Bitcoin has had a milestone year so far in 2020. Despite the cryptocurrency recently experiencing its 3rd halving, it’s also experienced global dominance. Bitcoin has surged +32% year to date, fueled by institutional investing. During global turmoil caused by COVID-19, Bitcoin has been the most effective asset class no matter what market you’re assessing. Based on Bitcoins value metrics, are we heading towards a bear market, or are we just entering the next bull market?
Value Metrics
Bitcoin value metrics are completely different than traditional markets. As we know by now, Bitcoin doesn’t have traditional value metrics like earnings or free cash flow. For this reason, we tend to focus on the Bitcoin network and other fundamentals to assess overvaluation or undervaluation at a given time. The key metrics we look at are:
- Bitcoin Network Momentum
- Market Value To Realized Value
- Mayer Multiples
Bitcoin Network Momentum
Assessing network momentum can help us determine the next bull market. Historically speaking, recent bull markets have surfaced when daily transactions were in the 200K arenas.
Right now, Bitcoins network momentum sits at 239K. As you can see from the chart, Bitcoin has usually used these levels to “build momentum” before the next bull stage. Based on network momentum alone, we would argue that despite Bitcoins growth year to date, it still seems like it’s in the momentum phase ready to run.
Market Value To Realized Value Ratio ( MVRV )
MVRV looks at both market value and realized value. Bitcoins market value is determined by multiplying bitcoin outstanding by the current market price. Realized value on the other hand takes a more transparent approach. Realized value looks at the aggregated market price of all Bitcoin UTXOs when last moved. Many analysts in the crypto enjoy realized value since it essentially adjusts for lost bitcoin. In addition, Realized Value will adjust for coins being used in “HODLING.” MVRV is calculated by dividing market value by realized value. This figure then helps us assess overvaluation vs undervaluation. Throughout the Bitcoin lifecycle, two ratios emerge. A ratio of 3.7 represents overvaluation, and a ratio of 1.0 represents undervaluation.
The current MVRV value to Bitcoin is currently at 1.66. If we apply this to historical figures, we would argue the fact that Bitcoin is still undervalued. With 1.66 being significantly lower than 3.7, one would argue that Bitcoin is nowhere near a market peak yet. This correlates to Bitcoins network momentum above. Bitcoin seems to be in undervalued territories, and is slowly building momentum for the next bull run.
Bitcoin Mayer Multiple
Mayer multiple is another measure that helps us determine overbought vs oversold levels. Just like any other asset, when something enters “overbought” territories, the chances of a “sell-off” goes up drastically. The nice thing about Mayer Multiple is that it studies longer duration regarding price action. The Mayer multiple takes the current Bitcoin price and divides it by the 200 day moving average. Certain Mayer Multiples help us determine overbought vs oversold territories. A Mayer Multiple above 1.0 has represented bull markets. Anything below 1.0 has historically equated to bear markets. In addition, speculative bubbles have emerged when Mayer Multiples have surpassed 2.4 levels.
The current Bitcoin Mayer Multiple value is 1.26. In terms of arguing the bull case, Bitcoins Mayer Multiple is in a great position. Since inception, most bull markets have initiated around these levels. When we assess Bitcoin network momentum, market value to realized value, and mayer multiple, we continue to argue that Bitcoin is approaching the next bull market.
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