The Block Subsidy model considers the cumulative cost of production for all units in the supply (the Thermocap) as a reference rate for monetary premium.

Under the assumption that miners are rational, profit motivated actors, miners should be willing to expense up to the maximum fiat denominated reward offered by the protocol. By taking a cumulative sum of all block rewards through history (subsidy and fees), we can estimate this maximum rational investment that miners have made to mine the circulating supply.

The Block Subsidy Model then identifies that multiples of the Thermocap tend to reflect a monetary premium that Bitcoin has reached above its cost of production. Historically speaking:

• Bitcoin has added approximately 2x Thermocap to cycle floor prices reached at the end of bearish trends, reflecting a persistent growth in monetary premium as priced in the market.

• Bitcoin has typically topped out between 32x and 64x Thermocap, reflecting a large embedded premium over the aggregate cost of production.

Coined By

Permabull Niño, 2019

Resources

A Look at Block Subsidies: A Network-Based Approach to Valuing Cryptocurrencies