As Bitcoin Plunges 25% On Government Scrutiny, The First BTC "Fair Value" Reco Has A Stunning Price Target

Tyler Durden's picture

It took literally minutes following our report from yesterday that in addition to the ECB and Fed, it was the Senate's turn to finally shine the spotlight on the most notorious electronic currency with a hearing titled "Beyond Silk Road: Potential Risks, Threats, and Promises of Virtual Currencies" next Monday, for Bitcoin to tumble 25% from its all time high just shy of $400, to $290 within 12 hours, in large part answering our rhetorical question if "the one thing that can finally end the dream of Bitcoin holders arrive soon: when the government, and existing monetary authorities, start taking it seriously." They appear to be doing just that, which is why additional upside from here may be in the eye of the Cray supercomputer-armed NSA beholder.

So yes: Bitcoin is volatile. Very. That much is clear. But what is not so clear, and perhaps a key reason for this volatility, is just what the fundamental, or intrinsic value of BitCoins is when one strips away the pure euphoric momentum to the upside or downside.

To answer that question, we go to Raoul Pal, head of the Global Macro Investor, and his November 1st recommendation to "Buy Bitcoins"(when BTC was $210 so nearly a 100% return in 1 week) which among other things attempts to "value BTC using a macro framework" or, in other words, the first supply-demand driven fair value assessment of BTC.

His take, and price target, in a nutshell:

A fudge, but not a stupid one


Let’s use a broad guesstimate. One Bitcoin should theoretically be worth 700 ounces of gold or pretty close to $1,000,000, if we adjust existing supply of both to equal eachother.


One BTC is currently worth 0.14 ounces of gold.


That gives BTC an upside of 5000 times to equal the current price of gold, supply adjusted. Clearly, I and everyone else believes that Gold may well be much higher than here in the next 5 to 10 years, thus versus the US Dollar the upside for BTC could be multiples of that.


Now, before you shake your head, simply go back to the chart of Gold versus the US Dollar and just recognise that it has risen 8750% since the 1920s. And just remember that Microsoft rose 61,000% from its IPO to it’s peak.


Considering what we know about the world, I personally believe that Bitcoin may well explode in value as more and more people begin to use it.


If you stuck $5,000 into Bitcoins and each Bitcoin did go up to a gold equivalent of let’s say, only 100 ounces of gold (not the potential fair value of 700), then at current prices your Bitcoin stash would be worth $3.3m.


Now that’s what I call a tail-risk option. It’s either worth zero or it’s worth a truly outstanding amount of money.


I bet you never thought you’d see this in a macro publication. But I’m serious. This just might work.

Read on in the attached pdf below (link)

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Terminus C's picture

Yes, yes, bit coin "should" be worth x

Try convincing Indians and Chinese that a bitcoin is worth 700 ounces of gold.


Pump and dump bitchez...

Lost My Shorts's picture

LOL is right.  I have ten toes.  If my toes are assumed to be worth the same as the world's gold, then each toe is worth 47 million ounces of gold.  OK, I made that up, but what ever the number is, I can retire now.

The author bizarrely assumes that the world's supply of bitcoins is backed by the world's supply of gold, which it's not.

chemystical's picture

LOL is an understatement. 

Was preparing to post the same analogy but replacing bitcoin with my navel lint.

Was demand (or dare I say, utility) mentioned anywhere in the rest of the piece?  I lost interest after the opening sentence.

qqqqtrader's picture

... and don't even think about mining it unless you have a special Bitcoin mining computer with a dozen graphic cards shoved into it.

After almost 4 days mining bitcoins on an average home PC I have accumulated...

Account: Personal Assets

Balance: 0.00000461 BTC
jonjon831983's picture

The more BC's that are mined, the harder the computations become.  In the end only the high end and deep pocketed will be mining.  aka those who have sufficient venture capital backing.

Bay of Pigs's picture

These Bitcoin threads are getting downright stupid.

I've yet to see any of the pumpers explain this story,

EscapeKey's picture

What's there to explain? They could have gotten it out of Ulbricht through torture, or he could have kept the password in a text file on his hard drive, considering how lax he was in regards to setting up the site.

You're really scraping the bottom of the barrel if you think this is somehow evidence of bitcoin itself being flawed. If I come across your online banking login, I can rip you off in a heartbeat, too.


CH1's picture

The dude is clinging to his ignorance.

nope-1004's picture

The USDollar must be defended at all costs.  Arguments about whether Bitcoin is good or not are strictly academic.  It obviously is good, but it obviously will be trashed by the US govvy.  Common sense.

