In the unpredictable world of cryptocurrencies, esteemed analyst Charles Edwards has made a bold assertion. He estimates Bitcoin‘s ‘fair value’ at a staggering $47K, much higher than its current trading value.
This fair value estimation comes from an ‘energy value metric’, a method Edwards proposed back in 2019. In simple terms, the theory posits that Bitcoins are valued by the amount of energy it takes to produce them. Under this lens, the more work that goes into mining a Bitcoin, the higher its intrinsic value should be.
No mathematical model is foolproof, and this fair value theory is no different. While there is strong correlation between Bitcoin’s energy value and spot price, this energy value is not always spot-on. The efficiency of mining energy can fluctify, skewing the resultant value of a Bitcoin.
Moreover, the model disregards market forces. It fails to take into account the interplay of demand and supply, and the future plans of miners – factors that can significantly alter Bitcoin’s price point. This omission casts a shadow of scepticism on the loftiness of the estimated fair value, perhaps making the current trading value seem less paltry.
In the world of trading, buyer sentiment is key. Data from Binance suggests that traders are setting their sights on the $24,600 level for support. Hopes are high for the yearly low levels to continue to hold, but a drop to $24,600 could deliver a blow to buyer conviction. If the price plummets further, hitting the 2022 levels of $21,451 and $19,549, all bets are off.
On the bright side, the production cost of a Bitcoin is estimated to provide a safety net of sorts. Edwards believes that this cost gives a floor price estimation of around $23,000 with a consistent 100% hit ratio. It is claimed this creates a low-risk long-term buying opportunity, but of course this depends on whether Bitcoin maintains its current bullish stance.
Between the fair value estimation and the fluctuating trading values of Bitcoin, the cryptocurrency is set to keep its followers on tenterhooks. It drives a compelling narrative of the unseen impact of mineable assets, but leaves us questioning whether Bitcoin’s high energy footprint is translatable to tangible returns.
Source: Cointelegraph
