Testing Stationarity: The Augmented Dickey-Fuller Test (ADF)

2. Valuation Logic: Discounted Cash Flow (DCF)

To understand the true fair value, we apply the Discounted Cash Flow (DCF) framework:

For Bitcoin, we adapt the traditional DCF by modeling network adoption as proxy “cash flows”:
– CF_t = Projected transaction fee revenue + implied store-of-value premium
– r = Required return reflecting Bitcoin’s risk premium (we use 15%)
– TV = Terminal value based on global M2 money supply penetration
This model is appropriate as it captures Bitcoin’s value accrual through network effects rather than traditional cash flows.

Python Implementation

For reproducible research, we use the following Python algorithm:

def calculate_dcf(cash_flows, discount_rate):
    pv = sum([cf / ((1 + discount_rate) ** (t + 1)) for t, cf in enumerate(cash_flows)])
    return pv

# Example usage with projected adoption metrics
btc_cashflows = [5000, 7500, 11250]  # $M in fee revenue
print(calculate_dcf(btc_cashflows, 0.15))
  

Interpretation: The code discounts projected network value accrual at Bitcoin’s risk-adjusted rate. Investors should view results as probabilistic scenarios rather than point estimates, given the asset’s non-fundamental drivers.