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The bull thesis of Bitcoin and why I think the price of Bitcoin won't go below $25,000

Many struggled to truly understand what's the fundamental value behind Bitcoin. From time to time, you often hear people comparing the growth of Bitcoin to Tulipmania. When dug deeper into the argument, the common thing you would usually hear is that there is simply nothing backing the value of Bitcoin and hence Bitcoin should not have any value. If you also think along the same way, I strongly suggest you understand how Gold is being valued. And before you start thinking that Gold deserves its value because of its contribution to industrial uses, please remember that only 3 percent of Gold mined every year is used for industrial purposes.

At the end of the day, Gold is perceived as a store of value and its value is largely generated from how the masses perceive its value to be. The keyword here is "perceive" and hence it's not exactly far-fetched to imagine an asset like Bitcoin to be able to retain value if a significant number of people believe in it. Of course, we need to be a lot more specific here if we want to explain why Bitcoin has value and also why is it rather undervalued now.

The main difficulty behind deriving a value of Bitcoin has been the fact that there isn't exactly a good framework to evaluate Bitcoin until recently.

ARK Invest recently released a whitepaper to explain the use of on-chain data and established a very neat framework to evaluate Bitcoin. I strongly urge anyone who has any slight interest in Bitcoin to go through the intellectual rigour and digest this whitepaper. It's by far the best framework I could find on Bitcoin valuation.

For the benefit of the readers, let me attempt to highlight some significant parts of this whitepaper and hope they provide some clarity to you in understanding the value of Bitcoin.

The framework which was discussed in the whitepaper could be mainly divided into the three layers as shown below.

Each of the layers built on top of another to finally provide reasonable and sensible metrics to understand the value of Bitcoin. It's a lengthy whitepaper and I won't attempt to cover everything about the three layers here. Instead, I will cover meaningful parts of each of these 3 layers to allow you to better understand the value of Bitcoin.

Layer 1

The idea of Bitcoin has always been to provide a decentralised monetary system to the masses globally. That is a very lofty dream in terms of scale and complexity. The best way to determine if Bitcoin is fulfilling this purpose is to look into the specifics in layer 1 as they are your best indicator on how Bitcoin is performing. Contrary to what most people believe, price is never a good indicator on how Bitcoin is performing. What's important are indicators like hash rate, supply distribution of Bitcoin addresses and transaction volume.

Hash rate is a representation of the processing power miners used to secure the network and hence the security of the network is directly affected by the hash rate. Till date, the hash rate has been constantly rising. Even the mining ban by China in Q2 2021 could not stop the hash rate from rising to an ATH again. This is certainly a very positive sign as it indicates the strong interest in Bitcoin by miners. Miners are important stakeholders in the Bitcoin system as they directly affect the security of the network as indicated above. For a monetary system to work, security is paramount and this is the first sign I will look out for to determine if Bitcoin is fulfilling its intended vision.

Supply distribution of Bitcoin addresses represents how "wealth" is being distributed among the Bitcoin addresses. For a monetary system to work, you cannot have only a few accounts handling the bulk of the wealth as this will not be a healthy distribution. Wealth associated with Bitcoin needs to be decentralized and you can see a good trend where addresses with more than 10K Bitcoin are decreasing and addresses with less than 10 BTC increasing. At its current state, it is probably still not ideal but I believe further decentralisation will definitely happen. It took Bitcoin many years to achieve such a distribution and this is a clear advantage it has over any other new entrants in the market. A monetary system needs to achieve decentralisation for it to be viable and I honestly don't see any other new entrants being ahead of Bitcoin in this distribution.

Transaction volume is another important indicator that goes without saying. A monetary system needs to have sufficient transaction volume before it could be viable. As it currently stands, Bitcoin transacted volume in 2021 already exceeded that of Visa.

Layer 2

I personally find the above metrics in layer 1 as more important than any other metrics in layer 2 and 3 as they form the fundamentals on judging how successful is Bitcoin in fulfilling the vision of a decentralized monetary system. Hence, I won't touch on too many metrics in layer 2 and 3.

In layer 2, an interesting metric will be the realised capitalisation of Bitcoin. It's basically a market capitalisation based on the price of Bitcoin at its last movement. When the current market capitalisation of Bitcoin drops below the realised capitalisation, it indicates the overall market is selling at a loss. While some might argue the validity of realised capitalisation, it's probably the best we could have to understand the average cost basis of Bitcoin based on on-chain data. The current realised capitalisation of Bitcoin is roughly $480 billion- which translates to a price of $25,000 per Bitcoin. Hence, I am calling $25,000 per Bitcoin as the bottom here.

Layer 3

The only metric which I paid more attention to here is the MVRV score. I covered it in an earlier article here. It has a good track record of understanding the tops and bottoms of each halving cycle. I personally use this metric and determine its 200-day moving value to better understand the trend of Bitcoin's price. Then again, it probably does not matter much here as I'm convinced we are all very early in the adoption of Bitcoin and the price of Bitcoin has a lot more room to grow in the coming years or decades. Hence, buying and holding for the long term seems to be the best plan.


So what is then a meaningful price of Bitcoin in 2030? Well, I would think it's a lot higher than what it is now. If you want a meaningful breakdown, ARK Invest has it.

The prediction is that price of one Bitcoin could exceed $1 million by 2030 based on the numerous use cases which Bitcoin could bring. I would say it's a meaningful breakdown as I do see Bitcoin fulfilling all of the use cases you seen in the diagram by 2030. The exact percentage share that Bitcoin will fulfil for each of these use cases is very debatable though. I'm a bit more conservative and think that this valuation is rather optimistic. For instance, I don't see Bitcoin having 50% of Gold's market capitalisation by 2030. 20% seems like a more plausible scenario but that's my own opinion. Factoring my own opinions on the percentage allocation, I would think that a price of $400,000 to $500,000 per Bitcoin by 2030 seems a lot more likely.

What's important between now and 2030 is to continually monitor the few metrics in layer 1 as discussed in the earlier part of the article. If the metrics in layer 1 (hash rate, supply distribution, transaction volume) continue to show meaningful growth, it's very likely that Bitcoin will reach my forecasted value of $400,000 to $500,000 per Bitcoin by 2030. I will definitely be watching for those metrics and I think you should too.

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