Market Cap to Thermocap Ratio

Market Cap to Thermocap Ratio Indicator

The Market Cap to Thermocap Ratio indicator compares the BTC market capitalization to its thermocap, providing insights into market valuation relative to miner earnings and network security costs. This metric helps assess whether the asset is overvalued or undervalued compared to historical trends.

Steps to Use the Market Cap to Thermocap Ratio Indicator

1. Understand the Concept:

• Market Cap: Represents the total value of all circulating coins, calculated as price multiplied by circulating supply.

• Thermocap: Represents the cumulative sum of miner revenues (block rewards) since the network’s inception.

• Relevance: Highlights the relationship between market valuation and miner earnings, reflecting network sustainability and market cycles.

2. Interpret the Market Cap to Thermocap Ratio Indicator:

• High Ratio: Suggests the market cap is significantly higher than thermocap, potentially indicating overvaluation or speculative behavior.

• Low Ratio: Indicates the market cap is closer to thermocap, often reflecting undervaluation or accumulation phases.

• Trends Over Time: Analyze changes in the ratio to assess shifts in market sentiment and valuation.

3. Analyze Historical Patterns:

• Bull Markets: The ratio often peaks during bull runs, signaling potential overvaluation and increased speculative activity.

• Bear Markets: The ratio typically decreases, reflecting undervaluation and accumulation by long-term participants.

• Market Cycles: Changes in this ratio often align with significant turning points in market trends.

4. Make Decisions:

• During High Ratios: Consider reducing exposure or taking profits, as high ratios may signal market overheating.

• During Low Ratios: Evaluate accumulation opportunities, as low ratios often reflect undervaluation.

• Validate Market Sentiment: Use this metric alongside other indicators to confirm shifts in market valuation and sentiment.

Tips:

• Combine with On-Chain Metrics: Use alongside metrics like SOPR, realized cap, and supply for a holistic view.

• Monitor Historical Extremes: Pay attention to past high and low ratio levels to identify potential market cycles.

• Use Historical Comparisons: Compare current ratio levels with historical data to assess market valuation trends.

• Contextualize with Network Activity: Consider miner behavior and external events impacting thermocap.

How to Use the Indicator Effectively

• Assess Valuation Trends: Use the ratio to evaluate whether the asset is overvalued or undervalued compared to historical norms.

• Identify Market Cycles: Monitor changes in the ratio to detect transitions between accumulation, distribution, and speculative phases.

• Support Strategic Decisions: Incorporate insights from this indicator into portfolio management, trading strategies, and market analysis.

Created By Rafael Schultze-Kraft