Bitcoin Prices Are Trading At An ‘Extreme Discount,’ Says Bloomberg Analyst
Bitcoin is currently trading at a substantial discount, according to Bloomberg Intelligence senior commodity strategist Mike McGlone.
He provided this assessment as the digital currency, the most valuable in terms of market value, has been stuck below $25,000 since June, TradingView data shows.
McGlone relied on several observations when making his case, and he also cited technical analysis, focusing on a specific indicator.
“The benchmark crypto reached the lowest ever vs. Its 100-week moving average in July,” he noted, describing this situation as being an “extreme discount within an enduring bull-market.”
[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
The Bloomberg analyst also highlighted the importance of equities, which have repeatedly displayed a notable correlation to bitcoin.
“The bottom line is there are few more powerful forces in markets than when the stock market drops at high velocity like it did in 1H,” he stated.
McGlone also stressed the key role played by the Federal Reserve, which has been making aggressive rate hikes in 2022.
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This development could potentially provide headwinds for risk assets like cryptocurrencies and stocks by boosting the yields paid by lower-risk securities and making them more appealing.
“Don’t fight the Fed has been my mantra for risk assets since late last year,” he stated.
“Bitcoin and cryptos were a key part of the 2021 rush and thus part of the 2022 flush, but I see Bitcoin and Ethereum coming out ahead.”
“Bitcoin is well on its way to becoming global digital collateral in a world going that way and Ethereum is a primary driver of the digital revolution as evidenced by making possible the most widely traded cryptos — dollar tokens,” McGlone stated.
Bitcoin ‘Incredibly Oversold,’ Says Analyst
Budd White, cofounder and chief product officer of crypto software company Tacen, also weighed in on the matter, claiming that the digital currency is currently trading far below its true value.
“I’m still very much of the opinion that Bitcoin is not only incredibly oversold but also in a major accumulation zone. With every run up of price with Bitcoin, we both its market value and its utility value grow,” he stated.
“If you look at Bitcoin’s Market Value to Realized Value, or MVRV, we see it around one, which suggests the market value of this asset has fallen to its actual utility value,” White noted.
“This also suggests to me that because of the massive liquidations that we have experienced in recent months because of Terra, Three Arrows and the lot, the number of remaining forced sellers in the market is relatively small. Bitcoin, therefore, does seem to have a pretty sturdy bottom at or around $18,000.”
White noted that in spite of having strong support near the aforementioned price level, bitcoin has been “hovering” close to $23,000 lately.
“So far – and beware that crypto prices can change quickly and dramatically – it has very much held up despite a jobs report that came out that was way, way higher than expectations,” White added.
“Markets appear to already be pricing in even more aggressive monetary tightening to be taken by the Federal Reserve as a result of these soaring numbers. Stocks have dipped and yields have surged,” he noted.
“And, again, Bitcoin is just hovering,” said the market observer.
“I’m not saying that we are experiencing a decoupling of Bitcoin from the equities. Certainly we could be in for another leg down in terms of Bitcoin’s price.”
“But this relative strength tells me that the bulk of the Bitcoin selling might be behind. And barring any exogenous shock to markets – such as credit markets looking to be on the verge of breaking – I’m thinking that investors are still looking at Bitcoin as a decent buy at these levels,” White stated.
While White spoke to bitcoin’s recent price resilience, Tim Enneking, managing director of Digital Capital Management, stated that the cryptocurrency could once again fall to its recent low below $18,000, which it reached in June.
“Bitcoin has made a nice, if not totally convincing, move from $20k being recent resistance (until July 15) to being support (after that date, tested once on July 26-27, and solidly above since),” he stated.
“While that has been a nice move, it’s been quite slow and, seemingly, uncertain, especially given the summer doldrums,” said Enneking.
“As a result, most people are still hedging their bets as to whether BTC will again try to test the June 18 bottom at $17.6k.”
“Going forward, I would expect more generally slideways, slightly positive movement and that the recent bottom will not be retested. It’s a 50-50 proposition whether $20k will be retested,” he claimed.
The mindset of investors has been growing steadily stronger over the last several weeks, according to the Crypto Fear & Greed Index provided by Alternative.me.
This index, which ranges between zero for “Extreme Fear” and 100 for “Extreme Greed,” currently stands at 31, a figure that denotes “Fear.”
This figure has been following a steady, upward trend since June 19, when it reached a value of six, indicating a state of “Extreme Fear.”
Further, the index has stood at 20 or higher since July 18.
The picture below provides the latest reading for the measure.
Armando Aguilar, an independent cryptocurrency analyst, commented on how this measure has changed in recent weeks.
“The Fear and Greed Index has recovered from the low 20s after the major collapse of some protocols and crypto service providers,” he stated.
“Investors have returned to purchasing digital assets and the fear gauge has trended towards yellow/buy territory,” said Aguilar.
“Historically, the market has seen price momentum when the index reaches mid 30s,” he noted.
An Uncertain Outlook
Aguilar went on to provide a broader analysis, assessing the big picture.
“There is still macroeconomic and geopolitical pressures lurking so Bitcoin could hit previous lows if equities take a hit and investors retreat from risk-on assets,” he stated.
“Yet, given the current environment and if Bitcoin can break upper resistance levels, it could experience some positive price momentum.”
Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether, EOS and sol.