Here's why Bitcoin is undervalued

65
2
Here's why Bitcoin is undervalued

The average cost at which all current Bitcoin holders bought their coins is known as the average price. The digital currency provides a snapshot of the 'collective memory' of the market, capturing the price at which the last transaction of each Bitcoin took place. Determining Bitcoin's realized price is crucial as it provides valuable insights into the actual profitability of the market's participants. Like any metric, it's not without flaws. It doesn't account for lost and dormant coins, potentially skewing the estimate.

The Active-Investor Price, or True Market mean price, is a novel metric pioneered by ARK Invest in collaboration with Glassnode. This measure emphasizes the action of current market participants instead of relying on historical transactions. The average price at which Bitcoins were last transacted is calculated, based on only those coins that have changed hands within a defined period. The idea is to remove the influence of long-dormant coins and concentrate on recent market sentiment. As a result, the True Market Mean Price delivers a precise representation of the value at which active Bitcoin participants, who have actually participated in the market dynamics, have acquired their assets.

The True Market Deviation, which determines the ratio of Bitcoin's current spot price to the real market mean price, is constructed by utilizing this metric. The ratio is higher, resulting in a greater deviation from the average price paid by active investors. This metric can determine whether Bitcoin is currently overvalued or undervalued based on active market participation.

Glassnode's latest data sheds light on the importance of this deviation. In recent times, dips in the true market deviation below one have consistently correlated with price decreases. On the other hand, spikes above one have signaled bull rallies. When Bitcoin's spot price reaches the True Market Mean Price, it often indicate a market top, signaling a potentially good selling opportunity. When the price drops below this mean price, it has typically signaled a robust buying window.

Since the beginning of the year, the True Market Range for Bitcoin has experienced a slight surge, from $28,660 to $29,720. Bitcoin's price has remained above this level for just over 30 days throughout the year, despite the fact that its price has been at its highest for less than 30 days. With Bitcoin's surge above $27,000, the AVIV ratio has increased, reaching 0.928. At the time of writing, bitcoin's spot price is $27,590, largely below the true market mean price of $29,720.

Bitcoin may still be undervalued when considering the price when active market participants acquired their coins, despite the recent surge. It could hint at a potential upward movement in the near future, provided other market factors remain conducive.