Posted on November 9, 2022
Yard Indicator Data Shows Bitcoin Is Extremely Undervalued
Since attaining its all-time high in November 2021, the price of Bitcoin has plummeted. However, the latest metrics show how the largest crypto asset is undervalued despite the recent market recovery.
According to the on-chain indicator, Bitcoin has recorded its second-lowest reading in history. This means that the current market value of the crypto asset is extremely low, considering the energy used to back up the network protocol.
In technical terms, the imbalance between the value needed to sustain the network and Bitcoin’s market price will determine the token value. Considering that the BTC hashrate is soaring, energy consumption is also at its highest, but the BTC is trading at its lowest.
Thus, the metrics suggest that the current assessment shows an undervalued digital asset.
The indicator aims to give investors the insights they need to evaluate the token without complex analysis tools properly.
The indicator adopts a simple formula by dividing the market capitalization of an asset by its hashrate and then streamlining data from more than two years to arrive at an answer.
Furthermore, the indicator operates in a similar pattern to the PE ratio. But in this case, Yardstick does not use stock earnings to calculate the valuableness of a product. Instead, it uses the ratio of energy utilized to secure the Bitcoin ecosystem in addition to the price.
The Absence Of Balance Affects Miners
Due to the amount of energy needed to stabilize the Bitcoin ecosystem, the value at which the coin is currently trading is nowhere near the power consumption ratio. Accordingly, the lack of objective evaluation has created a severe issue with the profits of individual miners and firms.
The economics of the Bitcoin mining industry is well documented. Miners struggle to purchase enough rigs to aid their activities, and manufacturers cannot fulfill orders in time.
The executive chairman of CleanSpark, Matt Schultz, noted that the United States alone has about 250,000 to 500,000 newly manufactured mining rigs that miners and firms have never used.
Similarly, the COO of mining services firm Luxor Technologies, Ethan Vera, puts the total number of new mining rigs globally at 276,000 as of September 2022. The exact number is unclear, but it is generally agreed that the economics at the center of crypto is highly unbalanced.
The reasons for this are not rocket science. The declining prices of Bitcoin and other crypto assets mean that members earn less than expected. However, miners’ costs are steadily rising due to rising energy costs.
Many industry players agreed that many unboxed mining rigs still exist. But the reasons they have yet to be installed are still unclear. Other experts believe there is not enough space for them at data centers.