Holding BTC as a form of anti-establishment currency is admirable and if the world decides to go that route, I'm all for it.  But, when the USD starts to unwind, a person has to acknowledge that the first place the falling US govvy will attack is all paper / digital fiats and copies (gold and silver) around the world in ardent defense of the tumbling USD.  So my opinion is that when TSHTF, I don't know if holding a digital form of wealth gives me confidence.  But that's just my bias.


BaBaBouy's picture

BEWARE... There Is NOTHING Backing BitCoin, And EVERY Western Gov't Would Like To See It Turn To "INTERNET DUST".


Running On Bingo Fuel's picture

It's a wet dream for the iRS. The iRS would luv to have a record of your payments and receipts. Trust me if they can't decrypt 256 right now, they are maybe 6 months away from it being trivial.
Global Macro Investor, doesnt account for any other cryptocurrencies such as Litecoin. Litecoin has a better implementation of the protocol and it's price does not have the wild swings like Bitcoin.

Anyhow real Spacemonkey's aren't going to fuck with this globalist shit in a significant way. It's not of who we are. We are the ones who would blow up Bitcoin.


Abitdodgie's picture

They can decrypt 1024 with there 512 quantum computer , thats why there is no point encrypting anything any more , just grow some balls and say what you mean .

fonestar's picture

Key length does not mean key strength.  And no, they cannot decrypt everything.  That's why the NSA had to approach all of the major technology players to try and install back-doors.

TeamDepends's picture

This all drives home the argument that Bitcoin, despite the wishes of bitbugs, can never become a reserve currency.  It might work well as a kind of debit card, however.

fonestar's picture

It can indeed serve as a reserve currency system.  But it is antithetical to the current dollar system.

There can be only one.

SilverIsKing's picture

Would I be the richest person in the world if I signed a piece of paper and then cut my hand off so there is only one original signature of mine in existence?

That would be a mighty rare signature. Anyone willing to give me $100 Trillion can have this piece of paper with my signature and I'll throw in my hand as a bonus.

fonestar's picture

What a stupid analogy.  I won't waste my time.

nmewn's picture

lol...lets all keep our sense of humor. Its only "money" right? ;-)

fonestar's picture

Love me these threads.  Get's me feeling a bit insurrectionist.

Dear Infinity's picture

I feel the same way when I see Bitcoin:Gold ratio is below 4... and silver is trading at 0.06 bitcoins per ounce (according to

fonestar's picture

Myself, I think an ounce of silver is worth more than an ounce of gold. 

I think 1 BTC is worth more than both of them.

TeamDepends's picture

In your mind, you are rich!!!!

SonOfSoros's picture

I bought some Bitcoins. 

Only because I had spare capital to gamble and am prepared to lose every single penny on my Bitcoin position. 

Other than that, I still personally think Bitcoin is a fad whose fundamentals are no different from fiat currency. Which is, that both are used as mode of payments only if there are other people willing to accept it. 

SWRichmond's picture

Like fiat, but unlike precious metals, bitcoins can be produced in unlimited quantities by men behind a curtain. 

Cui bono?

What could possibly go wrong?

TheHound73's picture

No. The quantity of Bitcoins is shockingly, frighteningly small. Do some research.

gold-is-not-dead's picture

don't know what the fuss is about, bitcoin already is the new global monetary system, and a lot more. deal with it.
it went up 50.000 times and it has room to go about 30k times more.

fonestar's picture

Bitcoin back at $340!  Nice "plunge" ROFL.....

Keep those headlines comin' I need some more lulz....

fonestar's picture

Oh, I can't wait for the Bitcoin to overtake the price of gold!  Hopefully next year.  People like myself and Jeff Berwick are going to be rich rich rich!!

The dullards are still going to be on here grumbling about "intrinsic value" or some crap waiting for the 19th century to make a comeback hahahahaha!!

SonOfSoros's picture

So are you part of the 1% yet? 

No? Then keep dreaming, I can't fathom just how rich you are going to get if the big boys are unwilling to participate. 

fonestar's picture

They can watch (and lose) from the sidelines for as long as it takes them to figure things out.

nmewn's picture

"They can watch (and lose)..."

First down arrow I've given you, you're starting to sound like a pumper instead of an advocate.

I'd stop while I was ahead if I were you.


fonestar's picture

I am an adult and a rational actor and I am my own advocate as well as Satoshi's.  Time to pick sides.  Stand and fight with Satoshi for human freedom or stand and fall with the oligarchs.

frenzic's picture

Who exactly is this Satoshi I keep hearing about? Freedom is just another word for nothing left to lose.

SonOfSoros's picture

Which goes to show how you don't understand how the markets work. 

They won't lose anything as long as fiat currency is still accepted.

Markets are made up of bids/ask and the amount of capital appreciation is limited by the amount of capital the bidders possess as well as how much they are willing to bid for an item. If you poor buggers are only market participants, your whole Bitcoin dream is going bamboozled.

