Introduction to Bitcoin Valuation Models
Bitcoin's market price is just one way to measure its value. A deeper understanding comes from analyzing various price models that incorporate blockchain data and investor behavior. These models provide alternative perspectives on Bitcoin's valuation, helping investors make more informed decisions.
Core Bitcoin Price Models
Market Price
- Determined by exchange trading activity
- Susceptible to manipulation and emotional cycles
- Represents short-term sentiment rather than long-term value
Realised Price
👉 Discover how Realised Price works
- Calculated by Coinmetrics
- Reflects the last price at which each coin moved
- Provides an approximation of what the entire market paid for their coins
- Calculated by dividing Realised Cap by total coin supply
VWAP Price
- Volume Weighted Average Price developed by @icoexplorer
- Incorporates both market price and on-chain volume
- Offers a comprehensive view of market activity
NVT Price
- Created by Willy Woo
- Functions like Bitcoin's PE ratio
- Multiplies on-chain volume by 2-year median NVT Ratio
- Divides network valuation by coin supply for price adjustment
Experimental Valuation Models
CVDD Floor
- Based on Cumulative Value Days Destroyed
- Historically identifies market bottoms
- Works on the principle that old coin movement establishes new floors
Delta Cap
- Developed by David Puell
- Calculated as Realised Cap minus Average Cap
- Market bottoms often touch Delta Cap
Balanced Price
- Another David Puell creation
- Measures difference between paid (realized) and spent (transferred) prices
- Represents Bitcoin's "fair" valuation
Top Cap
- Average Cap multiplied by 35
- Historically matches market tops
Additional Valuation Metrics
Average Cap
- "Forever" moving average of Market Cap
- Cumulative sum of daily Market Cap divided by market age in days
Inflow Cap
- Tracks capital inflows into Bitcoin
- Cumulative value of all coins at mining price
Key Bitcoin Valuation Indicators
| Indicator | Purpose | Creator |
|---|---|---|
| NVT Ratio | Detect over/undervaluation | Various |
| NVT Signal | Long-range trading indicator | Various |
| VWAP Ratio | Identify tops/bottoms | @icoexplorer |
| MVRV Ratio | Under/overvaluation | Various |
| Mayer Multiple | Historical price movement | Trace Mayer |
| Difficulty Ribbon | Miner capitulation signals | Various |
Frequently Asked Questions
Why are there multiple Bitcoin price models?
Different models serve different purposes. Some track investor behavior, others measure network activity, while some identify market extremes. Together they provide a comprehensive view of Bitcoin's valuation.
Which price model is most accurate?
No single model is perfect. The Realised Price and NVT Price have shown strong correlation with market cycles, but smart investors consider multiple models together.
How often should I check these models?
For long-term investors, weekly or monthly checks suffice. Traders might monitor them daily. Major market movements often warrant closer examination of these metrics.
👉 Learn more about Bitcoin valuation
Conclusion
Understanding Bitcoin's various price models provides investors with valuable tools beyond simple market price. These models, combining technical analysis with blockchain fundamentals, offer deeper insights into market cycles and valuation.