Definition. 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. The chart plots Bitcoin's Market Cap (grey) against the Thermocap (green) and a ladder of Thermocap multiples from x2 up to x64.

Technical. 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:

• Thermocap = cumsum(Block Subsidy + Fees, in USD)
• Bands are plotted at Thermocap x 2, x4, x8, x16, x32, x64

Interpretation. Multiples of the Thermocap tend to reflect a monetary premium that Bitcoin has reached above its aggregate 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.

Notes. Coined by Permabull Niño, 2019 — see A Look at Block Subsidies: A Network-Based Approach to Valuing Cryptocurrencies. Built from Thermocap and Market Cap. The same model for Ethereum is available here; for a market-average-based ceiling model see the Top Cap Model.