The CEO of the analysis company CryptoQuant explained how the fundamentals of the Bitcoin network could support a market capitalization three times higher than the current one.
Bitcoin’s Hashrate/Market Cap Ratio Could Reveal The Cycle’s Upper Limit
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BTC is a cryptocurrency that works according to the proof-of-work (PoW) consensus mechanism, which means that validators called miners compete with each other using computing power for the chance to add the next block to the blockchain.
Miners must pay constant electricity costs to manage this computing power. Generally, these chain validators do this by selling their rewards in bulk. These rewards are set in BTC value and distributed at a more or less constant rate, so the main variable in miners’ finances is the USD value of the asset.
The economics of mining are closely tied to the price of cryptocurrency. A central metric for miners is Hashrate, a measure of computing power that this group has plugged into the Bitcoin blockchain.
Below is a graph showing the trend of the 7-day average value of this BTC indicator over the last year.
The value of the metric appears to have decreased in recent days | Source: Blockchain.com
As the chart shows, Bitcoin Hashrate has been trending upwards during this period, largely due to the rally the asset’s price has enjoyed over this period.
To relate this fundamental parameter to the price of the asset, the CEO of CryptoQuant referred to the “Hashrate/Market Cap Ratio”, which is an indicator that tracks how the market capitalization (i.e. the total valuation) of the cryptocurrency compare with its Hashrate.
Here is the graph shared by Ju which shows the trend of this parameter in recent years:
It appears that the value of the metric has been at relatively low levels recently | Source: @ki_young_ju on X
The chart shows that Bitcoin’s Hashrate/Market Cap ratio has remained at low levels compared to the highs reached by the parameter during the 2021 bull run.
This is despite the asset’s price currently being at similar levels to what it was then. The reason for this trend is that the network Hashrate is now more than three times what it was then.
If the ratio is high compared to the peak of the previous cycle and the point at which the peak of the cycle will be observed this time too, it means that the market capitalization of the asset could increase more than three times compared to its current value.
Based on this, Ju suggests that the network’s current fundamentals could potentially support a price of $265,000.
Bitcoin price
At the time of writing, Bitcoin is trading at around $62,300, up more than 9% from last week.
It seems that the price of the coin has seen a decline in recent days | Source: BTCUSD on TradingView
Featured image by Kanchanara on Unsplash.com, CryptoQuant.com, Blockchain.com, chart by TradingView.com
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