The total market value of a currency, its "monetary base", is driven by two things, transactional demand and reservation demand.
1. Transactional demand - Daily transaction volume.
2. Reservation demand - Hoarding/long-term investment.
It is expected that with more merchant adoption the transactional demand would increase.
3. Hurdle rate - Rate of return required to compensate for the risks associated with holding Bitcoin. Yeah, technopolitical hurdles or backlash from a country can have an impact on Bitcoin's expected value.
Theoretically, the fair-market value of one BTC should simply be the dividend of its
predicted future monetary base (total market cap) and BTC in circulation, discounted by a "hurdle rate."
For further illustration, it might also help to consider how a venture capitalist could determine the net present value of an investment that he never expects to generate positive cash flows during his firm's investment period (e.g. a high-growth tech company that reinvests 100% of its earnings before it ultimate sells to Google). In the absence of earnings, that VC might look at revenue multiples to determine the company's terminal value, and then discount that figure by a rate of 40 to 60%.
With Bitcoin, the thinking is the same. Except Bitcoin's terminal value is actually its future monetary base.
This framework relies on assumptions only, but backed by Bitcoin having all the attributes of money, its scarcity and underlying technology.
A rational market price for something that is expected to increase in value will already reflect the present value of the expected future increases. In your head, you do a probability estimate balancing the odds that it keeps increasing.
http://www.investopedia.com/articles/investing/050914/easy-way-measure-bitcoins-fair-market-value-doityourself-guide.asp?Good post OP.
There are many similarities drawn between bitcion and gold. Are there parallels which can be drawn between methods utilized to calculate the fair value of gold (precious metals) and the fair value of crypto currencies due to both not being applicable to the typical Price/Earnings(P/E) model which many equities investors favor as a method of calculating valuation?
Here's another potential method for calculating a fair value for btc.
#1 Size estimate of current btc userbase : Current btc price.
#2 Expected size of future btc userbase : (Projected future btc price via proportion)
If the size of bitcoin's population doubles roughly every 12 months, that rate of growth could be relatively stable similar to how moore's law guidelines the number of transistors able to fit on a die double approximately every 24 months.
Not to imply that the price of btc should double annually. Some of the growth we're experiencing now could be due to btc being undervalued for a long time relative to the growth of its userbase.