Is Bitcoin Overvalued at $13,000?
Has the world gone crazy?
Here is what an expert analyst and Bitcoin trader at Monfex thinks about the Bitcoin’s value…
Over the past 6 months, Bitcoin has been growing at an exponential rate. The year-to-date performance comprises 235% return, equivalent to monthly compound growth at 27% — an unprecedented return for traditional asset classes.
Now, everyone is talking about Bitcoin, and one question specifically, which is: How could Bitcoin be worth $13,000? Is it overvalued? What fundamentals underly this exponential growth?
Short Answer
Bitcoin may be overvalued, but not as much as you might think…
Bitcoin’s current price — $13,000 — is not absolutely insane. At current market price, Bitcoin is most likely extremely undervalued or extremely overvalued — “middle of the road” is unlikely.
Expanded Answer
There is at least a small chance that Bitcoin will become a global reserve currency, much like the US dollar is today.
For example, if Bitcoin captures just 25% of offshore banking and emerging market fiat currency reserves, then it becomes a $10 trillion asset.
In this case, given the Bitcoin supply limit at 21 million, it's market price would be $500,000. This is a big investment opportunity just by itself. This may seem to be a large number, but actually, it’s not. For comparison, the global supply of narrow money, which includes easily accessible banknotes and checking deposits, is worth $36.8 trillion. While the global broad money supply is equal to $90.4 trillion.
These simple statistics show that if Bitcoin becomes a reserve currency and reaches mainstream adoption, then it will be a multi-trillion dollar asset. To put it into perspective, Bitcoin’s current market capitalization of $200 billion amounts to only 2% of its potential market cap.
So, investors are beginning to realize that this might be a once-in-a-lifetime opportunity. This leads to an ever-increasing demand for Bitcoin, which translates into an exponential growth of its price we’re seeing today.
One could reasonably argue that nobody knows for sure what the fair value of Bitcoin really is. There is no such thing as a Bitcoin valuation model, as opposed to traditional equity markets. And it is true — there is no consensus on the market as to what the market price of Bitcoin should be, and there are lots of differing opinions, which leads to extremely high volatility of the Bitcoin price.
Moreover, there are no fundamental catalysts yet which would rationalize the value of Bitcoin at $13,000 or even higher.
However, investors recognize that such catalysts may emerge in the future, and the potential impact on the Bitcoin price, as shown above, would be immense. Potentially, there is about 40x upside to the current price.
This is what drives investors insane and pushes demand increasingly higher.
So, although Bitcoin might be overvalued, we wouldn’t recommend selling it today. The current upwards trend has gained strong momentum, and the best investing strategy for Bitcoin would be a buy-and-hold strategy.
Author
Alex Sovpel, Director of Research at Monfex | LinkedIn
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Disclaimer
This report is for information purposes only and should not be considered a solicitation to buy or sell any cryptocurrency or cryptocurrency product. Monfex accepts no responsibility for any consequences resulting from the use of this material. Any person acting on this trade idea does so entirely at their own risk.