Bitcoin's market cap of approximately 12 Billion dollars is dwarfed by Visa's credit purchase volume of $981 billion for 2012.
I agree with you that bitcoin still has room to grow. But when it comes to calculate how high, why is it that the two numbers in the quotation above are comparable? Why do you choose Visa's credit purchase volume totaled over a year, as opposed to a month, a week, a day, a decade .... ?
Its true those two numbers are not directly comparable and that is a weak point of the article.
Even though I made the critique, I'm not sure how to fix it. It is the zillion dollar question: how do we calculate the target price of BTC? What variables do we need? I think the velocity of bitcoin needs to be a variable, and any estimate that does not have that as part of the calculation is suspect to me; that's as far as I've gotten
...Yeah and that is tough. The velocity of bitcoin is definitely a variable. But part of it will depend on the growth of bitcoin, how many new users are there, how many new ways are there to spend bitcoin, and from my understanding it is impossible to get figures for these.
I think it is clear that if the user base stayed static, bitcoin would be worth far less than 1000/btc. But bitcoin is just beginning to take off. There will be plenty of crashes along the way to a "fair value", but as long as bitcoin is growing fast the price should be going up rapidly. I am assuming on a few million people use bitcoin, and the number of potential users is in the hundreds of millions.