Bitcoin Yardstick measures Bitcoin’s market cap against the hash rate to determine its current valuation. A yardstick reading below 1 indicates that Bitcoin is currently cheap. Anything between 1 and 2 means that Bitcoin is presently risky. And finally, a reading of more than 3 suggests that Bitcoin is currently expensive.
Bitcoin is one of the most coveted cryptocurrencies on the market right now. However, it is also highly volatile. BTC is known to fluctuate wildly, and its historical performance corroborates this notion. In Nov 2021, Bitcoin hit an all-time high of $69,000, but just a year down the line, it is tattering at $18,000.
This combination of volatility and desirability has pushed several market experts to develop valuation methods for Bitcoin. This is because, dependable insights into BTC’s valuations can help market participants time their investments and enjoy higher profitability.
The latest entity to throw its hat into the valuation ring is Capriole Investments, an advanced Bitcoin and digital asset trading firm. On November 2, the firm announced a simple but helpful valuation method for Bitcoin. It is called the Bitcoin Yardstick and could be extremely helpful in timing the market.
But what is the Bitcoin Yardstick, how is it calculated, and what does it say about BTC’s current valuation? Tag along to find out.
What is the Bitcoin Yardstick?
The Bitcoin Yardstick is similar to the price-to-earnincgs (PE) ratio commonly used in traditional markets. The PE ratio allows us to calculate the company’s valuation by measuring its current share price against its earnings per share (EPS). Therefore, the PE ratio is the market value of a company’s share, divided by its earnings per share. Companies with a PE ratio below 20 are considered attractive investment opportunities.
Instead of stock earnings, the Bitcoin Yardstick measures Bitcoin’s market cap against the hash rate to determine its current valuation. Basically, the yardstick is Bitcoin’s market cap divided by its hash rate. The lower the resultant value, the more undervalued Bitcoin is, making for a better investment proposition.
A yardstick reading below 1 indicates that Bitcoin is currently cheap. Anything between 1 and 2 means that Bitcoin is presently risky. And finally, a reading of more than 3 suggests that Bitcoin is currently expensive.
What does the yardstick say about Bitcoin’s current price?
When Capriole Investments introduced the Bitcoin Yardstick on Nov 2, the firm announced that the largest cryptocurrency was highly undervalued at the time. In fact, the last time the Bitcoin Yardstick was so low was in 2017, when BTC was changing hands at $4,000.
“This means that on a relative basis, Bitcoin is extraordinarily cheap given the amount of energy being used on what is the most powerful computer network in the world,” said the founder of Capriole Investments, Charles Edwards, in a tweet. On the other hand, the Bitcoin Yardstick registered its highest values during the bull runs of 2013 and 2017, with scores of 3.55 and 4.44, respectively. Similar upticks were seen in 2021 too, but they were nowhere near the 2013 and 2017 spikes.
Conclusion
No one indicator can accurately estimate Bitcoin’s valuation or predict its future price movements. Charles Edwards himself cautioned investors that the Bitcoin Yardstick shouldn’t be taken as investment advice. Therefore, you should always do your own research and invest only as much as you can afford to lose entirely.
(Edited by : Anushka Sharma)
