Bitcoin Valuation: Problem and Solution


Dec 31

You might notice, I am now offering a few products for sale in BTC/BCH. This is a choice and experiment on my part so that I can gain more experience and knowledge of these products. I have an existing relationship with an established e-commerce processor but I feel like gaining real experience in using some of these cryptos would be more insightful. In fact, the need to have a product to sell in Bitcoin was why I offered one of my trading systems up top there.

The greatest problem with valuing Bitcoin is that it doesn’t offer any sort of revenue stream or dividend like a stock. Currently, all transaction fees to go to the miners. As such, the only way to profit from Bitcoin is primarily speculation (or possibly for a small percentage of holders, lending for others to speculate).  However, this could theoretically be fixed if transaction fees instead of going to the miners, who already get the block reward, would go to the holders or some percentage thereof as a form of dividend payment. The more transactions that are conducted in Bitcoin then the more transaction fees, dividends, that the holders would receive.

Now, I am not suggesting this is an immediate solution or that it would be technologically feasible. But, it makes a lot of sense because the transaction fees would form a small but contiguous revenue stream, provided Bitcoin has non zero value,  for the true long term holders.. The more time you spend in the market taking risk then the more dividends you would collect. An alternative solution or perhaps in combination, with greater risk, might be to take Satoshi’s coins (or a significant portion thereof) and dividend them out at a slow rate over a 20 or 30 year period. This would go some ways toward proving that Bitcoin was not a ponzi, by way of redesign, and would also take away the risk of those coins ever coming onto market all at once. Of course, it would also require changing the source code and make one question whether or not future changes might lead to loss or confiscation of coins.

And, that I think is the crux of the problem for Bitcoin. They need to make various software upgrades to support more transactions while at the same time, any change whatsoever, calls into question the argument that the supply is strictly limited and that the network is strictly mathematical because any decisions would be made by Bitcoin core team, the miners, and exchanges or basically a group of people.

So far, the market place has tried to solve these meta-physical problems designing new cryptos which allow for Bitcoin to remain unchanged while attempting to correct its shortcomings. The problem is most of those alt-coins aren’t really used for commerce. As such, it is questionable if the approach can be viable. It also invites a sort of cognitive dissonance when one talks about Bitcoin being scarce. Okay, Bitcoin might be scarce but there are dozens of other cryptos. Personally, I suspect that there will be limited space for success among cryptos. The net result might end up looking like some sort of duopoly or (triopoly) with Bitcoin and perhaps one or two other alt-coins with significant technological or use-case advantage surviving. While it is speculation on my part but Bitcoin does have the advantage and potential capability that they can simply wait for other alt-coins to test the best ideas and then at some point in the future incorporate only the best technology with the lowest risk. That sounds like a very wise and reasonable path, at least but assumes that any upgrades are technologically possible (may or may not be true) and that eventual consensus can be reached.


About the Author

The author is passionate about markets. He has developed top ranked futures strategies. His core focus is (1) applying machine learning and developing systematic strategies, and (2) solving the toughest problems of discretionary trading by applying quantitative tools, machine learning, and performance discipline. You can contact the author at