Bitcoin Trading Near 'Fair Value,' According to On-Chain Analysis

An on-chain valuation model suggests that Bitcoin is currently trading around its "fair value," indicating it is neither overvalued nor undervalued.

Key Takeaways

An on-chain pricing model reveals Bitcoin is trading near fair value.
The valuation relies on three key metrics: Realized Cap, Liquid Supply, and Coin Days Destroyed.
Bitcoin's price remains stable and around $87,600, showing consolidation since its November low.
The On-chain Value Map indicates a neutral position for Bitcoin, with recent fluctuations remaining within expected valuation levels.

Bitcoin

Understanding Bitcoin's Fair Value with On-Chain Metrics

In a recent post on social media platform X, cycle analyst Root provided insights into Bitcoin's market valuation through the On-chain Value Map. This model uses three essential on-chain metrics: Realized Cap, Liquid Supply, and Coin Days Destroyed.

What Is Realized Cap?

The "Realized Cap" is a model that estimates Bitcoin's total market value by considering the last transaction price of each token still in circulation. Essentially, it reflects how much capital has collectively been used by investors to acquire Bitcoin.

Exploring Liquid Supply

The "Liquid Supply" metric tracks the Bitcoins held by investors who frequently trade their assets. This portion of the supply is more likely to re-enter the market compared to coins that are held for the long term ("HODL'd").

Coin Days Destroyed Explained

"Coin Days Destroyed" (CDD) measures the total number of coin days that are reset across the Bitcoin network. A coin day is accrued with 1 BTC after it remains inactive for one day. When a Bitcoin with accumulated coin days is sold or spent, those days reset to zero, effectively "destroying" them.

The CDD metric allows for identifying trends where long-term holders are selling their assets. These investors, often referred to as "diamond hands," typically have significant coin days that, when destroyed, indicate a potential market shift.

On-Chain Value Map Insights

Below is the On-chain Value Map shared by Root, which visually represents the combined data from these key Bitcoin indicators to establish various valuation points:

Bitcoin On-Chain Value Map

As shown in the graph, Bitcoin briefly surpassed the "overvalued" threshold during its peak price in October. Since then, the price has decreased, returning to the level that aligns with the model's "fair value." This suggests that Bitcoin's current value is relatively balanced.

Current Bitcoin Price Trends

Since reaching its low point in November, Bitcoin has been consolidating, with its price stabilizing near the fair value indicated by the On-chain Value Map. As of now, Bitcoin is trading around $87,600.

Bitcoin Price Chart

The price trend over the last five days illustrates the coin's movement, remaining consistent with its fair value analysis.

This dual approach of utilizing on-chain metrics provides valuable insights into Bitcoin’s trading status, assisting investors in making informed decisions.