Bitcoin (BTC) price is trading in a frustratingly tight range between $25,500 and $26,500, leaving traders unsure of the asset’s next direction.
However, Charles Edwards, founder of Capriole Investments, believes that Bitcoin’s current price presents a low-risk long-term buying opportunity. Edwards’ view is based on Bitcoin’s production costs and energy value.
Capriole Investments’ energy value theory gives a fair value price of $47,200, and Edwards reiterated his bullish stance, saying Bitcoin’s production costs give a floor price estimate of around $23,000, a 100% hit rate.
The deal has a risk-to-reward ratio of 1:5, with the possibility of a higher price target, but Edwards added that this was based on the assumption that price increases would stop at fair value, which has not been the case. “
My favorite Bitcoin chart right now. Relative distance between Bitcoin price, historical price floor (Bitcoin electricity cost), and fair value (Bitcoin energy value). Assuming there is no hype, and that the price will stop at fair value, the risk reward ratio is 5:1, which is not the case. pic.twitter.com/J2yuGcNX9q
— Charles Edwards (@caprioleio) September 7, 2023
Bullish Energy Value Theory
Edwards suggested Bitcoin’s Energy Theory of Value, December 2019. According to the theory, the fair value of Bitcoin can be estimated by the amount of energy required to produce it.
The model assumes that the more work that goes into something, the more valuable it is.
In 2023, the amount of energy consumed by Bitcoin mining has been increasing as mining companies increase capacity and share of computing power by installing new ASICs and prepare for the upcoming halving in April 2024.
Edwards believes that Bitcoin energy value reflects its fair value.
The strong correlation between Bitcoin energy value and Bitcoin spot price suggests that the theory is at least partially valid. However, the theory has some caveats.
One limitation is that Bitcoin’s energy value is not always accurate. This is because mining energy efficiency changes over time.
related: Cambridge Bitcoin Power Consumption Index Updated to Reflect Hardware Distribution and Hashrate Growth
Furthermore, the theory does not take into account other factors that could affect the price of Bitcoin, such as the current demand and supply in the market, and the actions taken by miners ahead of next year’s halving.
Bitcoin appears poised for further declines
Bitcoin spot liquidity data on Binance suggests buyers are looking for support at $24,600. However, the bullish momentum appears to be fading as most traders are clustered around the yearly lows and hope those levels will hold.
The level of liquidation of futures orders on Coinglass showed buyers expecting a drop to $24,600, with smaller liquidations closer to $23,000.
Notably, orders in the price range between $25,000 and $25,500 have the highest leverage and very high volumes, making them popular targets for traders.
Buyers’ confidence will be tested if the price falls to the $23,000 level. A break below $23,000 targets the $21,451 and $19,549 levels from 2022 onwards.
This article does not contain investment advice or advice. Every investment and transaction involves risk, and readers should do their own research when making a decision.
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