BTC Well Above “Intrinsic Value”
For some reason, this Bitcoin (BTC) rally has been met with cynical teardowns by many analysts, who state that the cryptocurrency market remains overvalued, despite the 80% drawdown and then 100% recovery off its lows. As reported by Ethereum World News previously, in a recent research note from JP Morgan, it was explained that Bitcoin is trading above its “intrinsic value”.
The note (seen below) suggests that the cryptocurrency’s “intrinsic value” is the estimated cost of production per unit or mining costs. In fact, JP Morgan’s estimates show that BTC is currently (as of May ~15th) trading above its breakeven mining cost by almost two times. Or in other words, BTC is trading at $7,700, when it costs around $4,000 to purportedly mine one coin.
Zschaepitz adds that JP Morgan notes that this current rally “carries echoes of late-2017”, which was when BTC spectacularly rallied and decoupled from any fundamentals on the back of hype. It was further explained:
“Over the past few days, the actual price has moved sharply over marginal cost… This divergence between actual and intrinsic values carries some echoes of the spike higher in late 2017, and at the time this divergence was resolved mostly by a reduction in actual prices.”
It is important to note that JP Morgan has been historically bearish on Bitcoin. As we reported previously, analysts from the American bank suggested that Bitcoin may only be a good hedge in a “dystopian scenario”, not a digital gold as some expect. They go on to state that BTC could plunge to $1,260 eventually. And, of course, JP Morgan’s impassioned chief executive, Jamie Dimon, has been enamored with calling BTC a “fraud” and a similar ilk of insults.
This comes as Peter Schiff, a gold proponent, has took to Tone Vays’ Youtube channel to claim that Bitcoin has no intrinsic value, citing the fact that it is more like fiat money than it is gold.
Bitcoin Trading Over Stock-To-Flow
Bitcoin is also trading above its stock-to-flow ratio, which is the amount of supply of an asset ‘above ground’ and how much is issued each year. Well-known statistical analyst PlanB notes that as per his logarithmic regression line, which BTC has traded around in bear markets, Bitcoin is currently as much as $1,500 overvalued. This doesn’t mean it will fall, as the cryptocurrency has historically traded above its stock-to-flow in bull markets, but it isn’t entirely the best sign.
Why These Models Aren’t Worrisome
While some investors may take the aforementioned models as a sign that they should liquidate their BTC stashes, some claim that models that try to fairly evaluate a cryptocurrency are nonsensical. As the JP Morgan analysts suggested themselves, “defining an intrinsic value for any cryptocurrency is challenging… views range from researchers arguing that it has no fundamental value, to others estimating fair values in excess of current prices.”
Indeed, BTC is a revolution in money, technology, and human game theory, making it illogical to pin a fair value to such an asset. What’s more, Bitcoin is an early-stage protocol, meaning that like the Internet, it is subject to the whims of volatility and bubble-esque qualities created by rampant speculation. Thus, to say that the cryptocurrency market can head higher here because “my models say so” could be irrational.
And as Fundstrat Global Advisors’ Tom Lee has historically pointed out that BTC trades at 2.5 times its cost to mine, meaning that if historical precedent is taken into account, Bitcoin is actually currently undervalued. But in the end, that may just be semantics.
Title Image Courtesy of Andre Francois Mckenzie Via Unsplash
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