Editor’s note: This article is the third in a three-part series[1]. Plain text represents the writing of Greg Foss, while italicized copy represents the writing of Jason Sansone.
In the first two installments of this series, we reviewed many of the foundational concepts necessary for understanding the credit markets, both in “normal” times and during contagion. To conclude this series, we would like to explore a few methods by which one could arrive at a valuation for bitcoin. These will be dynamic calculations, and admittedly, somewhat subjective; however, they will also be one of many rebuttals to the oft-suggested claim by no-coiners that bitcoin has no fundamental value.
Prior to doing so, we want to state five foundational principles that underlie our thesis:
- Bitcoin = math + code = truth
- Never bet against open-source platforms
- Money has always been technology for making our expenditure of work/energy/time today available for consumption tomorrow
- Bitcoin is programmable monetary energy... A store of value, transferable on the world’s most powerful computer network
- Fiats are programmed to debase
Valuation Method One: The Fulcrum Index
I believe that bitcoin is the “anti-fiat.” As such, it can be thought of as default insurance on a basket of sovereigns/fiat currencies. This concept has a value that is fairly easily computed. We have coined this calculation the “fulcrum index,” and it indicates the cumulative value of credit default swaps (CDS) insurance on a basket of G20 sovereign nations multiplied by their respective funded and unfunded obligations. This dynamic calculation forms the basis of one current valuation method for bitcoin.
Why is bitcoin the “anti-fiat”? Put simply, it cannot be debased. The absolute supply is fixed. Forever. This is the exact opposite of the current global fiat currency regime. How, then, can it be considered
