Bitcoin prices have stopped their free fall, and they are bouncing off the previous cycle’s peak. Now returning above the $22,000 at the time of writing. It could be undervalued!
The bitcoin prices have lost a whopping 26% over the last few weeks and 18 month low of $20,193 on June 15. Since then, it is gaining a little composure. Even though the price is returning to $22,344. However, the asset remains in the doldrums, down 67% from its all-time high.
The director of the Global macro at the investment giant Fidelity, Jurrien Timmer, has been looking into the price-earnings ratio (P/E) for Bitcoin. Since it is not a company, this equates to a price/network ratio.
Furthermore, according to the charts, the ratio has returned to similar levels during the cycle peaks of 2013 and 2017. Fidelity summarized the situation by introducing that valuation is often more important than the price”.
Bitcoin Price and Valuation
Usually, a P/E ratio is used in conventional finance to value the company by measuring the present share price that is relative to its earnings per share. However, this doesn’t work for the crypto, so the price usually gets measured against the network activity.
The same way of looking at it is the network to value the ratio of the transaction (NVT) as depicted by technical analyst Willy Woo.
Also, Timmer added that another way to highlight it is by overlaying Bitcoin’s non-zero addresses against its price.
Flow model, he then showed how oversold the asset was at the moment. Bitcoin has not been this oversold since the capitulation events in 2011, 2014, and 2018.
This could be an indication that we are very close to the bottom of this market cycle. Also, this week’s massive selloff may have been the final flush-out.
Final Miner Capitulation For the Bitcoin Miners
There is one additional factor that could cause a final leg down, similar to the one in the 2018 market crash – Bitcoin miners.
Miners have been moving BTC to exchanges at record levels this week. CoinMetrics also reported that there was an all-time high in dollar terms with a net $1.94 billion worth of BTC sent to exchanges yesterday. This equated to a record 88,000 coins in just one day.
Miners need to offload the asset to cover their increasing power expenses and remain in business for the crypto winter. This mass liquidation could cause another big dump, echoing the over 80% drawdowns that occurred in previous cycles.
If this happens, Bitcoin prices could realistically fall to around $12,000 very quickly, which would mark an 82% retreat from peak levels. Castle Island Ventures partner, Nick Carter, explained the forces behind this miner liquidation event in a recent tweet.
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