Bitcoin Price Reaches Fair Market Valuation, While Costs of Production Rise

Tony "The Bull" Severino

1 year ago

3 mins read

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Bitcoin price may be dropping deeper into a downtrend over the course of the last few months, but the first-ever cryptocurrency is actually much closer now to fair market value than it has been throughout the year.

However, as Bitcoin price falls toward fair valuations, the cost of production rises exponentially, and may be part of the cause of the downtrend itself.

Bitcoin Price Valued Fairly At Current Levels, According to New Data

Chartered financial analyst and staunch Bitcoin supporter Timothy Peterson has shared various metrics from crypto data aggregator CoinMetrics related to the leading cryptocurrency by market cap.

According to the analyst, Bitcoin is currently trading at prices that would be considered “fair” for the cryptocurrency. Prices have fallen back toward levels of fairness, after spending much of 2019 soaring higher than the fair market valuation of what Bitcoin should be priced at.

Nearly all of my metrics indicate #bitcoin is fairly valued at current levels. I will be posting different metrics throughout the next several days. All data is from @coinmetrics. All my models are based on published research at https://t.co/utY4posQfw $BTC pic.twitter.com/kEJ4G085cc

— Timothy Peterson, CFA CAIA (@nsquaredcrypto) December 18, 2019

Following the crypto asset bottoming out at fair prices around $3,100 at the start of the year, Bitcoin’s parabolic rally took the cryptocurrency beyond its fair price, but nowhere near as overvalued as it was during the crypto hype bubble in late 2017, or even its value during the 2018 bear market.

It wasn’t until Bitcoin bottomed at $3,100 that the cryptocurrency reached fair value, and prior to that, it was 2016 before the crypto bull market really began. At the height of the bubble, Bitcoin reached valuations 1,000% higher than what it should have been.

But even though crypto prices are falling toward fair valuations, the cost of producing each BTC continues to rise.

Rising Costs of BTC Production Causing Crypto Miners to Capitulate

According to a chart shared by digital asset analyst Charles Edwards, who has developed a tool that plots production costs onto Bitcoin price charts on TradingView, the price per BTC has begun to fall below the cost of production, causing miners to capitulate en masses, which could be in part responsible for the recent downtrend in crypto markets.

I have built a live open-source indicator to plot Bitcoin's Production Cost in TradingView.

This is the definition of a miner capitulation.

The average miner globally is not operating at a profit.

Article: https://t.co/dgij9rGu9k

Indicator: https://t.co/rNqgLM1ovp

— Charles Edwards (@caprioleio) December 19, 2019

With Bitcoin’s halving in May set to reduce the block reward crypto miners receive in BTC by half, the cost of production could double overnight. How this may impact the market is anyone’s guess, but it could cause extreme selling by capitulating crypto miners, rather than pushing up the price of the scarce digital asset as many others are expecting to happen.

Bitcoin price is currently trading at roughly $7,150, a couple of hundred dollars less than the cost to produce each BTC. Interestingly, the fair market valuation metric also appears to coincide with of producing each Bitcoin.

Featured image from Shutterstock

Tony "The Bull" Severino

Tony "The Bull" Severino, CMT, is a distinguished figure in the cryptocurrency analysis sector, renowned for his in-depth technical expertise and innovative approach to market trends. As the Head of Research at NewsBTC, Tony leads a team dedicated to providing cutting-edge insights and forecasts, helping both novice and experienced traders navigate the complexities of the crypto market.
A seasoned Chartered Market Technician, Tony's prowess in identifying and capitalizing on market patterns is unmatched. His academic and professional journey in market analysis has firmly established him as a leading authority in technical trading strategies. Tony’s approach is heavily influenced by the principles of Elliott Wave Theory, a method known for its rigorous assessment of investor psychology and price movements.

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Before his ascent in the financial analysis world, Tony honed his skills in journalism. His background in this field has endowed him with a unique ability to present intricate market dynamics in a clear and compelling manner, making his insights highly sought after by a broad audience that ranges from casual readers to professional traders.
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In summary, Tony "The Bull" Severino, CMT, is more than just a technical analyst; he is a mentor, educator, and innovator whose influence in the cryptocurrency space continues to grow. His dedication to advancing the understanding of market forces and his commitment to providing high-quality, reliable analysis make him a pivotal figure in the world of cryptocurrency trading.