Late Sunday, Bitcoin accelerated past $11,500 as the whole cryptocurrency markets followed. It’s a known fact by now that “altcoins” tend to follow Bitcoin momentum. “Altcoins” are other cryptocurrencies besides Bitcoin. Historically altcoins follow Bitcoin momentum, but Bitcoin upward momentum tends to be stronger. Most of the time, altcoins rally the hardest when Bitcoin struggles, but still tend to trend up when Bitcoin does so. Bitcoin surpassed $11,500 levels for the first time since July 13/14th. There was no direct reason today for the rally, but there’s been recent developments that could be fueling the rally.
Monetary Easing
Last week when Bitcoin surpassed $10,000 , there were some developments such as the Federal Reserve slashing interest rates. This decision by the Fed shook up the traditional markets, as many analysts were not predicting a rate cut. Historically rate cuts have been implemented when the economy is slowing production. Since 2008, the stock market has been on a tear and many are calling for a drastic slowdown as soon as 2020. With the Fed cutting rates, this tends to make “money cheaper” since borrowing capital comes at a reduced rate. This time around, some market professionals are predicting capital to flow into “hedge assets.” Hedge assets can be defined as assets that historically perform well during market downturns. According to a report by Reuters, the Fed was forced to slash rates due to “weak business investment” which historically has a large impact on economic growth. Keep in mind this was the first time the Fed cut rates since the Great Recession of 2008.
Other pressures come from a trade war with China and rising deficits. The massive $1.5 trillion tax cut bill did not prove to stimulate economic growth. Bitcoin has been labeled a “hedge asset” due to its correlation. In a recent report covering Bitcoin and Gold, Bitcoin has been in existence for 10+ years now, and continues to prove uncorrelated to traditional markets. This theory continues to hold strong as Bitcoin continues to surge post rate reductions. Individuals could be shifting their investment allocations as uncertainties continue to loom. The markets enter a critical stage where you have many “baby boomers” who went through the recession in 2008 and prepare for retirement. It will be interesting to see how the stock market reacts as many individuals could be altering their allocations during a time of uncertainty.
Bitcoin Still Historically Undervalued
In a recent market report by Visionary Financial, we made the case for Bitcoin still being in undervalued territories. The first metric we looked at was “Market Value To Realized Value.” Many people only look at Market Capitalization which can be irrelevant in cryptocurrency. The reason for this is because you can’t apply a traditional market technique to cryptocurrency when the crypto markets behave differently. Basic Market Cap in crypto does not account for “lost coins” and unspent transactions. This is behavior in the crypto markets that does not exist in traditional stocks. For that reason we look at Market Value to Realized value which makes these adjustments for lost coins and unspent transactions. Historically Bitcoin has been overvalued when MVRV ( Market Value to Realized Value ) hits the 3.7 arena. Most recently, Bitcoin was only trending around 2.2 which historically put it in undervalued territories. Bitcoin Mayer Multiple was another measure we look at, as it studies long range historical movements. A multiple of 2.4 historically denotes “overbought” territories causing a sell-off. Most recently Bitcoins Mayer Multiple was only sitting in the 1.56 region ( another argument for undervalued territories ).
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