{"id":262387,"date":"2021-05-29T18:57:00","date_gmt":"2021-05-29T15:57:00","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/forecasting-bitcoin-price-using-quantitative-models-part-2\/"},"modified":"2021-05-29T18:57:00","modified_gmt":"2021-05-29T15:57:00","slug":"forecasting-bitcoin-price-using-quantitative-models-part-2","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/forecasting-bitcoin-price-using-quantitative-models-part-2\/","title":{"rendered":"# Forecasting Bitcoin price using quantitative models, Part 2"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_84 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a26575505304\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a26575505304\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/forecasting-bitcoin-price-using-quantitative-models-part-2\/#The_market_moves_in_bubbles\" >The market moves in bubbles<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/buradabiliyorum.com\/en\/forecasting-bitcoin-price-using-quantitative-models-part-2\/#Inflation\" >Inflation<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/buradabiliyorum.com\/en\/forecasting-bitcoin-price-using-quantitative-models-part-2\/#Deflation\" >Deflation<\/a><\/li><\/ul><\/nav><\/div>\n<p>&#8220;<strong># Forecasting Bitcoin price using quantitative models, Part 2 <\/strong>&#8221;<\/p>\n<div class=\"post-content\" data-v-5a136f3a><em>This is Part Two of a multipart <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/watch-movies-tv-seriess\/\" data-internallinksmanager029f6b8e52c=\"8\" title=\"Watch Movies &amp; TV Series\" target=\"_blank\" rel=\"noopener\">series<\/a> that aims to answer the following question: What is the \u201cfundamental value\u201d of Bitcoin? Part One is about <\/em><em>the value of scarcity<\/em><em>, Part Two \u2014 the market moves in bubbles, Part Three \u2014 the rate of adoption, and Part Four \u2014 the hash rate and the estimated price of Bitcoin.<\/em><\/p>\n<h2><span class=\"ez-toc-section\" id=\"The_market_moves_in_bubbles\"><\/span>The market moves in bubbles<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>In recent months or even years, there\u2019s been a lot of talk about the <em>bubbles<\/em> developing in the bond markets. <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/news\/\" data-internallinksmanager029f6b8e52c=\"2\" title=\"News\" target=\"_blank\" rel=\"noopener\">News<\/a>papers \u2014 both financial and non-financial \u2014 talked about it, with specialized television stations and prestigious \u201cmacroeconomists\u201d from all over the world discussing how today\u2019s world debt has negative interest rates.<\/p>\n<p>It is financially counterintuitive to have to pay or lend money to someone, even if that person is a state. We are experiencing an absurd situation that has never h<a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a>ened before in the financial market landscape. The main cause is linked to the enormous liquidity injected into the markets by central banks, which they use as funding to avoid their own bankruptcy, only to then, prudently, reverse it back onto the states (they themselves in difficulty).<\/p>\n<p>After all, John Maynard Keynes\u2019s famous phrase <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.legacywp.com\/p\/our-investment-philosophy\">reads<\/a>: <\/p>\n<blockquote><p>\u201cFinancial markets can remain irrational for much longer than you can remain solvent.\u201d<\/p><\/blockquote>\n<p>In actuality, this absurdity has made it possible to avoid the bankruptcy of the financial system, so it is welcome, even though it feeds irrational phenomena, such as bond markets with negative yields (and therefore senseless bond prices) and stock markets touching (not all, but most) new highs day after day.<\/p>\n<p>One phenomenon that isn\u2019t actually fueled by central bank money, that everyone labeled a meaningless mega bubble in 2017, is Bitcoin (BTC). The price of Bitcoin rose to a high of $20,000 in December 2017, coinciding with the launch of Bitcoin futures by the Chicago Board Options Exchange and the CME Group, the two largest commodities exchanges in the world, and then hit a minimum of around $3,100 in 2018, effectively losing over 80% of its value.<\/p>\n<p>Does it represent the bursting of a bubble? Sure. Does it represent the end of Bitcoin? Certainly not. Could there be more Bitcoin bubbles in the future? Of course.