The Bitcoin Benchmark and How It Helps in Determining Btc Values
Bitcoin Yardstick measures Bitcoin’s market value against its hash rate to determine its current valuation. A scale below 1 indicates that Bitcoin is currently cheap. Anything between 1 and 2 means Bitcoin is currently risky. And finally, a reading of more than 3 suggests that Bitcoin is currently expensive.
Bitcoin is one of the most sought-after cryptocurrencies on the market right now. However, it is also very volatile. BTC is known to fluctuate wildly and its historical performance confirms this notion. In November 2021, Bitcoin reached an all-time high of $69,000, but just a year later, it is $18,000.
This combination of volatility and desirability has pushed several market experts to develop valuation methods for Bitcoin. This is because reliable insight into BTC’s valuations can help market participants time their investments and enjoy higher profitability.
The latest entity to throw its hat into the valuation ring is Capriole Investments, an advanced Bitcoin and digital asset trading firm. On November 2, the firm announced a simple but useful valuation method for Bitcoin. It’s called the Bitcoin Yardstick and can be extremely useful when it comes to timing the market.
But what is Bitcoin Yardstick, how is it calculated, and what does it say about BTC’s current valuation? Join us to find out.
What is the Bitcoin Benchmark?
The Bitcoin Yardstick is similar to the price-to-earnings (PE) ratio commonly used in traditional markets. The PE ratio allows us to calculate the company’s valuation by measuring the current share price against earnings per share (EPS). Therefore, the PE ratio is the market value of a company’s stock divided by earnings per share. Companies with PE ratios below 20 are considered attractive investment opportunities.
Instead of stock earnings, Bitcoin Yardstick measures Bitcoin’s market cap against its hash rate to determine its current valuation. Basically, the measure is Bitcoin’s market value divided by the hash rate. The lower the resulting value, the more undervalued Bitcoin is, making for a better investment proposition.
A scale below 1 indicates that Bitcoin is currently cheap. Anything between 1 and 2 means Bitcoin is currently risky. And finally, a reading of more than 3 suggests that Bitcoin is currently expensive.
What does the benchmark say about Bitcoin’s current price?
When Capriole Investments introduced Bitcoin Yardstick on November 2, the firm announced that the largest cryptocurrency was severely undervalued at the time. In fact, the last time the Bitcoin Yardstick was this low was in 2017, when BTC changed hands at $4,000.
“This means that on a relative basis, Bitcoin is extraordinarily cheap given the amount of energy used on what is the most powerful computer network in the world,” Capriole Investments founder Charles Edwards said in a tweet. On the other hand, the Bitcoin Yardstick recorded its highest values during the bull runs of 2013 and 2017, with scores of 3.55 and 4.44 respectively. Similar increases were seen in 2021 as well, but they were nowhere near the peaks of 2013 and 2017.
Conclusion
No indicator can accurately estimate Bitcoin’s valuation or predict future price movements. Charles Edwards himself warned investors that Bitcoin Yardstick should not be taken as investment advice. Therefore, you should always do your own research and invest only as much as you can afford to lose completely.
(Edited by : Anushka Sharma)
