Fundstrat Proposes New Way to Measure and Predict Bitcoin Price Movements Using the Breakeven Costs of Miners
Fundstrat Global Advisors is one of the best-known Wall Street names to declare support for cryptocurrency. Now, the company has proposed a new way to measure the value of bitcoin.
Fundstrat has proposed a new bitcoin metric called the Price / Miner’s Breakeven Cost, or P/BE. This metric is expected to help explain the current price of bitcoin while also predicting future price movements.
The metric was recently tweeted by the head of Fundstrat’s research division, Tom Lee. The metric itself, however, was created by Fundstrat’s Quantamental Strategist Sam Doctor (@fundstratQuant). Fundstrat announced the creation of the metric on May 10, with a whitepaper expected to appear online in the coming days or weeks.
CRYPTO: Our quant/data scientist @fundstratQuant publishing #bitcoin mining white paper. Crypto mining economics lead/explain $BTC price—suggests $39,000 per bitcoin by YE19. key takeaways below… pic.twitter.com/f5ZQ4py3jS
— Thomas Lee (@fundstrat) May 10, 2018
The technical metric is designed to accurately explain anticipated bitcoin’s price appreciation in the months ahead.
One of the most notable things about this metric is its price prediction for bitcoin. If the metric is accurate, then the price of bitcoin could rise as high as $64,000. Here’s how the metric was summarized:
“We believe the current path of hash power growth supports a BTC price of about $36,000 by 2019 year end, with a $20,000-64,000 range.”
Lee’s tweet links to the metric’s whitepaper. The metric is referred to as the “P/BE” metric, or the Price / Miner’s Breakeven Cost metric. Fundstrat’s research suggests that this metric is an important support level in terms of price.
Based on an annual historical P/BE average of x1.8, Fundstrat suggests that the price of bitcoin should be approximately $36,000 by the end of 2019, with a low point of $20,000 and a high point over $60,000.
Fundstrat’s announcement also mentioned things like the fact that the rising costs of electricity are slowing down “as the network becomes more efficient with new rigs coming to market.” That means higher hash power per watt and better efficiency for miners.
Fundstrat also explained that mining is increasingly concentrated in large-scale operations and that smaller miners need to join pools to stay competitive. This leads to better efficiency through economies of scale. It’s also usually cheaper to run one gigantic mining center as opposed to 10 smaller ones.
All of these factors lead to lower costs for miners, which means lower breakeven points. According to the P/BE metric, that means prices are expected to rise.
Will the Metric Work?
Fundstrat claims their metric will accurately predict the price of bitcoin over the coming years.
The community, however, isn’t so sure. Texas-based economist and investor Tuur Demeester, for example, tweeted that he was “skeptical” about using miner’s breakeven costs to identify a price floor in bitcoin because “mining activity responds to price, not vice versa.” He also emphasized that breakeven cost is a fluid concept.
I'm skeptical about using Mining Breakeven Cost to identify a price floor in Bitcoin: mining activity responds to price, not vice versa (also "breakeven cost" is a fluid concept). Look forward to reading the paper. https://t.co/mNzafhc1yq
— Tuur Demeester (@TuurDemeester) May 10, 2018
Nevertheless, Demeester maintained that he was looking forward to Fundstrat’s launch of the whitepaper in the future.
Fundstrat’s Thomas Lee quickly responded to Demeester promising to send him the whitepaper shortly and put him in touch with Sam Doctor, the creator of the metric, to explain the methodology further.
Is P/BE a valuable metric for bitcoin mining and the whole cryptocurrency industry? Or is the metric facing rightful criticism due to its “chicken before the egg” problem? Stay tuned for more information as the P/BE whitepaper prepares for release. Whenever the world’s leading quantitative strategists are getting involved with cryptocurrency analysis, however, it’s a good thing for the crypto world.