The price of any product or asset is determined by the balance between supply and demand. This principle applies to various markets, including both physical goods like fruits and vegetables and intangible assets like financial products. For example, if there is a shortage of tomatoes due to a flood, the price of tomatoes in supermarkets will naturally increase, even with constant demand. Similarly, if the supply of tomatoes remains the same but more people want to buy them, the price will rise as well. In the financial market, the existence of unlimited supply can prevent the price from being influenced by demand, as seen in the case of a mutual fund. When more investors want to buy shares of the fund, new shares are simply issued at their net asset value. This allows the capitalization of the fund to increase proportionally to the demand.
However, if the available shares were limited, the price would no longer be determined solely by supply and demand. In such cases, the price would depend on the willingness of buyers to pay and sellers to earn, leading to fluctuations in the market. If a particular asset is in high demand, the price may surpass its fair value.
Determining the correct price of an asset can be a complex task. In 2021, an attempt was made to estimate the fair value price of Bitcoin by analyzing data related to the average amount of Bitcoin held in wallets. By considering the number of wallets in circulation and the capitalization of Bitcoin, the price of the cryptocurrency could potentially be derived. The transparency provided by the blockchain technology enables the collection of reliable information such as the number of Bitcoin addresses with non-zero balances. Analyzing the fluctuation in the average amount held in wallets over time, a range can be established to estimate the price of Bitcoin.
The simplicity of this model is its strength, even though certain factors such as users owning multiple addresses or a single address being shared by multiple users may introduce uncertainties. However, by analyzing large numbers and observing complete price cycles, meaningful insights can still be obtained.
It is worth noting that certain phenomena in the market can indicate potential price appreciation. For instance, during periods of a crypto winter, increased withdrawals from crypto exchanges and reduced balances held in centralized platforms can signal bullish sentiment. Investors may prefer holding their Bitcoin for the long term rather than engaging in short-term speculative opportunities. This shift in behavior is often accompanied by an increase in the number of addresses and lays the groundwork for cyclical price appreciation.
Based on the data and model presented, it is suggested that the price of Bitcoin could reach a ceiling of $130,000 in autumn 2025, if not higher. However, it is important to exercise caution and understand that this forecast is not financial advice. It represents an expected value based on certain assumptions and a certain degree of confidence. Nevertheless, similar price growth estimates have been derived from other predictive models. The growing interest in Bitcoin among institutional players, such as BlackRock, one of the world’s largest asset managers, further supports the credibility of these models.
In conclusion, the price of any product or asset is influenced by the intersection of supply and demand. Estimating the correct price can be challenging but can be approached through the analysis of factors such as the average amount held in wallets and the number of addresses in circulation. These estimations can provide insights into potential future price movements. However, it is important to remember that such forecasts are not guarantees and should be considered with due diligence and caution.
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