As draws to a close this will be the last Market Insight of the year so Happy Holidays everyone! Adding to the misery for the bears, the sell-off in bonds witnessed in the final weeks of failed to evolve into the multi-decade trend reversal many investors anticipated it would [1].
Thankfully, we were on the right side of these market moves our currency calls were less successful — the JPY and GBP both displayed resilience we did not anticipate given the profound change to BoJ monetary policy operations in the case of the former [2]and extremely messy Brexit negotiations in the latter [3].
However, our stellar call of the year was undoubtedly, Bitcoin. After all, market prices seemed blissfully unaware of the plethora of articles in the financial media over the past 12 months containing bubble warnings for stocks, bonds and especially and more recently Bitcoin.
However, this is far from obvious when one considers a standard definition of a speculative asset price bubble courtesy of Investopedia.
However, as Bitcoin has repeatedly demonstrated, this is a flawed approach. It showed that over this period there were three occasions when its price rose exponentially litecoinfinancial market analysis from the crowdsentifi the latest move there are now four occasions. In each of the three previous occasions, there were fairly significant corrections but the underlying trend remained firmly upwards — for our view on this latest move keep reading. Using the Bitcoin example shown in the exhibit above, the salutary lesson for litecoinfinancial market analysis from the crowdsentifi is that exponential price dynamics are an incredibly inexact tool by which to assess whether there is an asset price bubble and, more importantly, whether the bubble on the cusp of bursting.
It has to be considered along with the other ingredients, that is to say, sentiment and fundamental valuations. Of these litecoinfinancial market analysis from the crowdsentifi additional elements, we are well-positioned to assess the former using our crowd-sourced sentiment indicators.
Indeed, it was instrumental in keeping us bullish earlier in the year. As we noted in the aforementioned Market Insight referenced in footnote 6. Our crowd-sourced sentiment indicators were also critical in keeping us bullish towards equities [7]especially in the US.
Equities may well have been overvalued, and hence ticked one of the boxes in the bubble list, but crowd sentiment was generally subdued — litecoinfinancial market analysis from the crowdsentifi exhibit below [8].
This was a perception not readily apparent to investors who use market prices, such as the VIX implied volatility index, as a proxy for sentiment.
The key takeaway from these two examples is that to conclude that an asset price is in a bubble, one whose imminent bursting will create exploitable shorting opportunities, requires all three ingredients to be present.
Looking at the latest sentiment readings for global equities — see exhibit below — what is apparent is that the double digit gains witnessed over the past litecoinfinancial market analysis from the crowdsentifi has generated a more positive hue to our sentiment heatmap. However, across the major indices sentiment is far from extreme, suggesting that the bull market still has legs.
Swiss, Indian and Hong Kong stocks have historically elevated crowd sentiment readings indicating a less constructive assessment. What about Bitcoin, the financial asset a label many would quibble about as proof of the fact that Bitcoin really is digital gold and like its naturally occurring equivalent is financial marmite — you either love or hate where bubble speculation is at its greatest?
Litecoinfinancial market analysis from the crowdsentifi shown in the exhibit below, crowd sourced sentiment towards Bitcoin has risen to its highest levels seen since the cryptocurrency began to receive mentions beyond the geek world. On this basis, and unlike earlier in the year, there is considerable frothiness of optimism on the part of the crowd which has, unquestionably in our view, been a key factor driving the price of Bitcoin higher.
Given this, we expect there to be a fairly significant downward correction as, or more probably when, crowd sentiment momentum starts to fade. Certainly, now is clearly not the time to be jumping on the Bitcoin bandwagon.
Does this also mean Bitcoin is unquestionably in a bubble? As mentioned we have two of the three ingredients for a bubble — excessive optimism exuberance and strong positive price momentum. The third ingredient — fundamental overvaluation — is much a much trickier proposition to assess. On this basis, Bitcoin is the shorting opportunity of litecoinfinancial market analysis from the crowdsentifi lifetime. That said, with price momentum so strongly positive, timing is everything.
We find such arguments less convincing. In the Market Insight referenced in footnote 6 above we outlined our approach to generating a fundamental valuation for Bitcoin [10]. This approach, they found, often generates superior predictions, especially when information is either unknown or missing. The same technique underpins the Drake equation that seeks to provide a framework for encapsulating all of the relevant information to calculate the number of intelligent civilizations that existed in the galaxy a bitcoin valuation seems positively tame compared to that.
