Current Market Structure Reminiscent of Period Preceding Bitcoin’s Historic Bull Run: Grayscale
The gains in the crypto market have digital asset manager Grayscale Investments AUM jumping to $5.8 billion.
In its latest report titled “Valuing Bitcoin” written by Grayscale research director Phil Bonello, he points out that a plethora of blockchain metrics indicate that “the current market structure is reminiscent of early 2016, the period that preceded Bitcoin’s historic bull run.”
On the supply side, never has the current level of Bitcoin ever been owned for more than one year while exchange balances continue to be at their lowest levels since May 2019.
On the demand side, daily active addresses are at its highest level since 2017 with the mining profitability ratio stating it a good buying opportunity. Whale Index, that tracks the number of unique BTC addresses with balances over 1,000 Bitcoin is also near its ATH.
Additionally, in the current environment, Bitcoin has become even “more important than ever.”
In 2020, in order to prop the coronavirus pandemic battered economy, governments introduced ultra-loose monetary policies, printing money faster than ever – QE, and continued to increase the debt which has made the situation worse than 2008 Great Recession.
In this environment, investors are now searching for ways to protect against an ever-expanding monetary supply, and Bitcoin’s limited supply which isn’t controlled by any authority makes it an attractive option. The report states,
“We believe demand for a scarce monetary asset like Bitcoin grows as global monetary inflation accelerates.”
Because bitcoin isn’t a cash-generating asset, traditional investors struggle to assign a fair value to it. As such, in many ways, it is similar to how gold is valued — relative valuation and supply/demand analysis.
In May this year, billionaire investor Paul Tudor Jones in his investment case for bitcoin, which he called an inflation hedge, suggested Bitcoin should have a far higher market capitalization than it currently has. Jones at that time wrote,
“Bitcoin had an overall score nearly 60% of that of financial assets but has a market cap that is 1/1200th of that. It scores 66% of gold as a store of value, but has a market cap that is 1/60th of gold’s outstanding value. Something appears wrong here and my guess is it is the price of Bitcoin.”
According to Grayscale, as the demand for the store of value grows during monetary inflation, Bitcoins’ unique quality of being scarce, makes it well-positioned to be a safe haven.
“Bitcoin continues to command global investor attention, there is scant supply to meet growing demand, and the infrastructure is now in place to satisfy that demand.”