# Fundamentally Valuing Bitcoin at \$45,000 / BTC – Hacker Noon

With greater supply of money, “PQ” tends to increase. Think of this as more money = more spending. During periods of growth, the government keeps a careful eye on the growth rate, because too much money can lead to higher prices and inflation. At the extreme, a loaf of bread was worth a trolley of cash in WWI Germany because there was so much fiat money printed.

In addition, inflation often results in rising wealth for holders of assets like real estate and stocks, while those only holding cash lose the purchasing power of their money. This results in a widening of the wealth gap. Other repercussions of too much money printing include people taking on debt to buy asset, which raise the likelihood of bankruptcy when a plethora of money leads to bad asset purchases at too high of a price.

All this leads to a negative spiral of economic contraction. And that is why the money supply must be carefully monitored and controlled. If this concept doesn’t make sense, see this great explanation by Ray Dalio, manager of the world’s largest hedge fund.

Just remember, the government expands and contracts “M”, the money supply. The Federal Reserve aims for price stability and productivity gains, meaning they hope to increase the money supply in pace with productivity gains.

To intuitively understand MV=PQ, think of it like this. You are a millionaire wanting to buy a \$42 million jet with this new currency called Bitcoin. Let’s assume there are 21 million Bitcoins in circulation, and each trade at just \$1.00.

That means you literally could not conduct your \$42 million purchase with Bitcoin even if you owned every single one, because its market cap would only be \$21 million. Bitcoin would have to at least rise to \$2.00, or a market cap of \$42 million, for you to make this transaction. Thus, the more transactions (“PQ”) occur, the greater the market cap (“M”) of a currency.

We will soon get into how this applies to Bitcoin’s valuation.

### How is Gold Valued?

Assuming \$317T for global household net worth (source: Credit Suisse Wealth Report, 2018), a 50% market share for Bitcoin, and 1% of global assets in Bitcoin:

Bitcoin’s market cap = \$317 T * 1% * 50% = \$1.58 T = \$75,238 / BTC

This results in a 30% to 700% upside from today’s prices depending on your input assumptions, and a midpoint of \$45K / BTC.

All this is bullish for Bitcoin as an investment, provided you believe that Bitcoin is a steel bubble. And a steel bubble means it’s not really a “bubble” at all, just as you wouldn’t call a Picasso a bubble. It is a real store-of-value.

There will always be people willing to hold some of their net worth in an asset where no government can reach, just as there will always be people willing to pay up for rare art. That by itself gives it value. So “steel bubble” is a misnomer in that it isn’t a bubble in the traditional sense. But let’s continue using this term for convenience.

### Libra

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