Bitcoin Valuation
Recent price action aside, still a good buy
Inspirational tweet for this week’s post:
Joe Consorti who I follow on substack and highly recommend (The Bitcoin Layer) did a nice piece today on Bitcoin value that I think is very helpful in understanding the overall uptrend that has set in since the beginning of the year and what it means to valuation. Over the past month, Bitcoin is up 35.2% and over the past week it’s up 8.66% which has gotten a lot of people excited that we could be on the cusp of a new bull market. I rarely comment on price action, since I think it’s largely irrelevant if you are simply wanting to accumulate bitcoin as a long term savings tool. Of course, buying in the bear market more heavily helps you grow your stack and the recent crypto hedge fund / exchange collapses certain induced a lot of selling in 2022, which I think accelerated the bear market bottom. Other than that, dollar cost averaging seems to be the best way to grow your holdings over time. Regardless, price action does tell us something about investor psychology and what the market believes about asset valuation, so you have to pay attention to it.
There were a couple of charts included in the post that I thought were particularly interesting and which I have replicated below.
The Bitcoin 200 week moving average price is a simple and straightforward valuation metric. You’ll note in the chart below that Bitcoin has rarely traded below that benchmark over the past several years. Despite the recent price action, Bitcoin still trades below the 200 week moving average of $24,646:
Bitcoin is also still trading below fair value as estimated by TBL ($24,353), again despite the recent price action:
I was listening to an interesting podcast yesterday on Robert Breedlove’s “What is Money Show” where he talked about how many investment assets have a dual purpose like gold, silver, real estate, stocks, etc. They have a use value, for example, gold and silver can be used in manufacturing goods, real estate can provide shelter or a place to conduct business and stocks can evidence ownership in a company. These assets also have a monetary value (monetary premium), which tends to expand in times of low interest rates and currency debasement, as we have seen the past few years (until early 2022 when the Fed started raising interest rates which caused everything to crash). Bitcoin is unique in that it is only a monetary asset and therefore its entire value consists of monetary premium. Like the other assets mentioned, Bitcoin’s value in dollar terms is directly related to increases and decreases in dollar liquidity. In a debt based system such as ours, the only way to sustain the system is to allow debt to continue to increase, which necessitates high liquidity, low interest rates and currency debasement over extended periods of time. This is hugely bullish for Bitcoin and also gold, silver, real estate, commodities and other “hard assets” over extended periods of time.
The market reaction to both Bitcoin and gold recently seems to point to an expected slowing in the increases in interest rates by the Fed, which means we are coming to the end of the tightening cycle. Other central banks around the world are “late to the party” and are continuing to tighten, which makes the dollar weaken in value relative to other currencies. This is where global central bank rates currently sit and as you can see, only Brazil, Russia and India have higher rates than the US:
The end of the Fed’s tightening cycle is reinforced by continuing bad news on the economic front (all leading indicators and especially inverted Treasury yield curves point to economic slowdown either here or coming soon). Here’s where the market thinks rates are headed based on the Atlanta Fed’s market probability tracker tool:
As you can see, the probability of a rate hike of 25 basis points at the next meeting (and looking ahead to March) is almost 100%. Rates are expected to fall later this year and drop to about 2.5% in 2025. Long term Treasury rates have been dropping recently and along with them mortgage rates in response to these market expectations for lower Fed rates (and probably driven by recession concerns as well):
This is bullish for risk assets, which is why the Nasdaq (6.21%) has rallied relatively better than the Dow (0.69%) or S&P 500 (3.55%) year to date. Stocks may still be overpriced if earnings expectations drop, as they are expected to by some analysts - most notably Mike Wilson at Morgan Stanley, who I follow. He thinks the bear market has another leg down. I guess we’ll see if that’s true. Housing, despite falling values, also still feels overpriced and will be in correction mode long after the Fed starts cutting rates, as I wrote in a recent post:
In summary, it seems that the risk asset rally has legs for now (barring any major change in Fed direction or if earnings really disappoint) and if that’s the case, Bitcoin will continue to lead the charge as it has from the beginning of the year. There will certainly be pullbacks and if the stock market drops (the bear market may not be over yet), everything could sell off as a result and so you have to be mentally prepared for that and stick to your asset allocation approach, don’t make any sudden moves (FOMO) and stay humble and stack sats!
In case you missed it, here’s my most recent monthly portfolio update:
Not financial or legal advice, for entertainment only, do your own homework. I hope you find this post useful as you chart your personal financial course and Build a Bitcoin Fortress in 2023. To see all my books on investing and leadership, click here.
Always remember: freedom, health and positivity!
Please also check out my Building a Financial Fortress Podcast on YouTube here and on all your favorite streaming platforms. I do a weekly Bitcoin news update every week on current items of interest to the Bitcoin community, usually 30 to 60 minutes depending on the number of topics to cover. Please check it out if you haven’t already.