Despite sell-offs from $10,000 levels for Bitcoin, BTC price has still started the new year pretty strong. Year to date, Bitcoin price has surged +35% which would outperform a majority of traditional stocks year to date. On the flip side, many altcoins have outperformed Bitcoin year to date which has raised some concern. We take a look at some key fundamentals for Bitcoin to better understand its current valuation / sentiment.
Year to Date Cryptocurrency Performance Leaders
As discussed above, among a list of all cryptocurrencies, Bitcoin performance trails a handful of altcoins. We can see performance metrics from the following figure below.
Bitcoin Better Than Any Hedge Asset?
Bitcoin was one of the most interesting asset classes to track last year. As the asset class has matured, price action has been very unnatural in a strategic way. Many people talk about Bitcoin being a “global hedge”, meaning it essentially acts as a safe haven during market turmoil. But if we take a look at historical price action last year, it’s actually been both a global hedge and a performer.
During large drops in the S&P500 last year, Bitcoin rallied during these times in most scenarios. On the flip side and even most recently, when traditional markets rally – Bitcoin has rallied right with it. Portfolio managers that allocated bitcoin to their lineup last year would have theoretically managed market risk and outperformed. Bitcoin has been highly uncorrelated to traditional markets for years. With Bitcoin being the best performing asset class the last 10 years, its infrastructure and behavior is one of a kind.
Bitcoin Valuation Metrics
As discussed in previous bitcoin market analysis, there’s a few important areas to look at to help understand Bitcoins valuation status. Certain metrics are able to help us gauge overvalued vs undervalued territories. The first one we can look at is Bitcoin Mayer Multiple.
Bitcoin Mayer Multiple
As discussed, Mayer Multiple can be one of the strongest indicators to look at to assess Bitcoin price sentiment. MM assesses longer term price action to differentiate between overbought and oversold territories for BTC price. Simply put, the MM is calculated by dividing Bitcoin price by the 200 day moving average. When we calculate that figure, we compare it to historical data which shows:
- Mayer Multiple Above 1 = Bull Market ( Positive )
- Mayer Multiple Below 1 = Bear Market ( Negative )
At the time of this reporting, Bitcoins Mayer Multiple was sitting at 1.09 which is a great sign based on where it was in December 2019. During December of last year, Bitcoin MM was well below 1.00 , and the correction could very well be signaling the beginning of a bull market for Bitcoin.
Aside from Mayer Multiple metrics, you also have the Bitcoin golden cross confirmation, which has also been a very bullish indicator whether we’re assessing traditional or digital asset markets.
Image Source: Woobull charts
Bitcoin Market Value To Realized Value
Market value to realized value is a strong metric because it essentially covers the aspects that traditional market cap doesn’t. For example, if you’re looking at normal btc market cap, it will not account for important facets such as unspent transactions or lost coins. Market value to realized value will make this adjustment to show us overvaluation vs undervaluation. MVRV is simply calculated by:
Taking Bitcoin Market Value ( Market Cap ) and dividing it by Bitcoin Realized value on a daily basis. When we do so, we again compare it to historical data that shows:
- MVRV of 1.00 = undervalued
- MVRV of 3.7 = overvaluation
At the time of this writing, Bitcoin MVRV is only sitting at 1.67 which denotes undervaluation. When taking a look at both Mayer Multiples and MVRV metrics for Bitcoin, it’s evident that BTC is still in the early stages of a bull market based on historical price action.
Image Source: Pixabay