May 15, 2024 - Economy

Charted: 📏 Bitcoin yardstick

The line chart shows the daily fluctuations in the ratio of Bitcoin's market cap to its hashrate from April 10 to May 13, 2024. The ratio experiences several peaks and troughs throughout the period, fluctuating between 1.7 and 2.4, indicating volatility in the relationship between Bitcoin's market value and computational power.
Data: Ycharts; Chart: Axios Visuals

Bitcoin's not expensive right now by one measure.

Zoom in: The bitcoin or hashrate yardstick is a metric used to determine whether the price of the world's largest digital asset is expensive or inexpensive.

  • ✌️ Generally, a ratio above 2 indicates a relatively more expensive BTC.

Between the lines: Think what the price-to-earnings ratio is for stocks.

  • Take the total market cap of bitcoin and divide by the hashrate (energy required to expand and secure the network).
  • When buying stocks, one generally wants to buy when P/E ratios are lower relative to history, or peer stock ratios, or the market or by whatever level some financial analyst deems appropriate.

Flashback: The metric was flashing a neutral signal in the first three months of the year, per Fidelity Digital Assets Q124 report, saying bitcoin was considered "cheap" for zero days in the quarter.

  • "This should be carefully considered because a higher standard deviation of the mean has historically preceded bull markets," according to that report.
  • The yardstick was at 3 or above right before the 2021 peak.

💭 Our thought bubble: Take it with a grain of salt.

  • 🔭 Per Wintermute chief Evgeny Gaevoy's observation: Charts, graphs and pattern-watching are just "astrology for men."
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