Bitcoin Thermocap Explained (and why it matters, a lot.)

Angelo Morgan-Somers
2 min readAug 25, 2021

Market-cap to Thermocap ratio:

Most people have heard of market-cap, price multiplied by supply to return the total aggregate value of all tokens, but a much less well known cap is the thermocap, here’s a brief overview; thermocap is calculated by taking the coinbase transaction (miner reward & transaction fees issued in each block, nothing to do with the company Coinbase) of each block and multiplying it by the bitcoin price at the time that the new bitcoin was minted, by doing this, you can calculate the networks total outflows to miners, or in other words, the total of all miners salaries.

Chart of thermocap and Bitcoin price over time (2012–2021)
Chart of thermocap and Bitcoin price over time. (source: Glassnode)

Why is this important?

By calculating how much money the network is spending on its miners, you are also calculating the networks total security budget, since miners are responsible for security…

And since security is essentially the product you are buying when you spend a transaction fee, measuring the total spending on security is similar to measuring the earnings of a business, since both act as a proxy for gauging consumer interest.

Now, when we compare that to the total market cap, we essentially have an on-chain equivalent of something like a price to earnings ratio from traditional equity markets.

If a company is valued at $1B, but only brings in $100,000 per year, you would be right to assume that the company is overvalued, similarly, if bitcoin is trading at majorly high prices relative to its previous 200 day average, but the thermocap (earnings) is low, then as it currently stands, bitcoin may be overvalued.

Glassnode has set their over-valuation market top indicator at 0.000004. Each market cycle top, leading to a bear market, has shown a marketcap-thermocap ratio of over 0.000004 prior to crashing, as seen in the 2017 blow off top.

Market-cap/thermocap ratio and BTC price over time (source: Glassnode)

As you can see, we are currently sitting just above the 0.0000015 mark, we would require a 270% increase in this ratio to meet the same range previously seen in blow off tops.

This means we could be far from finished with the bull market, and there may be much more upside price movement before we see another blow off top and complete this cycle.

PS: This is one of many articles and newsletters to come, so give me a follow @marketmelon if you’d like to keep up to date with my Bitcoin analytics, and thank you for reading :) I hope it was useful.



Angelo Morgan-Somers

Content Creator at FastBitcoins. Philia Sophia & dia-logos