Mayer Multiple is calculated by dividing the current price of Bitcoin by its 200-day moving average. This ratio highlights how the current price stands in relation to a historical average, offering a sense of whether Bitcoin is currently overvalued or undervalued from a recent historical perspective. A high Mayer Multiple indicates that the price of Bitcoin is significantly above its historical average, suggesting a potential overvaluation or speculative bubble. Conversely, a low Mayer Multiple could indicate that Bitcoin is undervalued.
Realized Price is derived by dividing the market capitalization by the total number of coins in circulation, but with a twist. Instead of using the current market prices, the realized price calculates the capitalization using the prices of each bitcoin at the time it last moved. Essentially, it reflects the average cost basis of all Bitcoin holders. This metric offers insight into the collective profitability of the Bitcoin market. A current price significantly above the realized price suggests that the majority of holders are in profit, which could lead to potential selling pressure as investors look to realize gains. Conversely, a current price close to or below the realized price indicates that many investors are at or near a loss, potentially setting a floor as selling pressure diminishes.
The HCB model uses both of these metrics to gauge the temperature of the Bitcoin market. By analyzing the Mayer Multiple, HCB assesses whether the market's current excitement is justified by historical price performance. Simultaneously, the Realized Price metric provides a reality check against the average investor's cost basis, offering clues about potential future behavior based on collective profit or loss.
The model's Price Indicator, ranging from -100 to 100, synthesizes these insights into a single figure. For example, a high Mayer Multiple alongside a significant divergence between current price and realized price might result in a high Price Indicator value, suggesting the market is overvalued and could soon correct. On the other hand, a low Mayer Multiple and a current price near or below the realized price might generate a low Price Indicator, indicating undervaluation and a potential upward price movement.
In essence, the Hype Cost Basis model equips investors with a sophisticated tool to navigate Bitcoin's volatile market. By grounding its analysis in the Mayer Multiple and Realized Price, HCB offers a balanced view that accounts for both historical pricing trends and the actual economic weight behind current market prices.