Based on "Why every Fixed Income Investor needs to consider Bitcoin as Portfolio Insurance" by Greg Foss .

Part 3.5 provides a detailed explanation of how to use CDS to value Bitcoin. We made a few adjustments to the methodology:

1. To calculate the 20-year CDS, we apply a horizon premium/discount to the 5-year CDS. This value can be changed.

2. Unfunded liabilities are estimated by OpenAI's GPT-4 and might be inaccurate. This value can also be changed.

3. The recovery value of debt is set at zero. In case of default, we assume fiat currency becomes worthless, and what you receive is just worthless paper.

4. We are dividing the overall Bitcoin market cap by Bitcoin's total final supply of 21 million. This is a conservative assumption.

5. We calculate the probability of default at any point during the 20-year interval.

6. The probability of default is calculated using:

where S represents the spread, t represents the time (20 years), and R represents the recovery rate (zero in this case). Learn more here .

7. Only a selected number of countries are used in this analysis. It's important to note that the US has the largest impact on the model by far.

8. It's also very important to mention that this only prices the scenario of HARD default. That means countries really don't pay their debts. For some of these countries, like the US and Japan, the bulk of the debt is in their local currencies which means they have the option to print more money. Equivalent to a soft default via inflation. This scenario which is highly probable, is not encompassed in the above framework.