<\/p>\n<p>As always, we would like to approach the problem as analytically as possible. We reconstructed the table created by the founder of Bitcoin, Satoshi Nakamoto, using Excel, to make sure that Bitcoin was deflationary and not inflationary.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Inflation\"><\/span>Inflation<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The U.S. dollar (and all currencies in the world, truthfully, including the euro), due to inflation, is worth less and less over time. We can better understand the phenomenon if we think about the value of assets. Buying a car 40 years ago cost about 13 times less than it does today, so a nice car that cost $10,000 in 1980 would cost $130,000 today.<\/p>\n<p>This phenomenon is called inflation, and it is induced by a rule that links the total value of goods in the world to the total currency in circulation. If the number of U.S. dollars in circulation doubles, the same goods will tend to cost twice as much. It \u201cwill tend\u201d because currency is not a linear phenomenon, and it may take some time to happen.<\/p>\n<p>In the 1970s and early 1980s, inflation in the United States reached rates close to 12% per year, creating many difficulties for those who didn\u2019t have the knowledge and the means to counter it.<\/p>\n<figure><img decoding=\"async\" src=\"https:\/\/s3.cointelegraph.com\/uploads\/2021-05\/dc87d890-063f-4fa4-8d69-9d6196619e2b.png\"><\/figure>\n<h2><span class=\"ez-toc-section\" id=\"Deflation\"><\/span>Deflation<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>Bitcoin was created with a deflationary logic, more similar to commodities such as gold and silver. This is why it\u2019s considered by many to be the new digital gold, as it has preservation of value characteristics and not those of impoverishment, like the dollar or the euro.<\/p>\n<p><strong><em>Related: <\/em><\/strong><strong><em>Is Bitcoin a store of value? Experts on BTC as digital gold<\/em><\/strong><\/p>\n<p>Let&#8217;s see how it was possible to create, and what the effects resulting from these choices are.<\/p>\n<p>Nakamoto decided that the maximum number of Bitcoin created and available should be 21 million. (The number 21 will occur many times. It is the Greek letter <em>phi<\/em>, which we will also talk about later). He could have decided to enter a fixed amount of Bitcoin for each block that got mined, but doing so wouldn\u2019t have created the exponential growth effect that characterizes Bitcoin, or at least not as marked as it is today.<\/p>\n<p>Consequently, he decided to halve the amount of newly issued Bitcoin every four years, to create a very marked and interesting stock-to-flow effect that would push the price higher and higher. <\/p>\n<figure><img decoding=\"async\" src=\"https:\/\/s3.cointelegraph.com\/uploads\/2021-05\/5ec3f1dc-7d47-4b9f-b06e-477389481cae.png\"><\/figure>\n<p><strong>Related: <\/strong><strong>Bitcoin Halving, Explained<\/strong><\/p>\n<p>For the first 210,000 blocks, miners were paid 50 BTC for each block written on the distributed ledger, at a time where the value of Bitcoin fluctuated from a few cents up to a few dollars, so the remuneration was not in the least comparable with that of today \u2014 neither was it as difficult to win the challenge. In fact, in the early years, simple computers were enough to do the mining.<\/p>\n<p>The first halving took place in 2012 \u2014 i.e., from the 210,001st block onward, remuneration was halved to 25 BTC for each writing on the distributed ledger. In 2016, the second halving took place, which brought the remuneration down to 12.5 BTC, and again with the third halving taking place in May 2020, bringing the remuneration for each block to 6.25 Bitcoin, which with a recent price correction of around $40,000 is still around $250,000.<\/p>\n<p><strong><em>Related: <\/em><\/strong><strong><em>3 good reasons why $30,000 is probably the bottom for Bitcoin<\/em><\/strong><\/p>\n<p>The next halving is scheduled for 2024, when remuneration will be further cut by 50%. It is set to continue, probably, until 2140, the year in which the last halving is expected, which will distribute less than 1 Bitcoin in the last year.