Bitcoin is currently experiencing a period of sideways trading, with its price ranging between $25,500 and $26,500. This has left traders uncertain about the future direction of the asset. However, Charles Edwards, the founder of Capriole Investments, believes that Bitcoin’s current price presents a low-risk opportunity for long-term buying.
Edwards’ bullish stance is based on Bitcoin’s production cost and energy value. According to Capriole Investments’ energy value theory, Bitcoin has a fair value price of $47,200. Additionally, Edwards estimates a floor price of around $23,000 for Bitcoin based on its production cost, with a 100% hit ratio.
The trade offers a risk-reward ratio of 1:5, with the potential for even higher price targets. However, Edwards acknowledges that this assumption is based on the rally price stopping at fair value, which has not historically been the case for Bitcoin.
Edwards proposed the energy value theory in December 2019. The theory suggests that the fair value of Bitcoin can be estimated by the amount of energy it takes to produce it. This is based on the idea that the more work put into something, the more valuable it becomes.
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In 2023, the energy spent on Bitcoin mining has been increasing as mining companies expand their capacity and share of the hash rate in preparation for the halving in April 2024. Edwards argues that Bitcoin’s energy value reflects its fair value.
There is a strong correlation between Bitcoin’s energy value and its spot price, supporting the validity of the theory. However, there are limitations to this approach. Bitcoin’s energy value is not always accurate due to variations in mining energy efficiency over time. Additionally, other factors, such as market demand and supply, can also influence Bitcoin’s price.
Currently, Bitcoin appears to be primed for further downside. Spot liquidity data on Binance suggests that buyers are looking at the $24,600 level for support. However, the bullish momentum is fading as traders crowd around yearly lows and hope they will hold.
The liquidation levels of futures orders from CoinGlass indicate that buyers are anticipating a downside move to $24,600, with smaller liquidations extending toward $23,000. The price range between $25,000 and $25,500 has the most leveraged orders in high volumes, making them attractive targets for traders.
If the price drops to the $23,000 level, it will test the buyer’s conviction. A drop below $23,000 would target the support levels at $21,451 and $19,549 from 2022.
It’s important to note that this article does not provide investment advice or recommendations. Every investment and trading decision involves risk, and individuals should conduct their own research before making any decisions.
