Market Cap to Thermocap Ratio: On-Chain Explained

Written by Sean GraytokUpdated: 5th Nov 2021
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Market cap to Thermocap will probably call the next bitcoin top. Here’s everything you need to know about this on-chain metric.

What is the Market Cap to Thermocap Ratio?

The market cap to Thermocap ratio is an on-chain valuation metric used to determine Bitcoin’s relative market value with respect to the aggregate security spend of miners (“Thermocap”).

The ratio indicates Bitcoin’s monetary premium relative to its maximum aggregate cost of production.

A high market cap to Thermocap ratio suggests that the network’s value is more than the amount spent to secure it — i.e., Bitcoin is “overvalued.”

A low market cap to Thermocap ratio indicates the opposite, suggesting that Bitcoin is “undervalued” because the network value is less than the total aggregate security spends.

This fundamental on-chain metric is similar to the MVRV ratio and has predicted Bitcoin tops in the previous 2013 and 2017 halvingcycles.

Understanding Market Cap to Thermocap Ratio

A miner is rewarded with bitcoin each time they successfully mine a block, in addition to the transaction fees for all the transactions included in the block.

Bitcoin block rewards are the single source of revenue for miners.

The all-time cumulative sum of miner revenue in USD is called “Thermocap” and is currently around $30 billion.

Historically, miners have sold a percentage of their block rewards revenue to pay down operational costs associated with proof-of-work mining, such as electricity for computational power and hardware cooling.

This dynamic imperfectly captures the “spend” component. Assuming miners are rational actors, they will spend up to the USD amount of the block rewards to receive the block reward.

Therefore, aggregate revenue is essentially thought of as an upper bound on the total amount of USD that miners have spent to produce bitcoin and secure the network.

Comparing bitcoin’s market cap to this upper bound on security spending may help investors evaluate bitcoin’s current market value and the premium that the market has placed on it.

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Market Cap to Thermocap Charts

Below is a lifetime chart of bitcoin’s price (black) and the market cap to Thermocap ratio (orange):

Market Cap to Thermocap Ratio Example

The red zone indicates when the Thermocap ratio gets dangerously high and suggests a top is near.

Significant corrections have occurred each time the ratio has ventured into the red zone.

The green band indicates the low range of the Thermocap ratio and has represented generational buying opportunities.

How to Use Market Cap to Thermocap Ratio

Market cap to Thermocap is Bitcoin’s version of fundamental analysis.

Multiples placed on the ratio reveal the magnitude of the market’s premium on Bitcoin relative to its aggregate cost of production.

Every day that Bitcoin survives, its likelihood of “going away” decreases, and the associated risk of “going away” is less and less priced in, which allows its premium to increase.

The increasing premium the marketplace on Bitcoin captures this dynamic and is evident in the minimum monetary premium placed on Bitcoin at the end of bear markets.

Each subsequent bear cycle has established a higher floor on the multiple to Thermocap:

  • 2011: floor support at 1x Thermocap
  • 2015: floor support at 2x Thermocap
  • 2018: floor support at 6x Thermocap

If the floor premium continues to rise at this rate, Bitcoin will find support between the 12x and 18x Thermocap in the current cycle — that is if Bitcoin continues to trade in cycles.

Today, Bitcoin trades at a multiple around 33x above production costs (market cap is $1T, and total miner revenue is just above $30 billion).

Multiples in the lower thirties, specifically 32x, have represented critical zones for price action.

Historically, BTC tops out around a Thermocap multiple of 64x. On the day of this writing, the bitcoin price would need to reach at least $130K to reach this multiple.

The 64x multiple is currently unsustainable, and the price typically free-falls (to a higher floor) after touching it. However, a day may come where 64x becomes the new floor.

Market Capt to Thermocap: Frequently Asked Questions

What is the thermocap ratio?

The Thermocap ratio compares the market cap of bitcoin to the amount spent on securing the network. It is an on-chain fundamental analysis metric used to evaluate the market value of Bitcoin.

What is thermocap?

Thermocap is the all-time cumulative sum of revenue (in USD) that miners have generated to secure the Bitcoin Blockchain. It was created by Nic Carter and is calculated by taking the running sum of daily miner revenue in USD.

What is the realized market cap?

The realized market cap in Bitcoin is essentially the aggregate cost-base of Bitcoin. It factors in the last time a unit of bitcoin was transacted on-chain to calculate the USD amount stored in the network. For example, a bitcoin that was last transacted at $3k contributes that amount to the aggregate realized cap instead of using its USD equivalent value today.

How do you calculate the realized cap?

The realized cap is calculated by approximating the value paid for all coins by summing the market value of coins when they last moved on the blockchain. It is an on-chain metric and cannot be calculated without being plugged into the blockchain. Several on-chain platforms make realized cap data freely available, such as CoinMetrics.

Bottom Line: Market Cap to Thermocap Ratio

Market to Thermocap is another useful metric to have in your on-chain toolkit.

It distills the economic complexities of mining and the price action of bitcoin into a single metric.

Keep Reading:


  • Chart Data from Glassnode
  • Nic Carter
Sean Graytok
Sean Graytok

Sean Graytok is our Co-Founder and is a recognized expert in investing, cryptocurrency, and financial management. His work has been cited in leading industry publications, such as InvestorsPlace and Business Insider. Sean is interested in the people and companies who are driving financial innovation.