Bitcoin investors navigate an unpredictable landscape shaped by geopolitical shifts, institutional adoption, and macroeconomic trends. While market sentiment drives short-term volatility, fundamental analysis provides a framework to assess Bitcoin's long-term valuation. This guide explores five key metrics to determine whether Bitcoin is currently under or overvalued.
Why Fundamental Analysis Matters for Bitcoin
Fundamental analysis (FA) seeks to uncover an asset's intrinsic value by examining economic, financial, and qualitative factors. Unlike technical analysis, which focuses on price patterns, FA answers: "What is Bitcoin truly worth?"
Key challenges in valuing Bitcoin include:
- No cash flows: Unlike stocks, Bitcoin doesn’t generate dividends or revenue.
- Novel asset class: Traditional models (e.g., Discounted Cash Flow) require adaptation.
- Supply-demand dynamics: Scarcity (capped at 21 million BTC) and adoption rates drive value.
5 Fundamental Indicators to Assess Bitcoin’s Value
1. Stock-to-Flow (S2F) Model
Concept: Measures scarcity by comparing existing supply (stock) to annual production (flow).
Calculation:
S2F = Circulating Supply / Annual Production - Current S2F (2025): ~19.8M BTC / 164,250 BTC = 120.3
- Implied BTC Value: ~$117,219 (vs. current ~$80,606)
Interpretation:
- Higher S2F = greater scarcity = higher valuation.
- Post-2024 halving, reduced supply suggests Bitcoin is undervalued.
👉 Why Bitcoin’s halving events matter
2. Network Value to Transactions (NVT) Ratio
Concept: Bitcoin’s "P/E ratio" comparing market cap to transactional utility.
Formula:
NVTS = Market Cap / 90-Day Avg. Transaction Volume - NVTS > 40: Overvalued (price may correct).
- NVTS < 20: Undervalued (price may rise).
- Current NVTS: Neutral (~30), indicating fair valuation.
3. Thermocap Multiple
Concept: Values Bitcoin based on miner revenue (block rewards + fees).
Key Insight:
- High thermocap: Miners overpaid → potential correction.
- Low thermocap: Miners underpaid → price may rebound.
- Current: ~120 (mid-range), suggesting balanced valuation.
4. Market Cap/Realized Cap (MVRV)
Concept: Compares market cap to the "true" value of circulating supply (based on last move price).
Signals:
- MVRV > 3.5: Extreme overvaluation (sell signal).
- MVRV < 1: Undervaluation (buy signal).
- Current: ~1.8 (neutral).
5. Mayer Multiple
Concept: Tracks BTC price relative to its 200-day moving average (200DMA).
Thresholds:
- < 0.5: Strong buy zone.
- > 2.3: Sell zone.
- Current: 0.99 (trending downward).
FAQs: Bitcoin Valuation Fundamentals
Q1: Which indicator is most reliable for Bitcoin valuation?
No single metric is foolproof. S2F excels for long-term scarcity, while NVT tracks utility. Combined, they offer a holistic view.
Q2: Why does Bitcoin’s halving impact its value?
Halvings reduce new supply, increasing scarcity. Historically, this precedes bull markets (e.g., 2012, 2016, 2020).
Q3: How does institutional adoption affect Bitcoin’s fundamentals?
Inflows from ETFs/corporate treasuries boost demand, tightening supply dynamics. This reinforces S2F and MVRV models.
👉 Explore Bitcoin investment strategies
Key Takeaways
- Mixed signals: S2F (bullish) vs. NVTS (neutral) suggest divergent outlooks.
- Investor takeaway: Diversify analysis methods. Long-term holders may favor S2F; traders might prioritize NVT/MVRV.
- Actionable insight: Combine FA with technicals and macro trends for robust decision-making.
Disclaimer: This is not financial advice. Conduct independent research and consult a professional before investing.
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