What determines Bitcoin's price? (not what you think)

How to figure out Bitcoin’s multiple.

What determines Bitcoin's price? (not what you think)
Photo by Nicholas Cappello 

A market capitalization (market cap) is the total value of an asset (like a stock, cryptocurrency, or commodity). Market cap can be found by adding up the current value of all the shares. As a calculation, it's: shares x price of a share

You may think that the Bitcoin market cap is linear – If someone buys $1 million worth of Bitcoin, the market cap goes up by $1 million. That's actually not how it works. The Bitcoin market cap is based on multiples.

What are multiples?

We'll use stocks as an example. Companies make a certain amount of money in revenue. Their market cap is a multiple of their revenue. For example, if a company makes $1 million a year, and they have a multiple of 10, their market cap would be $10 million.

But Bitcoin doesn't have revenue, so we can't figure out the multiple as easily.

How do we figure out Bitcoin's multiple?

To figure out the Bitcoin multiple, we must estimate based on the change in market cap after a large public purchase. We can calculate the multiple by analyzing Tesla's public Bitcoin purchase and comparing it to how much the Bitcoin market cap increased. I'll spare you the analysis and just tell you the multiple.

Bitcoin has a 20-25x multiple. That means that if $50 billion in Bitcoin is bought, the Bitcoin market cap will increase by ~$1 trillion.

$50 billion might sound like a lot but it's not when compared to the market. If more institutions (big businesses or governments  start buying crypto, the Bitcoin price could easily double.

Ian Greer © . All rights reserved.