Indicator Overview

The Bitcoin Yardstick is a fundamental valuation metric originally developed by Capriole Investments to serve as a rule-of-thumb tool for identifying Bitcoin’s macro market cycles. Often referred to as Bitcoin’s version of a P/E Ratio, it measures the relationship between the network's total valuation (Market Cap) and the actual energy work being performed to secure it (Hashrate).

The metric provides a high-fidelity view of when the market is overpaying for the network's security or when the security budget is being heavily undervalued by the price. By normalising this ratio with a 2-year rolling Z-Score, the indicator accounts for the exponential growth of hashrate and the maturing market cap, transforming a raw volatility-driven ratio into a clean, oscillator that highlights structural extremes.

How To Use

Investors can use the Yardstick to gauge whether Bitcoin is trading at a discount or a premium relative to its historical energy-security norms.

• Gradient Intensity: The line shifts from deep magenta (undervalued) to light pink and white (overvalued). When the line becomes lighter, it indicates that the Market Cap is outstripping Hashrate growth at an unsustainable rate, typically seen during late-stage bull market peaks.

• The Valuation Z-Score: Because the metric is normalized, the Y-axis represents standard deviations from the 2-year mean.

  • Cheap (Z<−1): Historical value zones where Bitcoin is undervalued relative to the work miners are doing. These periods often align with major accumulation windows and bear market bottoms.

  • Fair Value (Z=0): The network valuation is in perfect equilibrium with the energy work performed.

  • Expensive (Z>2 to 3): Zones of speculative heat where the price has disconnected from the underlying network fundamentals, signalling a high risk of a macro top.

• Energy-Price Equilibrium: Unlike pure price oscillators, the Yardstick remains grounded in physical reality. If Hashrate is climbing while Price stays flat, the Yardstick will drop, signalling that the network is becoming fundamentally cheaper and more secure even if the price hasn't moved yet.