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This article will examine the Bitcoin Top Cap Model — a popular on-chain data source that calls for $200K BTC before 2024.
What is the Bitcoin Top Cap Model?
The Bitcoin Top Cap model is used to predict the top bitcoin price for a given bull market cycle.
Top Cap is calculated by multiplying the lifetime moving average cap of Bitcoin by an arbitrary multiple of 35.
The model was proposed in 2019 by Willy Woo and David Puell — two of the earliest pioneers of on-chain analysis.
If the cyclical nature of bitcoin’s price persists, the Top Cap Model predicts that bitcoin will reach a price of around $200,000 in the current cycle.
How to Calculate the Bitcoin Top Cap Model
Calculating the Bitcoin Top Cap is rather straightforward, as seen below:
Top Cap = Average Cap * 35
The Average Cap is equal to the cumulative sum of daily Market Cap values divided by the age of the market in days.
Average Cap can be thought of as the “forever” moving average of Market Cap, and its value is freely available on several on-chain data platforms.
The factor of 35 was arbitrarily chosen because it was the multiple that best fit cyclical tops.
Chart of the Bitcoin Top Cap Model & Analysis
Here’s a lifetime chart of the Bitcoin Top Cap model:
The red line, which is the Top Cap, has caught each of the last four market cycles tops:
Let’s zoom in on the 2017 blow-off top and see how the Top Cap did:
As of this writing, Bitcoin’s Average Cap sits around $107 billion. Multiplying that by 35 results in a Top Cap of $3.761 trillion, equating to a BTC price just shy of $200,000 for this cycle.
To reach that $200K price target, Bitcoin would need to appreciate:
- +400% from $40K
- +300% from $50K
- +233% from $60K
- +208% from price as of this writing (~$65K)
None of these price movements would be out of the ordinary for Bitcoin.
Understanding the Bitcoin Top Cap Model
Historically, Bitcoin has traded in four-year price cycles that coincide with preprogrammed reductions in its supply rate.
The rate of new bitcoin that enters the supply is halved every 210,000 blocks, which is about every four years.
The reduction in supply rate clearly has a psychological effect on market participants, considering the demand for bitcoin has surged following each halving.
Everyone knows when these halvings are scheduled to occur, but the market is 0/3 on pricing them in. BTC has ripped following each one.
Historically, the post-halving demand eventually dried up, and bitcoin experienced a multi-year bear market until the next halving.
Bitcoin miners also put tremendous sell pressure on the market when they needed to sell bitcoin for fiat to pay down operational costs or when they decided it was time to take some profits.
However, the Bitcoin market has matured since the 2012 and 2016 halvings, and some believe the cookie-cutter cycles are a thing of the past.
Today’s market includes hodling miners, Bitcoin ETFs, a derivatives market, and even countries adopting the asset.
Several new sources of sell pressure rival the historic sell pressure from miners.
These new sell pressures are also less cyclical than those of the miners, who were largely influenced by the halvings in block rewards every four years.
The Top Cap model will not be as useful if the cyclical nature of Bitcoin breaks down.
Bottom Line: Bitcoin Top Cap Model
Price targets and models are mainly guesswork. Regardless, the simplicity and effectiveness of the Top Cap model is hard to ignore.
- Bitcoin Supply Shock
- Long-Term Holder Behavior
- Short-Term Holder Behavior
- Bitcoin Stock to Flow Model
This article is for informational purposes only. It is not intended to be investment advice.