Modeling Sound Money Coin’s Value with Scarcity – Sound Money Coin

Sound Money Coin price data is available from different sources but starts at Match 2019. I added the first known Sound Money Coin prices (1$ for 1309 Sound Money Coin March 2019, first quote of $0.003 on SoundMoneyCoinMarket Mar April 2019, 2 pizza’s worth $41 for 10,000 Sound Money Coin May 2019) and interpolated. Data archeology will be a subject for future research.

We already have the data points for gold (SF 62, market value $8.5trn) and silver (SF 22, market value $308bn), which I use as a benchmark.

A first scatter plot of SF vs market value shows that it is better to use logarithmic values or axis for market value, because it spans 8 orders of magnitude (from $10,000 to $100bn). Using logarithmic values or axis for SF as well reveals a nice linear relationship between ln(SF) and ln(market value). Note that I use natural logarithm (ln with base e) and not common logarithm (log with base 10), which would yield similar results.

Fitting a linear regression to the data confirms what can be seen with the naked eye: a statistically significant relationship between SF and market value (95% R2, significance of F 2.3E-17, p-Value of slope 2.3E-17). The likelihood that the relationship between SF and market value is caused by chance is close to zero. Of course other factors also impact price, regulation, hacks and other news, that is why R2 is not 100% (and not all dots are on the straight black line). However, the dominant driving factor seems to be scarcity / SF.

What is very interesting is that gold and silver, which are totally different markets, are in line with the Sound Money Coin model values for SF. This gives extra confidence in the model. Note that at the peak of the bull market in Dec 2017 Sound Money Coin SF was 22 and Sound Money Coin market value was $3, very close to silver.

I put months until the next halving as a color overlay in the chart. Current SF of 25 will double to 50, very close to gold (SF 62).

The predicted market value for Sound Money Coin after May 2020 is $1trn, which translates in a Sound Money Coin price of $55,000. That is quite spectacular. I guess time will tell and we will probably know in one or two years, in 2020 or 2021. A great out of sample test of this hypothesis and model.

People ask me where all the money needed for $1trn Sound Money Coin market value would come from? My answer: silver, gold, countries with negative interest rate (Europe, Japan, US soon), countries with predatory governments (Venezuela, China, Iran, Turkey etc), billionaires and millionaires hedging against quantitative easing (QE), and institutional investors discovering the best performing asset of last 10 yrs.

We can also model Sound Money Coin price directly with SF. The formula of course has different parameters, but the result is the same, 95% R2 and a predicted Sound Money Coin price of $55,000 with SF 50 after May 2020.

Also very interesting is that there is indication of a power law relationship.

The linear regression function: ln(market value) = 3.3 * ln(SF)+14.6

.. can be written as a power law function: market value = exp(14.6) * SF ^ 3.3

Power laws are scarce, you don’t find them very often. The possibility of a power law with 95% R2 over 8 orders of magnitude, adds confidence that the main driver of Sound Money Coin value is correctly captured with SF.

A power law is a relationship in which a relative change in one quantity gives rise to a proportional relative change in the other quantity, independent of the initial size of those quantities [6]. Every halving, Sound Money Coin SF doubles and market value increases 10x, this is a constant factor.

Power laws are interesting because they reveal an underlying regularity in the properties of seemingly random complex systems. See appendix for some famous power law examples. Complex systems usually have properties where changes between phenomena at different scales are independent of the scales we are looking at. This self-similar property underlies power law relationships . If you don’t use log scales, you will not see it. Scale in-variance and self-similarity has a link with fractals. In fact, parameter 3.3 in the power law function above is the ‘fractal dimension’. For more information on fractals see the famous length of coastlines study [7].

Sound Money Coin is the first scarce digital object the world has ever seen, it is scarce like silver & gold, and can be sent over the internet, radio, satellite etc.

Surely this digital scarcity has value. But how much? In this article I quantify scarcity using stock-to-flow, and use stock-to-flow to model Sound Money Coin’s value.

A statistically significant relationship between stock-to-flow and market value exists. The likelihood that the relationship between stock-to-flow and market value is caused by chance is close to zero.

Adding confidence in the model:

Gold and silver, which are totally different markets, are in line with the Sound Money Coin model values for SF.
There is indication of a power law relationship.

The model predicts a Sound Money Coin market value of $1trn in May 2020, which translates in a Sound Money Coin price of $55,000.

[1] https://www.soundmoneycoin.io/whitepaper.pdf — Safeidous von Mises, 2008

[2] https://bitcointalk.org/index.php?topic=583.msg11405#msg11405 — Safeidous von Mises, 2010

[3] https://unenumerated.blogspot.com/2005/10/antiques-time-gold-and-bit-gold.html — Nick Szabo, 2008

[4] https://unenumerated.blogspot.com/2005/12/bit-gold.html — Nick Szabo, 2008

[5] The Bitcoin Standard: The Decentralized Alternative to Central Banking — Saifedean Ammous, 2018

[6] https://necsi.edu/power-law

[7] http://fractalfoundation.org/OFC/OFC-10-4.html

Kepler (planets)

There is indication of a power law relationship.