How much capital do you 99%-ers possess again? 

There's a reason why the market moves and it isn't because of small cap investors moving them but rather big boys with large capital moves the markets by being able to bid higher and fulfil their bids. The small cap boys merely attempt to profit off these big price movements by the boys with capital. 

The sheer amount of market particpants and market cap required to make bitcoin a "success" is not something you minority can make up for.


Just like the financial markets, Bitcoin is merely a zero-sum game.


So apparently, you are the only one who hasn't figured things out and is probably the reason why you are not a 1%-er. Keep your dreams alive buddy! Maybe one day you will be able to rise to the big leagues but that day is not in this life time.

fonestar's picture

"They won't lose anything as long as fiat currency is still accepted."


Au contraire, they are going to lose a lot during the largest crack-up boom in recorded history.  Some will even take their own lives as in 1929. 

I am currently the minority right now.  We will outmaneuver them and force them to defend an indefensible position.

SonOfSoros's picture

With your market cap and capital? 

Fret not, I'll be watching with some popcorn provided I'm not busy making money

fonestar's picture

Oh thou shall fret all right, demon spawn of Soros!

Watch me drop a bit in this bucket and see my ripples tear your world apart......

thisandthat's picture

So, are you going to be the next Rockefeller or Rothschild?

"They can watch (and lose) from the sidelines" - I bet they will...

InspectorBird's picture

Im glad you admit that you want "get rich quick by doing nothing" pyramid scheme, not real alternative currency and sound money.

Harrison's picture

The question is, what *can* they decrypt? NSA has been involved in the development of many crypto algorithms, and the documents Snowden found and released have suggested that the NSA has steered companies toward certain of the algorithms that -- perhaps -- the NSA has found ways to break.

EscapeKey's picture

a) There is no working quantum computer outside of the lab, and most certainly not one with 512 qubits.

b) With a quantum computer through Shor's algorithm, they can perform prime factorization to the extent of 1024 bits, or whatever. BTC, however, is not based on prime factorization. It's based on a one-way hashing algorithm.

Seriously, I don't know why people with zero background knowledge even comment on the technical detail. I know jack shit about Beyonce's cocktail dresses, or Jack Russell training tips. Consequently, I make no comment on either (nor do I care, but that's a different story).

fonestar's picture

I find that those with a technical background "get" Bitcoin and those without a technical background do not get it.  Being trained in Cisco, #!/bin/bash programming, VMWare, etc certainly helps.  I started investigating the causes of the 2008 meltdown as it cost me my job at the time.  I began with the idea that we could understand the global financial system the same way we could understand any other network's operation.  So it became evident prima facie that this network was designed to enrich a few players at the expense of the many.

Part of the opposition to Bitcoin also seems rooted in the North American layman's inherent distrust of all things academic, scientific or technical.  Unfortunately, many people are raised in this society to believe that being dumb is being tough.  Play a piano or swing a hammer.  Kierkegaard's famous either/or.

TeamDepends's picture

Ooooh, sorry!  Didn't know you were trained in Cisco!  This allows you to not only "get it", but to actually make blanket generalizations and look down upon the "North American layman" with disdain.  People like you won't last five minutes after the lights go out, whereas we will be playing piano at the gathering after swinging a hammer all day.

Bendromeda Strain's picture

After 5 pm he's trained in Crisco...

fonestar's picture

Nice to see the fake libertarians come out in force.  They're all for free markets and shite, until something actually comes along that challenges their American exceptionalism.  Apparently, these ardent gold bugs still believe the US Dollar is once again going to become pegged to gold and will buy them merchandise and services.  Oh, so sad when they learn that no such thing will be occurring and their sacred "dollar" will instead be relegated to the dustbin of history where it so rightfully belongs.

Bendromeda Strain's picture

No dipshit, I believe your precious "cryptocurrencies" will be followed up by biometrics. PERIOD. FULL STOP. If I cannot conduct a private transaction without whipping out fucking phones, then you can go FUCK YOURSELF and YOUR FAKE FUCKING LIBERTARIANISM. Other than that, I'm cool...

fonestar's picture

There's no reason to believe Bitcoin users (who are using Bitcoin because of it's anonymous properties) would suddenly choose to encorporate biometrics that would compromise their anonymity.  Your argument is illogical.

fonestar's picture

I'm sooo scared about solar flares and EMP!  It's gonna make my Bitcoin totally worthless!

What episode of Doomsday Preppers did you star in?

akak's picture

That fact that you dismiss grave emergencies to the very foundations of our technological societies which are not only possible, but eventually likely, illuminates the kind of blinkered, small-picture thinking and typical navel-gazing that I find so prevalent among the techno-narcissistic.