Bitcoin Has Only Been This ‘Cheap’ Relative to Trend 20.3% Of The Past Eleven Years: Pantera Capital
For new investors, the best time to buy is when the market is below trend, and “now is one of those times,” says Pantera CIO Dan Morehead.
Bitcoin is back above $40,000, but still, the cryptocurrency is trading about 38% below its all-time high.
While some are skeptical about the cryptocurrency being in a bull market anymore, Dan Morehead, co-chief investment officer at Pantera Capital, is not concerned at all. He actually recommends people to get back in the market.
In his Blockchain Letter on Monday, Morehead talked about how the sell-off last month came due to China banning bitcoin, which wasn't the first time, and “Investors who sell on China “bans” usually end up bummed…” as happened in the case of not only Bitcoin but Google, Facebook, and everything else.
Besides China’s repetitive Bitcoin ban, tax day was also the culprit here.
Tax Day is of importance to crypto prices as after the two previous big run-ups in 2013 and 2017 as well, bitcoin peaked four months before Tax Day and hit a low about a week before Tax Day.
“Since they’re (crypto investors) “all-in” on crypto, the only way to raise cash to pay their tax bill is to sell some crypto. Prices fall leading up to Tax Day.”
Is Bitcoin Overvalued?
Morehead further talks about whether Bitcoin is overvalued as it rallied from $3,800 in March 2020 due to the black swan event that was a coronavirus pandemic to almost $65,000 in April.
Bitcoin is currently trading 36% below its 11-year exponential trend, and the cryptocurrency has only spent 20.3% of its history as far under trend valuation, he noted.
While BTC went just a touch over trend value at the recent peak, “past peaks were many multiples of trend value.”
The year-on-year return also never went literally off-the-chart like in past peaks and is currently trading at 281% Y0Y — which seems entirely plausible given the money printing. Given that Bitcoin’s four-year-on-year return is at the lower end of its historical return, it doesn’t look overvalued.
“I think we’ve seen the most of this panic.”
Resist the Urge
Now that Bitcoin is not overvalued, but less than a month back, it had a 50% drawdown, falling to $30k and even lower $28k on some exchanges, people are concerned.
The point here is “human nature is pro-cyclical,” and that’s why we want to buy when the market is surging up feeling the FOMO and want to flee when the markets are crashing.
As such, very large inflows come when the crypto asset is trading well above its trend, and the majority of the money has come in well into the rallies.
“For example, the market spent only 10% of the time above 500% of fair value, but 39% of inflows came in at or above that level.”
This is why Morehead advises resisting the urge to close down positions and go the other way if investors have the emotional and financial resources. As he said in his interview with Bloomberg, major firms and the Wall Street wealth platforms are now allowing their clients to buy bitcoin while big corporations are buying Bitcoin, which means those trends are just starting.
“For new investors, it’s best to buy when the market is below trend. Now is one of those times. The market has been this “cheap” or cheaper relative to trend only 20.3% of the past eleven years.”