Bitcoin's fair valuation update
Last week was bloody. How did it line up with historical selloffs?
Dear readers,
Bitcoin plunged 30% in a couple days last week, marking the fourth near-80% drawdown from an all-time high in its short history.
In the depths of the bear market, less seasoned bitcoin investors ask themselves if it’s over forever, but we’re here to calm those nerves. With plunges below $30,000 and later $20,000 both swift and violent, nerves were certainly tested. In reality, a bitcoin price lower than $20k would represent an attractive valuation from a historical perspective, using a select few metrics. In recent posts, we have outlined our bitcoin Fair Valuation Framework (FVF)—a synthesis of three valuation techniques, each representing a rough price floor during bear markets.
Today, we’ll review each of these three valuation metrics, discuss our confluence price, and attempt to measure whether bitcoin is cheap on a relative basis.
Voltage helps you solve the biggest problem with Lightning nodes and scaling. No more headaches with maintenance, reliability, or uptime issues. Voltage makes running Lightning instant and now easier than ever. These radical improvements to Lightning empower startups and enterprise brands to bring incredible applications and services to market. You can also spin up a personal node and pay by the hour. Scale your infrastructure as fast as Lightning itself. Create a node in less than 2 minutes, just visit voltage.cloud.
Today’s topics
Observing the three floor models in our Fair Valuation Framework.
Oscillators show bitcoin is historically cheap.
Absolute bottom? Who cares. It’s about relative value.
FVF input #1: Realized Price
Realized Price has declined from the $24,000 range it held for 7 months.
Refresher: on-chain analysis allows us to observe the dollar price at which each slice of bitcoin’s 21 million coins last moved—dividing this value by the circulating supply gives us Realized Price. Realized Price is our cost-basis indicator, a buyer’s floor price.
When this level declines, coins are being moved at a lower price than when they were last moved, on average. The likely scenario here is that coins purchased around the $40,000 area (where bitcoin traded for much of the past year) that were taken off exchanges at the time are now being moved back on exchanges to be sold at a loss—a dynamic that is expressed alternatively by looking at the realized losses accumulating over the past couple months. Looking at the below chart, we can see this period of realized losses (which corresponds with a declining Realized Price) is the largest such display since the March 2020 capitulation: