcoin has been called [Digital Gold](https://u.cubeupload.com/daedalus_42/visionsofbitcoin.png), a [bank in cyberspace](https://twitter.com/michael_saylor/status/1326893823344177152?s=20), and also a [Ponzi scheme](https://www.youtube.com/watch?v=kPjdg6Igr2c&ab_channel=CNBCTelevision).
If Bitcoin is digital gold, can it be valued like Gold? The more dollars that are exchanged for Gold, the more valuable Gold becomes. And then the value of all Gold (excluding industrial and ornamental use-cases) is approximately equal to the total value exchanged for it.
If Bitcoin is an e-bank in cyberspace, you can think of it as a shared savings account between all owners, the balance of which is equal to the total amount deposited, and the units of Bitcoin owned by each individual are equivalent to bank shares held.
If Bitcoin is a Ponzi scheme, the same logic applies, the fair value of a Ponzi at any point in time is the same as the total amount investors have put into it.
All of these are just different descriptions of “Store of Value”, and they imply that Bitcoin is at least as valuable as the total value stored inside of it.
This leads us to the first component of fair value, which is the total amount deposited. This is also approximately equal to the [Realized Capitalization](https://coinmetrics.io/realized-capitalization/).
But “Store-of-Value” is not all that Bitcoin is. With the advent of the [lightning network](https://lightning.network/) and [El-Salvador adopting it as a legal tender](https://www.reuters.com/world/americas/el-salvador-approves-first-law-bitcoin-legal-tender-2021-06-09/), Bitcoin has already cemented its status as a currency. In addition, because of its sovereign properties, it is also a call-option on becoming THE reserve currency of the world.
For each day that Bitcoin resists attacks and doesn’t die, it further proves its value proposition, and the call-option tends towards becoming ITM (In-The-Money). I’ve modeled this call-option premium with a regression with ‘days without dying’ as a predictor.
The addition of these two pieces, the realized cap, and the call-option premium, leads us to a fair value of Bitcoin. As of today (7/14/2021), my model says the fair value of Bitcoin $29,206.
Historically, cycle-tops have been approximately 3 MADs (Mean Absolute Deviations) away from fair-value, denoted by the red line, and cycle bottoms have been 1.5 MADs away, denoted by the green line.
The green and red lines have historically functioned well as buy/sell signals. There have only ever been four buy/sell signals each in the history of Bitcoin, but they’ve correctly identified ALL cycle tops and bottoms.
If you’re interested, the live model output (updated every day) is available at [https://www.azazelayers.com/](https://www.azazelayers.com/) – free, no ads, no sign-ups, no email address harvesting.
Questions and constructive criticisms are welcome.