Let’s talk about Bitcoin Thermocap. I know, this theory won’t be popular among my readers, but it is important to understand Bitcoin a bit more.

The relationship between market capitalization and Thermocap

Most people know what market capitalization is. When the price is multiplied by the supply to get the total value of all the tokens/coins/shares, a much lesser-known term is Thermocap (I won’t write the Lithuanian equivalent anymore, because it doesn’t sound like something).

Thermocap is calculated by taking the coin base transaction for each block and multiplying it by the price of the bitcoin at the time the new bitcoin was mined. Once you have done this, you can calculate the total network yield for the miners or, in other words, the total amount of all miners rewards.

Why is this important?

Calculating how much money the network pays out to the miners also calculates the total security budget of the network, since the miners are responsible for security.

And since security is essentially the backbone of Bitcoin, for which we pay a gas fee when we make a transaction, this measurement of the total cost of security is akin to measuring business revenue. Thus, both indicators act as a measure of consumer interest.

Comparing this with the total market value, we essentially get the equivalent of a price-earnings ratio in the chain, like the price-earnings ratio of traditional stock markets.

If a company is valued at USD 1 billion but only makes USD 50 000 a year, we would probably consider the company overvalued. Similarly, if bitcoins were trading at very high prices (e.g. BTC at $200 000 each) but the Thermocap (profit) is low, in which case bitcoins could be considered overvalued.

Now, as the latest graph shows, the mining business is still profitable. And while the miners have not gotten rid of #bitcoins recently, they did not get rid of them massively when BTC was worth more than $60k. The strange thing is that they often got rid of it when the price was almost at its lowest, but it’s easy to criticize after the fact.

According to the latest reports, the major Mainers are in a holding pattern, and the share prices of the world’s largest Mainers have started to recover after the recent downturn. Shares in Marathon Digital Holdings (which has not sold a single Satoshi in a year and a half), Riot Blockchain, Stronghold Digital Mining, and Hut 8 Mining are all trading at around 40% more than in January. However, equipment and other costs still must be paid for. If the yield on the exchange is around 30%, there is no pressure to divest. If the price of BTC falls further, there will be pressure. But where is the point at which the miner will sell everything? Either it won’t pay to mine bitcoins for a long time, or bitcoin will be very overvalued. Historically, only a few times (I counted 4) has the Thermocap curve been above the price of #BTC, everything seems to be going according to plan. The next halving is in 2024 and based on the same Thermocap theory, the price then should be around 100k. Let’s wait and see if that happens.