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uncertainty is good for BCH (hint: it's all those transactions)
I first read about this site in an article by @MarcDeMesel, where he illustrates just how absurdly good of a deal BCH is right now.
The "fair value" of BCH listed on the site might be a little shocking (in a good way). What is it now? I'm writing this article just after noon on February 9th (I'm in the US), and BCH is listed at $1951.67! Almost four times its currently traded value! But what does this mean exactly? Why aren't we trading at that price?
I saw this a few weeks back now, and I needed to know how they came to that number, so I dug into the site's Methodology page, which eventually leads to another article on Steemit about currency value modeling. I've been reading and rereading these materials and I'm digesting it rather slowly, but something stuck out to me yesterday that I felt I needed to share, even if the larger "currency valuation modeling" perspective remains a bit foggy.
You'll see on Coin Fair Value's BCH listing that there is a glaring red "Uncertainty" value, currently at 78.7%, which is very high, higher than almost any other listing. So what does this mean? To quote the Methodology page:
Our uncertainty model targets the fact that we cannot be sure that our moving averages are an indication of the non-speculative behaviour —utility trades—. We take the difference between the logarithm of each model variable and its actual value as the 99th-percentile of the uncertainty. This way, changes in the behavioral variables and fast changes in transactions lead to a higher uncertainty.
It goes on to say that this uncertainty model gives us "an approximate region instead of an exact value." This region can be said to have upper and lower bounds according to the following formula:
What do we get if we plug in our BCH numbers? For the lower fair value price boundary, with BCH fair value at $1951.67 and Uncertainty of 78.7%, we get a price of $415.70. For the upper boundary, we get $9,162.77!
But why did I want to share these numbers? What got me excited? Well we're currently near the lower uncertainty boundary, hovering just above $500, and that upper boundary is near Coin Fair Value's BTC valuation, sitting at $10,947.90 at the time of writing.
Let me put it another way, drawing from the quote above from CFV's Methodology page: the BCH fair value is so uncertain because it takes into account the number of new transactions on the BCH network, transactions with unknown utility. Look at this graph, also from Coin Fair Value:
The FVU matches a timeline we are all aware of, the slow and steady increase in daily transactions on the BCH network, due in large part to the introduction of noise.cash.
But lerk, you might say, these transactions are meaningless in comparison to those on BTC's network. noise.cash users are sending pennies to each other, that's not real utility! Well, yes and no. Is the BCH network going to be sustained into the distant future with an entire economy swapping pennies? No, but there will be a large number of transactions, a massively large number.
We are talking VISA levels. That's one of the the original intents of Bitcoin, a worldwide monetary network capable of processing a world's worth of transactions. BCH is proving something by increasing its transaction load, and not just its fee structure.
As of yesterday, BCH surpassed BTC's daily transaction totals, when BTC is at an all time high. The Bitcoin Cash community is demonstrating the power of an untainted Bitcoin network. So why are things so uncertain?
People aren't willing to admit BTC's lack of utility. It's not a judgment of BCH, it's an anti-judgment. They can't admit their valuations are speculative, that BTC isn't used for payments, that the network has serious issues. It's a "big numbers good," "dab on 'em, Elon!" sort of situation that feeds on memes and market caps, but utility doesn't care about that, it just does work.
The upper bound of BCH's Fair Value Uncertainty is right there next to BTC's fair value, which makes sense. They started out as the same coin, after all.
But one of them is doing it better, and honestly, we're just getting started.