Energy Value Reveals Historic BTC Undervaluation

Is bitcoin undervalued ? A key indicator, the “Energy Value” from Capriole Investments, estimates its “fair value” at 167,800 dollars, 45 % above its current price. Designed by Charles Edwards, this model is based on the energy power used by the network. The unprecedented gap it reveals revives the debate about the true valuation of the asset and the market’s ability to close this gap in the coming months.

The bitcoin “fair energy value” according to Capriole Investments

While the hash rate of the crypto queen approached a record , driven by mining that became profitable again, Charles Edwards said in a Thursday post on the social network X : “bitcoin should trade up to 167,800 dollars per unit if its price fully reflected its energy value.”

Founder of Capriole Investments and creator of this metric in 2019, Edwards reminds that his calculation relies on three elements: the energy consumed by the network, the supply growth rate, and a constant representing the dollar value of this energy.

According to him, the market massively undervalues the asset today, as the hashrate reached a new record at 1.031 zettahash per second on August 4, proof that the computing power committed by mining companies has never been higher.

Data from Glassnode confirms this trend :

• Average energy value : about 145,000 dollars according to the Simple Moving Average of the Energy Value ;

• Current price : around 116,000 dollars, about 31 % discount compared to this estimate ;

• Historical comparison : “we are today further from this value at 116,000 dollars than in September 2020, when bitcoin was worth 10,000 dollars”, stresses Edwards ;

• Recent trend : a drop of about 10 % since last month’s all-time high.

This finding reveals the growing gap between the robustness of the technical fundamentals and market behavior, increasing investors’ interest in this metric when analyzing bitcoin’s fair valuation.

Market signals and the shortened time horizon

Beyond the simple comparison between price and energy value, other indicators provide an optimistic reading for mining specialists. The “buy” signal from the Hash Ribbons metric, triggered at the end of July, remains in effect, indicating a favorable environment for profitability and continuation of mining operations.

“A constant energy supply represents a balance between supply and demand”, states Capriole Investments. Historically, a sustainable price increase encourages mining companies to increase their computing power, thus improving the network’s energy efficiency and strengthening the Energy Value over the long term.

This equation can, however, reverse if energy commitment decreases, for example in case of a drop in the hashrate. The calculated “fair value” would then fall, reducing the current gap with the market price.

Several analysts believe the current bull cycle would last only a few more months, leaving little time for bitcoin to close this gap. History also reminds us that when prices rise too quickly without a parallel increase in invested energy, it tends to return to its energy value, often abruptly.

The unprecedented gap between bitcoin price and its energy value highlights both the strength of its technical fundamentals and the uncertainty inherent in speculative dynamics. If the hashrate continues to rise, the scenario of a partial or full catch-up towards the “fair value” seems credible. However, the time frame mentioned by several observers also requires considering the opposite risk : that of a market unable to follow its own fundamental indicators before the current cycle ends.