According to the Energy Value Metric, What Is Bitcoin’s True Price in Dollars?

• Bitcoin’s price continues to trade within a frustratingly narrow range of $25,500 to $26,500, leaving traders uncertain about the asset’s next direction.
• Edwards proposed the Energy Value Theory for Bitcoin in December 2019. According to the theory, Bitcoin’s fair value can be estimated based on the amount of energy expended to produce it.
• Clearing levels for Coinglass futures orders indicate that buyers anticipate a drop towards $24,600, with smaller liquidations extending down to $23,000.

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As Bitcoin price continues to trade in a frustrating range, Capriole Investments has taken observations on the energy value metric to investigate Bitcoin’s true value.

Energy Value Metric Reveals Bitcoin’s True Price

While Bitcoin’s price continues to trade within a frustratingly narrow range of $25,500 to $26,500, Charles Edwards, the founder of Capriole Investments, believes that Bitcoin’s current price presents a low-risk, long-term buying opportunity.

Edwards’ perspective is based on Bitcoin’s production cost and energy value. Capriole Investments’ energy value theory offers a fair value price of $47,200 per unit, and Edwards reiterated his bullish stance by stating that Bitcoin’s production cost suggests an approximate base price of around $23,000.

The risk-reward ratio for this trade is 1:5, with the potential for even higher price targets. However, Edwards noted that this is based on the assumption that the bullish price rise will stop at a reasonable value, which has never happened in reality.

Edwards proposed the Energy Value Theory for Bitcoin in December 2019. According to this theory, Bitcoin’s fair value can be estimated based on the amount of energy expended to produce it. The model assumes that the more labor is invested in something, the more valuable it becomes.

In 2023, the amount of energy expended in Bitcoin mining has increased as mining companies have upgraded their capacities and hash rates in preparation for the upcoming halving in April 2024.

According to Edwards, Bitcoin’s energy value reflects its fair value. Bitcoin’s energy value has shown a strong correlation with its spot price, indicating that the theory appears to be valid to some extent. However, the theory has some limitations.

One limitation is that Bitcoin’s energy value may not always be accurate due to changes in mining energy efficiency over time. Additionally, the theory does not take into account other factors that can affect Bitcoin’s price, such as the actions taken by miners leading up to the next halving.

Bitcoin appears to be heading further downward.

Bitcoin’s spot liquidity data on Binance indicates that buyers are looking for support around the $24,600 level. However, bullish momentum appears to be concentrating around yearly lows, with traders hoping that these levels will hold.

Clearing levels for Coinglass futures orders indicate that buyers anticipate a drop towards $24,600, with smaller liquidations extending down to $23,000. The price range between $25,000 and $25,500, in particular, has a high volume of highly leveraged orders, creating attractive targets for traders.

A drop to the $23,000 level will test buyer confidence. Falling below $23,000 will target levels from 2022 at $21,451 and $19,549.