Bitcoin may be cheaper than many investors realize, according to a popular energy-based valuation method. This approach measures the cost of electricity used by miners to produce each coin.
Mining Bitcoin requires powerful computers and large amounts of electricity. When energy costs are high, mining can become unprofitable. The energy-based valuation method estimates Bitcoin’s “fair value” by looking at these mining costs.
Capriole Investments, which uses this model, suggests Bitcoin should be priced around $175,400. The current price is about 70% lower, indicating the cryptocurrency may be undervalued. Historically, Bitcoin’s market price tends to align with mining costs within about 18 months.
The model works because Bitcoin’s mining difficulty adjusts automatically. When fewer miners are active, difficulty decreases, requiring less energy per block. When more miners join, difficulty rises. This balance links energy consumption to Bitcoin’s price over time.
However, this valuation is not perfect. Different assumptions about electricity costs or mining efficiency can lead to different results. Investors should treat these numbers as a guide rather than a guarantee.
Still, many analysts see this as a potential buying opportunity, especially for long-term investors. Bitcoin’s supply decreases every four years during “halving” events, which makes the coin increasingly scarce. Over the last three years, Bitcoin’s price has risen by 502%, showing the potential payoff for patient investors.
For those willing to hold through short-term fluctuations, using an energy-based approach may strengthen the case for accumulating Bitcoin today. Dollar-cost averaging and adding more during price drops are practical strategies to consider.
