Bitcoin will fundamentally change the way that investors value companies.
Upgrading monetary technologies is a radical paradigm shift that will leave many financial “experts” confused. Our current monetary system, the U.S. dollar, is based entirely on an ever-growing mountain of debt. In contrast, the Bitcoin monetary system is equity-based, with no counterparty risk and no dilution risk.
Once the world has completely embraced bitcoin as the superior monetary good, we will be living in a post-hyperbitcoinization world. Let’s experiment and see how a company will be valued using bitcoin as our unit of account or measuring stick of value.
Wyoming Red Ribeyes
The fictional company we will use for this example is Wyoming Red Ribeyes. It is a small cap, consumer staples, wholesale beef supplier that raises cattle and then sells premium beef to grocery stores in the U.S.
We will analyze this company with a discounted cash flow (DCF) analysis. Put simply, we attempt to predict the future cash flows the business will generate, and discount those cash flows to today’s value.
Two DCF models are created. One model is analyzing the company in a world where prices are driven by USD-denominated investors (today), and the other model is analyzing the company in a world where prices are driven by BTC-denominated investors (post-hyperbitcoinization).
USD-Denominated Model (Pre-Hyperbitcoinization)
Before we create the full model, we need to lay out our assumptions.
First, let’s assume the current variable cost per ribeye produced is $5, and the price that Wyoming Red Ribeyes sell it for is $10. Based on previous years’ sales, we expect 10 million ribeyes to be sold this year. Other expenses, including selling, general and administrative expenses, historically equal about 25 percent of annual revenue.
Additionally, we expect its unit costs to rise 2 percent per year (consumer price index inflation), and it will pass that on to its customers by raising our prices 2 percent per…