<\/p>\n<figure><img decoding=\"async\" src=\"https:\/\/s3.cointelegraph.com\/uploads\/2021-05\/e728cba9-35ec-40f1-aa5a-1c68e6165e4a.png\"><\/figure>\n<p>But how does this halving phenomenon impact the price of Bitcoin? Does the halving of the so-called \u201cflow,\u201d or the flow of new capital into the market, affect the price of Bitcoin itself? As we saw previously in the first part, Bitcoin seems to follow the stock-to-flow model; therefore, a reduction in flow, while maintaining the same stock, should correspond to an increase in price. Now that we\u2019ve had three halvings, shouldn\u2019t there have been as many bubbles? <\/p>\n<p>Do you know how many bubbles Bitcoin has had in its short life? Three fatalities. They are represented graphically below.<\/p>\n<figure><img decoding=\"async\" src=\"https:\/\/s3.cointelegraph.com\/uploads\/2021-05\/80a306f9-066b-464f-bb24-ea8a874fbdd7.png\"><\/figure>\n<p>These are the three bubbles Bitcoin has faced so far, and each time the next maximum price became at least 10 times higher. Obviously, it is not a guarantee that it will do so in the future, but there are many factors that lead us to believe that what we experienced in 2017 will not be the last bubble \u2014 many more will follow in the future.<\/p>\n<p>Can this information be used to determine a correct price for Bitcoin? Or at least, a potentially achievable price according to this model? <\/p>\n<figure><img decoding=\"async\" src=\"https:\/\/s3.cointelegraph.com\/uploads\/2021-05\/b7d91691-9bd3-4477-8091-ffc13148f90f.png\"><\/figure>\n<p>In fact, we can, if we take a look at this graph where the halvings are highlighted by jumps in the X-axis, in correspondence with the change in status of halving, we can estimate the fair value price \u2014 that is, the correct price at which Bitcoin could tend toward. <\/p>\n<figure><img decoding=\"async\" src=\"https:\/\/s3.cointelegraph.com\/uploads\/2021-05\/7526efa8-8bd7-405a-ba28-fcce3cd186b4.png\"><\/figure>\n<p>If the price of Bitcoin tends to return around the line described in the figure above, it is clear that we can estimate what the future target price of Bitcoin will be, based on the various halvings that await us.<\/p>\n<figure><img decoding=\"async\" src=\"https:\/\/s3.cointelegraph.com\/uploads\/2021-05\/c71bb6b8-79ca-4fcc-a679-2a481514aa9f.png\"><\/figure>\n<p>From the graph, it is clear that the target price of Bitcoin is between $90,000 and $100,000. This information is very useful not only because it guarantees that we will arrive at those prices but because we should take into account our investment decisions, as it could actually get there and even exceed those price levels.<\/p>\n<p>Obviously, these estimates must be taken as an intellectual attempt to understand the dynamics of Bitcoin and absolutely cannot be considered a suggestion or advice from the author. Understanding how Bitcoin can reach such values is not easy, and anyone approaching this fascinating world for the first time would have a hard time imagining how a seemingly worthless asset could have such a high price, especially if you fall into the trap of thinking of it as a dollar-par currency.<\/p>\n<p>To do this, it is important to know its various aspects. One that is certainly fundamental for determining the price of Bitcoin is the adoption rate, which is to be described in the next part. <\/p>\n<p><em>This article was co-authored by <\/em><strong><em>Ruggero Bertelli<\/em><\/strong><em> and <\/em><strong><em>Daniele Bernardi<\/em><\/strong><em>.<\/em><\/p>\n<p class=\"post-content__disclaimer\"><em>This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision. <\/em><em>The views, thoughts and opinions expressed here are the authors alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.<\/em><\/p>\n<div>\n<div style=\"background: rgb(239, 239, 239); border: 1px solid rgb(204, 204, 204); padding: 10px;\"><strong>Ruggero Bertelli<\/strong> is a professor of financial inter<a href=\"https:\/\/buradabiliyorum.com\/en\/category\/social-mediaa\/\" data-internallinksmanager029f6b8e52c=\"1\" title=\"Social Media\" target=\"_blank\" rel=\"noopener\">media<\/a>ries economics at the University of Siena. He teaches banking management, credit risk management and financial risk management. Bertelli is a board member of Euregio Minibond, an Italian fund specializing in regional SME bonds, and a board member and vice president of Italian bank Prader Bank. He is also an asset management, risk management and asset allocation advisor for institutional investors. As a behavioral finance scholar, Bertelli is involved in national financial education programs. In December 2020, he published <em>La Collina dei Ciliegi<\/em>, a book about behavioral finance and the crisis of financial markets.