Estimating the Fair Market Value of Bitcoin

Attempting to estimate the Bitcoin's Fair Market Value is tricky, as there are no hard fundamentals or hard assets backing BTC. Nevertheless, based on network activity and price, there are a few metrics that can help investors understand the price cycles of Bitcoin. This analysis covers the folloiwng metrics:

  1. Hashrate
  2. Bitcoin Net Unrealized Profit/Loss
  3. MVRV & MVRV-Z Score
  4. BTC Addresses with Balance ≥ $1M USD
  5. Bitcoin Miner's Rolling Inventory (MRI)
  6. Mayer Multiple
  7. Stock to Flow (S2F) Model
  8. A Strategic Approach to Bitcoin's Valuation



The more hashing power in the BTC network, the better its security and resistance to a potential attack. The BTC network hashrate is measured in hashes per second (H/s). The calculation involves mining difficulty and the average Bitcoin block time. These are some basic conclusions regarding the impact of hashrate:

  • The more BTC mining the higher the hashrate
  • If the difficulty of the Bitcoin network increases, the hashrate also increases
  • The higher the hashrate, the more secure the Bitcoin network
  • The higher the hashrate, the higher the 'fair' value of BTC



Bitcoin Net Unrealized Profit/Loss

‘Net Unrealized Profit/Loss’ is a metric based on the difference between Relative Unrealized Profit and Relative Unrealized Loss. It can also be calculated by subtracting the realized cap from the total market cap and dividing the result by the total market cap.

  • (Market Cap — Realized Cap) / Market Cap

‘Net Unrealized Profit/Loss’ calculates how much of Bitcoin’s circulating supply makes a profit or a loss - and to what extent. This is very useful for estimating if the Bitcoin market is close to a market top or bottom. Additionally, the metric can generate long-term trading signals:

  • Sell Signal: The market tops when unrealized profits top and unrealized losses bottom
  • Buy Signal: The market bottoms when unrealized profits bottom and unrealized losses top

Chart: Bitcoin Net Unrealized Profit/Loss

Bitcoin Net Unrealized Profit/Loss

The above chart from Glassnode summarizes BTC unrealized profits and losses in the same line:

-Each time the Unrealized Profit/Loss line exceeds 0.75 the BTC market is highly overbought

-Each time the Unrealized Profit/Loss becomes negative (below 0.00) the BTC market is oversold, and below -0.25 it is highly oversold




MVRV & MVRV- Z Score

Introduced by Murad Mahmudov & David Puell, the MVRV measures BTC network valuation by comparing market cap and realized cap:

  • MVRV = Market Cap / Realized Cap

The MVRV uses blockchain analysis to compare market value and realized value to identify overbought/oversold markets.

MVRV-Z Score

The MVRV-Z Score is a variation that was introduced by Awe & Wonder in 2018. The MVRV-z smooths MVRV results and offers a better view of Bitcoin's price cyclicity. MVRV-Z Score is calculated by dividing MVRV to the standard deviation of the market cap.

  • MVRV-Z Score= (Market Cap - Realized Cap) / (Standard Deviation of Market Cap)

Chart: MVRV-Z


The MVRV-Z indicates if the BTC market value is significantly higher or lower than the realized value. Historically, it has indicated market tops and bottoms:

  • Sell signal: MVRV-Z score is above 7
  • Buy Signal: MVRV-Z score is close to 0, or negative



Bitcoin: Addresses with Balance ≥ $1M USD

This metric from Glassnode measures the total number of unique addresses holding at least a value of one (1) million USD. In other words, it calculates how many Bitcoin millionaires are there.

Chart: Number of unique BTC addresses holding at least a value of $1M USD

Number of unique addresses holding at least a value of one million USD

In the above chart, we can see that there is a clear relationship between the BTC price and the number of BTC millionaires. However, we should treat any results with skepticism as:

  • The exchange rate of BTC/USD is a major determinant of the number of addresses holding at least a value of 1 million USD
  • Large investors tend to distribute their holdings in several addresses for risk-diversification purposes



Bitcoin Miner's Rolling Inventory (MRI)

Miners play a very important role in the price of Bitcoin. When a Bitcoin miner solves a block, he receives a reward in BTC, plus fees. This reward forms a newly minted-bitcoin that has never been spent in the past (new inventory). When this newly-minted Bitcoin is spent, it shows up as first-spend. Miner's Rolling Inventory measures the amount of Bitcoin held by BTC miners as inventory.

