Bitcoin Has Never Been So Cheap, According to This Metric.
Bitcoin continues to test the resilience of its hodlers. The price drops easily and rises very reluctantly. Is it even possible to determine Bitcoin’s fair value?
Bitcoin remains one of the few coins that use the Proof-of-Work (PoW) mechanism.
PoW involves users solving complex computational tasks to add new blocks to the blockchain.
PoS allows users to validate transactions based on the number of coins they hold.
Thus, producing coins on the Bitcoin network requires performing real physical work. The amount of this work directly depends on the network’s power, known as the hash rate.
The right axis shows the hash rate in terahashes per second. We can see that the network’s power has increased several times compared to 2021, even though the current price remains in the same range.
Network difficulty directly depends on hash rate.
Mining difficulty is an indicator expressing how hard is it to solve a cryptographic problem to mine the next block and receive a reward.
Thus, the difficulty of mining has increased multiple times compared to 2021. But that’s not all. After the recent halving, the reward has been reduced by half (from 6.25 BTC to 3.125 BTC per block).
So, it is becoming increasingly difficult to earn rewards, while the price remains the same as it was three years ago. It would be interesting to find out how much less profitable mining has become compared to previous years
Luxor Technologies Group has combined several indicators to create a cumulative index. Bitcoin Hashprice Index — is a function of four inputs: network difficulty, Bitcoin’s price, block subsidy and transaction fees. It refers to the expected value of 1 TH/s of hashing power per day. The metric quantifies how much a miner can expect to earn from a specific quantity of hashrate.
Currently, the cost of miner power is around 4 cents per TH/day. At the peak of 2021, miners received 10 times more for the same power — 40 cents. In fact, throughout Bitcoin’s history, the price of miner’s power has never been so low. Even at the lowest points in 2022, when Bitcoin’s price dropped to $16,000, 1 TH cost 6 cents. Actually, miners are currently operating at the edge of break-even. Therefore, Bitcoin has a fairly fundamental price floor. However, as history shows, the price can temporarily break through this break-even level (I think everyone remembers negative oil prices in 2020).
As for our forecasts (see the article)
I don’t like a few aspects :
- During the last short-term rise, the model unexpectedly lowered the bullish rating. This is not what I would like to see for a strong, sustainable movement.
- Incredibly strong correlation with the stock market. This is where investors are currently walking on thin ice.
Well, good luck to everyone — the journey won’t be easy.
Traditionally
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