Valuing BTC Using a Macro Framework
55% of all Bitcoins in existence have already been “mined”. Mining is the process of Bitcoin
creation that takes truly enormous computing power and gets more and more difficult to do as
less and less are left to be mined.
This is just like gold.
65% of all of the world reserves of gold have already been mined. Gold becomes more and
more difficult to get out of the ground as the low hanging fruit has been taken and more
technology and more money is needed to do so. Gold requires higher prices for the remaining
reserves to be mined. Right now, gold is not profitable for new mines so production is slowing
rapidly, but at higher prices, more gold comes on line although in decreasing amounts.
Gold – with less complex collateral issues
Thus Bitcoin is a currency that is essentially a digital version of gold. Once you understand
that, you understand Bitcoin. Like gold it can be held within the system anonymously (“my
wallet”) or held outside the system. Like gold, it only has a value because we attribute it to
have a value.
Unlike gold, no one as yet can offer leverage on it (and it is not yet used as collateral so every
time someone takes a large physical delivery the price does fall as leveraged trades have to
be unwound as collateral leaves the system – which is the issue right now with gold.)
OK, let’s not get ahead of ourselves.
Here is the chart of the mathematical difficultly of mining for Bitcoins: (the scale is essentially
computing power required)…
… and because of the massive computing power required, the operating margins of mining
BTC have collapsed…
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