This is the MRI calculation:

  • Bitcoin 1st Spend (3-6 weeks) / Bitcoin Mined (3-6 weeks)


-If MRI is above 100%, miners sell more than they mine and their BTC inventory is running down

-If MRI is exactly 100%, miners sell all the BTC they mine and their BTC inventory remains untouched

-If MRI is below 100%, miners sell less than they mine and their BTC inventory is increasing

The impact of MRI on Bitcoin price:

  • According to ByteTree’s research (check below), a high MRI doesn’t put pressure on the price, it is reflective of a strong market bid that the miners are comfortable to sell into. And when that bid fades, the miners hold back and MRI falls. MRI is a useful tool for estimating BTC market health
  • If the MRI reading is too low, then Bitcoin price may be in trouble in the future, as there is a growing Miner's inventory that will be eventually sold



Mayer Multiple

Introduced by Trace Mayer, the Mayer Multiple aims to evaluate the price of Bitcoin in a historical context. The Mayer Multiple is the multiple of the current Bitcoin price over the 200-days moving average.

  • Mayer Multiple = BTC Price / 200 daily BTC moving average

The Mayer Multiple identifies historical areas where BTC becomes a tremendous investing opportunity (extremely low readings) or a speculative bubble (extremely high readings).

-The extreme lows of the Mayer Multiple indicate an oversold BTC market

-The extreme highs of the Mayer Multiple indicate an overbought BTC market


  • The extreme highs/lows Mayer Multiple indicate the potential of a strong long-term market reversal
  • The average Mayer Multiple since the creation of Bitcoin is 1.36 (as for June 2020)
  • Mayer Multiple above 1 is a general sign of a bull market (BTC price > 200 daily SMA), and below 1 is a general sign of a bear market
  • The exact level 1 for the Mayer Multiple indicates strong support/resistance for the price of BTC (as the 200 days daily MA is one of the most significant BTC moving averages)
  • According to Trace Mayer simulations, the best long-term BTC returns were achieved whenever the Mayer Multiple was below 2.4

In a historical context:

-Readings above 2.4 indicate an overbought BTC market

-Readings close to 0.50 indicate an extremely oversold BTC market




Stock to Flow (S2F) Model

Introduced in 2019 by Plan-B, the Stock to Flow Model is the most discussed Bitcoin valuation model. The S2F model calculates the production of new Bitcoins against the existing supply of Bitcoins.

The hypothesis of the S2F model is that scarcity drives value. Scarcity can be quantified by SF

  • SF = stock / flow


-Stock is the size of the existing Bitcoin’s coins supply

-Flow is the yearly Bitcoin mined production (number of blocks per month)

A higher S2F ratio means increased scarcity and it indicates that an asset is a good store of value. In the long-term, an asset with a high S2F ratio should appreciate at price.

Chart: Bitcoin’s S2F Model (source: Plan-B)

Bitcoin’s S2F Model

Bitcoin halvings play a key role in this model. Every four years the mining reward for adding a new Bitcoin block is cut in half, and that means new BTC supply is cut in half. Actually, the Bitcoin halving is not scheduled in particular calendar dates; it is scheduled in blocks. It happens every 210,000 blocks or roughly every four years:

  • 2009, January - Starting Block Reward 50 BTC
  • 2012, November Halving - New Block Reward 25 BTC
  • 2016, July Halving - New Block Reward 12.5 BTC
  • 2020, May Halving - New Block Reward 6.25 BTC
  • 2024 Halving - New Block Reward 3.125 BTC

The S2F model is designed to smooth out the impact of Bitcoin halvings.


A Strategic Approach to BTC Valuation

Classic models for the valuation of traditional asset classes such as equities and FIAT currencies cannot be applied to Bitcoin. BTC is a very unique asset as:

  • There is a lack of ‘hard’ fundamental data
  • There are no fixed annual returns such as dividends or interest rates
  • Basically, it’s a deflationary asset
  • The industry is found at a very early stage and adoption is currently limited
  • Bitcoin is built on top of a decentralized network, lacking centralized data-collection

Nevertheless, we can form mentally a basic model for the valuation of Bitcoin by incorporating four (4) major factors:

  • Technology (Current and future technological innovation, it includes necessity, scalability, and programmability)
  • Adoption (How many merchants and programmers support it, and how many people use it every day)
  • Supply (Circulating & total supply of coins)
  • Risk (Legislative and security risks, but also industry-related risks, and risks deriving from correlations with other asset classes)

The following formula illustrates a general valuation model for Bitcoin:

  • BTC Valuation = (Technology * Adoption) / (Supply * Risk)

The supply curve of BTC is known, therefore, BTC value is based on new technological innovation, adoption, and risk.




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G. Protonotarios for (c)


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