The outstanding stock of fiat money and the finite number of Bitcoins are both known numbers and serve to provide a crucial valuation anchor. The other three variables upon which the valuation relies need to be estimated and they are:. However, using the latest estimate for litecoinfinancial market analysis from the crowdsentifi stock of global fiat money USD Either way this is substantially higher than the current market price of Bitcoin — and hence suggests that short-term froth aside Bitcoin is not a bubble.
The ratio we are most confident about is that there will be no more than around 10 globally traded cryptocurrencies. Given there are currently close to 1, in existence this seems like a big call. However, when one looks at trading activity of the fiat currencies in the world today, what stands out is the very uneven distribution. The comparison we are about to make may appear at first glance to be apples to oranges — litecoinfinancial market analysis from the crowdsentifi is based on turnover and the other is market capitalization — but as both reflect the impact of network effects we consider it to be legitimate.
Even if hundreds, or thousands, of cryptocurrencies are in existence, network effects will ensure that only a handful dominate and, as evidenced by its current high share of market capitalization, Bitcoin has a strong first mover advantage.
Regards the final assumption, the ratio of virtual currencies to litecoinfinancial market analysis from the crowdsentifi currencies held by the public, this is litecoinfinancial market analysis from the crowdsentifi one we are least confident in guessing. The total market capitalization of all cryptocurrencies stands at 0. To reiterate, the point of this exercise is not to generate precise valuation estimates for Bitcoin — that is practically impossible. It is to provide a practical framework for thinking about how to value Bitcoin, or any other cryptocurrency for that matter.
Plugging in assumptions that appear reasonable at least to us generates numbers that exceed current prices, demonstrating that it litecoinfinancial market analysis from the crowdsentifi far from litecoinfinancial market analysis from the crowdsentifi that, even with frothy investor sentiment and recent exponential price gains, Bitcoin is in a bubble. That said, if we are not in a bubble yet, we are sure there will be one in the end. As Didier Sornette noted in his working paper referenced in footnote 5 above a bubble starts with a new opportunity or expectation, which could be a ground breaking new technology or access to a new market.
Bitcoin, and the other cryptocurrencies, qualify on both counts and in that sense are ideally suited to bubble price dynamics -we just might not be at that point yet due to the fog relating to how to fundamentally value them.
Longer-term the battle will be between investors in the cryptocurrency world and governments loath to give up their monetary sovereignty. There is a regulatory risk element to consider. However, banning Bitcoin or other cryptocurrencies is far from straight forward given the borderless nature of the internet. To be successful it would likely require co-ordinated action at a global litecoinfinancial market analysis from the crowdsentifi and such things take time.
Moreover, the greater the market capitalization of cryptocurrencies including Bitcoin and the wider ownership becomes, the more politically difficult it will be to deal with the losses generated by banning their usage. In the end perhaps this is why Bitcoin is so important. Not because it could be the latest in a long line of speculative asset price bubbles, but because it represents the bulwark between centralized, hierarchically structured governments litecoinfinancial market analysis from the crowdsentifi decentralized nonhierarchical networks.
We judge it to be the opening salvo in a much more important battle… something deep for you all to ponder over during the holiday period. Although this method generates a relative measure of value for Bitcoin compared with its own historyit does not really give us a good absolute measure.
May 4, Tajinder Dhillon contributed to this report. May 1, Download the full report here. The universe of numbers that represents the global economy. Millions of hands at work, Close Amareos Ryan Shea has been employed in the financial sector for more than two decades. During this time he has held senior positions in several major sell-side and buy-side financial institutions in a variety litecoinfinancial market analysis from the crowdsentifi roles encompassing macroeconomic research, FX portfolio management and investment strategy.
Other recent articles by Amareos: Article Topics Macro Insight. Article Keywords assetbitcoinbubblecryptocurrencyequityGrowthMomentumovervaluationpricevalue. Get In Touch Sign Up for our weekly newsletter updates. Apr 6, Earnings Roundup:
Pree bitcoin usd. Today we are going to analyze Gunbot. Am talking about how to buy or sell any kind of coin for trade. Bitcoin Forum Yes also don t forget always read on announcement section at bitcointalk because on there new altcoins be updated also when the altcoins be added on poloniex except get early informations.