Bitcoin’s price has been trapped in a narrow range between $25,500 and $26,500, leaving traders uncertain about its next move. Despite this, Charles Edwards, the founder of Capriole Investments, believes that the current price presents a low-risk opportunity for long-term buyers. Edwards bases his view on Bitcoin’s production cost and energy value.
Edwards introduced his energy value theory in December 2019, suggesting that the fair value of Bitcoin can be estimated by the amount of energy it takes to produce it. According to this theory, the more work put into something, the more valuable it becomes. In 2023, Bitcoin mining has seen a surge in energy consumption as mining companies increased their capacity and share of the hash rate, preparing for the upcoming halving in April 2024.
Based on the energy value theory, Capriole Investments gives a fair value price of $47,200 for Bitcoin. Additionally, Edwards states that Bitcoin’s production cost gives a floor price estimation of around $23,000 with a 100% accuracy rate. He believes that the risk-reward ratio for this trade is 1:5, with the potential for even higher price targets. However, Edwards acknowledges that this assumption relies on the rally price stopping at fair value, which has never been the case in reality.
While the energy value theory has shown a strong correlation with Bitcoin’s spot price, there are some limitations. One of them is the varying mining energy efficiency over time, which affects the accuracy of Bitcoin’s energy value. Furthermore, the theory does not consider other factors that can impact the price of Bitcoin, such as market demand and supply dynamics and miners’ actions leading up to the halving.
In terms of technical analysis, Bitcoin’s spot liquidity data on Binance suggests that buyers are eyeing the $24,600 level for support. However, bullish momentum seems to be waning as traders focus on the yearly low levels, hoping that they will hold. Futures orders liquidation levels from CoinGlass indicate that buyers anticipate a downside to $24,600, with smaller liquidations extending toward $23,000. Notably, the price range between $25,000 and $25,500 has the highest volumes of leveraged orders, making them attractive targets for traders.
If the price drops to the $23,000 level, it would test the conviction of buyers. A further decline below $23,000 could target the support levels from 2022 at $21,451 and $19,549. Traders should exercise caution and conduct their own research as investment and trading moves always involve risks.
In conclusion, Charles Edwards considers Bitcoin’s current price to be an attractive long-term buying opportunity based on his energy value theory. While the theory has its limitations, it has shown a correlation with Bitcoin’s spot price. Technical analysis indicates that buyers are looking for support around $24,600, but a drop below $23,000 could lead to further downside. Traders should be mindful of the risks involved and conduct thorough research before making any investment decisions.
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