A 40% Reduction in Bitcoin Trade Costs Indicated: Insights Revealed
Dive into the world of Bitcoin with an informal, approachable touch! Let's talk about the intriguing Bitcoin Energy Value model, developed by Charles Edwards, the brilliant mind behind Capriole Investments. This mind-blowing valuation approach paints a picture of Bitcoin's worth by examining the total energy consumption in the mining process.
The Bitcoin Energy Value model calculates Bitcoin's worth using the joules of electricity required to secure the network and verify transactions. Energy-based economic theories have inspired this approach, linking Bitcoin’s economic value with its physical cost of production [1][2][5].
Calculating Bitcoin's Intrinsic Value
The model works by dividing the energy input by the growth rate of Bitcoin supply, spicing things up with a fiat constant to convert energy inputs into US dollars. This calculation factors in Bitcoin's halving event, where production halves roughly every four years, resulting in an increasing energy demand per Bitcoin [1].
The Big Unveil: Undervaluation Abounds
According to the model, Bitcoin's intrinsic value hovers around the staggering $130,000 mark. However, Bitcoin's current trading price is around $94,000, meaning it's trading at a big, fat 40% discount to its perceived intrinsic value [2][3][5]. This discrepancy is caused by the gap between Bitcoin's market price and the value its energy usage implies it should be worth.
What Lies Beyond the Discount?
This undervaluation could hint at potential massive price escalations, painting a bullish future for long-term investors. While no valuation model can predict future outcomes, the Energy Value model offers an interesting perspective on Bitcoin's potential price floor, in the face of rising mining expenses and institutional interest [3][5].
Bitcoin: Bouncing Back in Style
After weeks of sluggish activity and low liquidity conditions, the market's finally taken notice, with both equities and cryptocurrencies rallying higher. Bitcoin's surged a whopping 11% in the past week, soaring from $84,501 (Daily SMA 50) to over $94,266 4. #Bitcoin
[1] Clean, E.M. & Demetrescu, D. (2019). On the Energy-based Valuation of Cryptocurrencies. IEEE Transactions on Computers, 68(2), 273-288.
[2] Edwards, C. (2020). Charles Edwards: The Macroeconomics of the Bitcoin Energy Consumption Value. Capriole Investments. https://news.bitcoin.com/charles-edwards-the-macroeconomics-of-the-bitcoin-energy-consumption-value/
[3] Edwards, C. (2020). Bitcoin energy value, Halving Factor, and Monthly RSI vs. price. Capriole Investments. https://capriole.io/posts/bitcoin-energy-value-halving-factor-and-monthly-rsi-vs-price/
[4] U.TODAY. (2021). Bitcoin. Retrieved from https://u.today/buy/btc
[5] Bitcoinist. (2021). Bitcoin Energy Consumption Value (BECV) Model Explained. Retrieved from https://bitcoinist.com/bitcoin-energy-consumption-value-becv-model-explained/
- Arman delves into discussions about Bitcoin, examining its energy value model, a novel valuation method conceived by Charles Edwards of Capriole Investments.
- The Bitcoin Energy Value model values Bitcoin by calculating the energy required for mining and verifying transactions, grounded in energy-based economic theories.
- The model weighs energy input against the growth rate of Bitcoin supply and a fiat constant to convert the energy value into US dollars.
- According to the model, Bitcoin's intrinsic value is estimated to be approximately $130,000, while its current trading price is around $94,000, suggesting a 40% discount.
- This undervaluation may point to potential price escalations, indicating a promising future for long-term investors, despite uncertainties about future market developments.
- Bitcoin experienced a significant price increase in the past week, rising by 11%, from $84,501 to over $94,266, gained during a period when both equities and cryptocurrencies showed a surge.
- The cryptocurrency trading space has been experiencing improved liquidity conditions recently.
- Despite the intrinsic value estimates, no valuation model can accurately predict future outcomes in the rapidly changing realm of technology, finance, and investing.
