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Thermocap Demonstrates Network Undervaluation: Bitcoin (BTC) On-Chain Analysis

Be[In] Crypto examines on-chain metrics for Bitcoin (BTC), notably the Thermocap ratio.

Bitcoin hashrate

The BTC hash rate is used to quantify the network’s computational power, referring to the amount of hashes created per second by all miners. The hash rate indicates how much processing power is being used to mine money.

Bitcoin’s hash rate achieved a new all-time high in mid-February, trading around $43,980.

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Market Cap to Thermocap Ratio

The market cap to thermocap ratio is an on-chain statistic for determining Bitcoin’s relative market worth in relation to miners’ collective security spend. In other words, the ratio represents the total number of coins paid to miners, and so indicates whether BTC is trading at a premium or discount to the total amount spent by miners. Bitcoin has a long history.

The “Thermocap” is the cumulative total of revenue in USD created by miners to secure the Bitcoin Blockchain over time — computed by adding the daily running total of miner revenue in US dollars.

In the past, values less than 0.0000004 (highlighted in green) have indicated market cycle bottoms. In contrast, values greater than 0.000004 (highlighted in red) denoted cycle peaks.

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Since March 2021, an unusual development in the indicator readings has occurred, as illustrated on the chart.

Since April through June, the marketcap to thermocap ratio has fallen precipitously, reaching a low of 0.00000113 on July 20. The BTC price was $32,000 at the time.

At the moment, the market capitalization to thermocap ratio is 0.000001. The BTC price, on the other hand, is close to $43,000.

According to the aforementioned indication, the current BTC price is significantly undervalued in comparison to the price in July 2021.

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Block subsidy model

The block subsidy model calculates Bitcoin’s cumulative cost of production. Following that, the sum of all block rewards is used to establish the miners’ maximum rational investment.

This is seen in the chart below by multiplying the Thermocap by its multiples.

Each BTC cycle high has historically occurred at the 64th multiple of the Thermocap (pink). According to prior patterns, once BTC reaches a multiple of 16, which corresponds to the current market cap (yellow), the subsequent decrease represents the corrective phase.

This was not the case in 2022, as the current high was just slightly higher than the 32 multiple (purple).

As a result, it is critical for the market cap to maintain above this line in order for the bullish trend to continue.

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Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

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