Sep 10, 2023

Bitcoin Energy Value Metric Suggests $47K Fair Price for BTC

Despite Bitcoin’sprice trading in a narrow range between $25,500 and $26,500, Charles Edwards, founder of Capriole Investments, believes the crypto asset presents a low-risk long-term buying opportunity. His bullish stance is based on Bitcoin’s production cost and energy value, which puts the fair value price at $47,200 and a floor price estimation of around $23,000…

Crypto Bitcoin energy value metric puts BTC’s ‘fair value’ at $47K — Analyst
Bitcoin energy value metric puts BTC’s ‘fair value’ at $47K — Analyst

Despite Bitcoin’sprice trading in a narrow range between $25,500 and $26,500, Charles Edwards, founder of Capriole Investments, believes the crypto asset presents a low-risk long-term buying opportunity. His bullish stance is based on Bitcoin’s production cost and energy value, which puts the fair value price at $47,200 and a floor price estimation of around $23,000 with a 100% hit ratio.

The crypto trade has a risk-reward ratio of 1:5, with the potential for even higher price targets, but Edwards cautioned that this assumption is based on the idea that the rally price “would stop at fair value, which it never has.”

Bullish energy value theory

Edwards proposed Bitcoin’s energy value theory in December 2019. According to the theory, the fair value of Bitcoin can be estimated by the amount of energy it takes to produce it.

The model assumes that the more work that has been put into something, the more valuable it is.

In 2023, the amount of energy spent in Bitcoin mining has been on the rise as mining companies increased their capacity and share of hash rate with the installation of new ASICs and by preparing for the halving in April 2024.

According to Edwards, the Bitcoin energy value reflects its fair value.

Bitcoin’s energy value has shown a strong correlation with Bitcoin’s spot price and this suggests that the theory is at least somewhat valid. However, there are some caveats to the theory.

One limitation is that Bitcoin’s energy value is not always accurate. This is because the mining energy efficiency can vary over time.

Additionally, the theory does not take into account other factors that can affect the price of Bitcoin, such as the market’s current demand and supply and the steps taken by miners ahead of the halving next year, as well as the impact of web 3.0 companies and current crypto on the crypto price.

Bitcoin looks primed for further downside

Binance’s spot liquidity data suggests that support may be found at the $24,600 level for Bitcoin. However, the bullish sentiment appears to be waning, as traders are huddling around the yearly low levels in the hope that they will hold.

CoinGlass’s futures liquidations levels indicate that buyers are expecting Bitcoin to fall to $24,600, with smaller liquidations targeting $23,000.

Notably, the $25,000-$25,500 range has the highest leveraged orders in very large volumes, making them attractive targets for crypto traders.

Should the price dip to the $23,000 mark, investors’ confidence will be tested. A drop below $23,000 would point to the $21,451 and $19,549 levels from 2022.

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