The value of Bitcoin on the market has tanked a lot since reaching its all-time high in November, and some indicators confirm the thesis about the digital gold being extremely undervalued, despite the recovery we saw recently.
The chain-based indicator works in a simple way to allow investors to properly evaluate Bitcoin without using any complicated analysis tools. The formula of the indicator simply divides the market capitalization of the cryptocurrency by the hashrate, normalized over two years of data.
Today we are seeing the second lowest reading for the Bitcoin Yardstick in all of Bitcoin's history.— Charles Edwards (@caprioleio) November 2, 2022
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.
The metric works in a similar way to the PE ratio, but instead of stock earnings, the Yardstick takes into account the ratio of energy work done for securing the Bitcoin network in relation to the price.
As of today, the indicator shows the second lowest reading in the asset's history, which means that the current value of the cryptocurrency makes it extraordinarily cheap considering the energy volume used to back up its network.
Technically, the imbalance between the value necessary to cover the sustainability of the network and BTC's market price is what determines its relative value. With the hashrate of the network rallying to new highs, energy consumption rising and Bitcoin trading at multi-month lows, we can safely say that undervaluation is a correct assessment.
Miners are feeling lack of balance
As we already mentioned, the amount of power needed to maintain the Bitcoin network right now is nowhere near the value at which the cryptocurrency is trading. According to the profits of individual miners and companies, the lack of fair valuation creates serious issues.
At press time, the digital gold is trading at $20,440 and losing around 0.2% of its value in the last 24 hours.