<\/div>\n<\/div>\n<div>\n<div style=\"background: rgb(239, 239, 239); border: 1px solid rgb(204, 204, 204); padding: 10px;\"><strong>Daniele Bernardi<\/strong> is a serial entrepreneur constantly searching for innovation. He is the founder of Diaman, a group dedicated to the development of profitable investment strategies that recently successfully issued the PHI Token, a digital currency with the goal of merging traditional finance with crypto assets. Bernardi\u2019s work is oriented toward mathematical model development, which simplifies investors\u2019 and family offices\u2019 decision-making processes for risk reduction. Bernardi is also the chairman of investors\u2019 magazine Italia SRL and Diaman Tech SRL, and is the CEO of asset management firm Diaman Partners. In addition, he is the manager of a crypto hedge fund. He is the author of <em>The Genesis of Crypto Assets<\/em>, a book about crypto assets. He was recognized as an \u201cinventor\u201d by the European Patent Office for his European and Russian patent related to the mobile payments field.<\/div>\n<\/div>\n<p class=\"post-content__disclaimer\"><em>This article has been successfully submitted to the World Finance Conference<\/em>.<\/p>\n<p><template data-name=\"subscription_form\" data-type=\"markets_outlook\"><\/template><\/div>\n<blockquote><p><strong><span style=\"color: #ff6600;\">If you liked the article, do not forget to share it with your friends. Follow us on\u00a0<span style=\"color: #ff0000;\"><a style=\"color: #ff0000;\" href=\"https:\/\/news.google.com\/publications\/CAAqBwgKMLG0nwswvr63Aw\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">Google News<\/a><\/span>\u00a0too, click on the star and choose us from your favorites.<\/span><\/strong><\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\">For forums sites go to <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/forum.buradabiliyorum.com\/\" target=\"_blank\" rel=\"noopener\">Forum.BuradaBiliyorum.Com<\/a><\/span><\/strong>\n<\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\"><strong>If you want to read more News articles, you can visit our <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/en.buradabiliyorum.com\/general\/\" target=\"_blank\" rel=\"noopener\">General category.<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<p><span style=\"color: black;\"><a style=\"color: #ff9900;\" href=\"https:\/\/cointelegraph.com\/news\/forecasting-bitcoin-price-using-quantitative-models-part-2\" target=\"_blank\" rel=\"noopener\">Source<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8220;# Forecasting Bitcoin price using quantitative models, Part 2 &#8221; This is Part Two of a multipart series that aims to answer the following question: What is the \u201cfundamental value\u201d of Bitcoin? Part One is about the value of scarcity, Part Two \u2014 the market moves in bubbles, Part Three \u2014 the rate of adoption,&#8230;<\/p>\n","protected":false},"author":1,"featured_media":262388,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"https:\/\/images.cointelegraph.com\/images\/1200_aHR0cHM6Ly9zMy5jb2ludGVsZWdyYXBoLmNvbS91cGxvYWRzLzIwMjEtMDUvNmViZjIwOTQtODI1Zi00ZTNjLThjNGUtZmY2YzNjZGZlZjU1LmpwZw==.jpg","fifu_image_alt":"","footnotes":""},"categories":[1],"tags":[74862,78828,74937,74863,78827,73711,68637,4965],"class_list":["post-262387","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-bitcoin","tag-bitcoin-halving","tag-bitcoin-price","tag-cryptocurrencies","tag-halving","tag-investments","tag-predictions","tag-technology"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/262387","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=262387"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/262387\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/262388"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=262387"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=262387"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=262387"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}