By Richard Edwards, Senior Lecturer in Financial Systems and Emerging Technologies
Bitcoin has long outgrown its early narrative as a speculative curiosity. While some still see it as digital gold or a tech novelty, those paying closer attention recognize something deeper: Bitcoin is becoming infrastructure—a neutral, open-source foundation for global value exchange.
When we assess fair value through that lens, the question changes. It’s no longer “What is Bitcoin worth in today’s market?” but rather, “What is the value of a protocol that enables borderless, censorship-resistant settlement?”
In this article, I’ll walk you through how we frame Bitcoin not just as a commodity or asset—but as a base layer protocol—and how our fair value model helps us measure its maturation.
🧩 Bitcoin Is a Monetary Network, Not a Company
Traditional asset valuation relies on future cash flows, revenues, or earnings. Bitcoin, by design, has none of those. It doesn’t produce yield. It doesn’t report quarterly. It doesn’t expand its balance sheet.
Instead, its value stems from:
- Its predictable, algorithmic monetary policy
- The security and costliness of its consensus mechanism
- Its ability to support settlement finality without trusted intermediaries
Much like TCP/IP underpins the internet, Bitcoin is becoming an invisible-but-essential protocol for programmable money. Its fair value must be assessed on the strength of its network usage and resilience.
🧠 Modeling Fair Value with Power Laws
At the core of our fair value methodology lies a power-law function, reflective of how decentralized networks grow. As adoption scales, the utility of the system doesn’t grow linearly—it compounds.
We apply a two-factor formula: FVt=A⋅Stα+B⋅DtβFV_t = A \cdot S_t^\alpha + B \cdot D_t^\betaFVt=A⋅Stα+B⋅Dtβ
Where:
- StS_tSt: Cumulative Bitcoin supply at time ttt
- DtD_tDt: Proxy for demand (e.g., active addresses, transactions, UTXO age distribution)
- A,B,α,βA, B, \alpha, \betaA,B,α,β: Empirical coefficients refined over historical epochs
This model reflects Bitcoin’s long-term value trajectory, driven by its scarcity schedule and network participation—not speculative cycles.
🔄 Infrastructure Layers Take Time to Be Recognized
In the early days of the internet, protocols like HTTP and SMTP were considered niche innovations. They weren’t widely valued—until entire industries emerged atop them. Bitcoin is undergoing a similar arc.
When we see the fair value curve diverge from market price, it often reflects temporal misalignment—between where the network is going and how the market currently perceives it.
As more developers, sovereign entities, institutions, and individuals build upon or adopt Bitcoin, the underlying infrastructure becomes more robust. That robustness, in turn, supports a higher fair value baseline.
📉 What Fair Value Can—and Can’t—Do
Let me be clear: this model is not a trading signal. It won’t tell you if Bitcoin will rise or fall next week. What it does offer is a framework to:
- Gauge maturity: Are we in a period of rational consolidation or euphoric overreach?
- Identify dislocations: When price strays too far from fair value, mean reversion often follows
- Anchor narratives: Amid hype cycles and media panic, fundamentals offer clarity
In a space prone to emotional extremes, that clarity is powerful.
🔐 Bitcoin’s Value Is in What It Replaces
Bitcoin doesn’t need marketing departments or lobbyists to grow. It grows because it replaces something costly, inefficient, or untrustworthy:
- Instead of a clearinghouse: use Bitcoin
- Instead of a capital control workaround: use Bitcoin
- Instead of trusting a third party to secure savings: use Bitcoin
Each of these use cases contributes to its fair value—quietly, incrementally, and irreversibly.
🔎 Final Thoughts
We don’t price bridges based on how many people walk across them in a single day. We value them based on what they enable over years. Bitcoin deserves the same treatment.
Fair value modeling, then, isn’t a gimmick. It’s a way of seeing the protocol for what it truly is: a monetary rail—growing stronger, more efficient, and more integral to the financial fabric of the 21st century.
As always, price may tell you what’s happening.
But fair value? That tells you why.
