Here’s why the fair price of Bitcoin is currently $42,000
The founder of Capriole Investments, Charles Edwards, in his latest tweet, has shared an assessment that Bitcoin is still significantly undervalued at its current price. The creator of the Hash Ribbons indicator and one of the leading chain model publishers stated that Bitcoin is currently trading at a 33% discount to its fair value.
“The symmetry of the Bitcoin cycle and its underlying data is something completely unique to Bitcoin. I suspect this is a property found only in tamper-proof assets, only Bitcoin,” Edwards wrote. The analyst provides a more detailed rationale in the Capriole Investments newsletter, which was obtained by NewsBTC.
According to the analyst, BTC’s real value is derived from Bitcoin’s energy value, which is calculated solely based on the energy used to secure the network. “A clean, simple equation that values Bitcoin solely on the watts of energy used to mine it,” says Edwards.
Currently Bitcoin Energy Value is $42,000 which means BTC is undervalued by 33%. Interestingly, both the price and hashrate have risen sharply since the beginning of the year.
Therefore, even though Bitcoin has increased by 70% since December, the relative value difference between price and energy value has decreased only slightly. According to Edwards, BTC is therefore currently undervalued at around $28,000 to the same extent that it was undervalued in December 2022, when the price traded below $17,000.
Edwards further stated that the current undervaluation phase is similar to the 2018 bear market where Bitcoin traded below its energy value for 285 days. Currently, BTC is already 298 days below its fair price.
The real value of Bitcoin has increased in line with the price. Bitcoin is worth $42,000 today based on energy value, and has seen a period of undervaluation comparable to the 2018 lows.
Bitcoin price rises due to organic demand
In the newsletter, Edwards also discusses that Bitcoin’s significant price increase since the collapse of the FTX scam in November 2022 has been driven by organic spot buying. Unlike previous rallies driven by speculators in the derivatives market, there is currently a much healthier price rally.
The ratio of derivatives to spot volume has never been lower since the widespread use of BTC perpetual swaps in 2018, according to Edwards, who draws two bullish conclusions from this. First, the price increase is caused by organic demand; second, “we’re incredibly early in this bull cycle.”
At press time, the BTC price was at $28,047. Yesterday, the price briefly fell by more than $1,000 on the rumor that Binance CEO Changpeng Zhao received an Interpol Red Notice, hitting a low of $27,207. The rumor has since been debunked as fake news by the CEO of the world’s largest crypto exchange.
Featured image from iStock, chart from TradingView.com
