BTC/USD - Bitcoin US Dollar

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Since September one could have looked at a screen and seen Bitcoin quoted at: Extreme price swings especially when in an upwards direction tend to have the same attention-grabbing effect on investors as blood in the sea does on sharks [3].

However, another financial asset price has witnessed price gains of a similar magnitude in recent months without attracting anywhere near the same level of interest. That said, some plausible theories have been proposed. The first, is rising expectations that the SNB will follow the lead of the Basle-based BIS [6]who in bought out its private shareholders at a substantial premium they paid CHF 16, — roughly double the prevailing market price [7].

The problem with this explanation is why now? SNB critics are more usd to bitcoin chart 201617 with how it manages its bloated balance sheet — see below. Barring a substantial appreciation of the CHF, which the Swiss central bank is well-placed to stifle because of the ability to print its own currency [10]dividend payments look very coupon-like [11]. Hence, so the argument goes, SNB shares are analogous to a government-backed perpetual bond which pays a nominal annual amount more than double the prevailing yield on a year government bond, even taking into account the recent stellar appreciation of the share price.

With a float of onlyshares SNB equities are clearly unsuitable for many investors, so why bring this up? For many Bitcoin detractors, it is a risky asset whose volatile price surge is the classic hallmark of a bubble. Such analysis has embedded within it a deep hindsight bias.

Such comparisons are deeply flawed, although we admit they make for an interesting looking chart [12]. Bubbles can ONLY occur when prices exceed their fundamental values, below this level price gains even if exponential are just markets working efficiently or super efficiently.

Hence, no bubble, notwithstanding its surging price. For Bitcoin this is more challenging. Because it is so innovative, there is much more uncertainty regarding its fundamental or intrinsic value not only in terms of the number, but also the valuation method.

For the naysayers anything above 0 is overvalued, whereas for its proponents it could be worth up to USD 1mn usd to bitcoin chart 201617. Moreover, when we look at crowd-sourced sentiment towards Bitcoin it has been rising recently positive sentiment momentum but is far from extreme when compared with previous sentiment peaks. Typically, it is assumed that the lower the price volatility, the safer the asset. For example, cash is considered safer than government bonds [15]which in turn are considered safer than credit or equities.

We are conditioned to think about an asset class as having specific safeness characteristics. Indeed, many asset allocations are usd to bitcoin chart 201617 on this assumption.

However, in the two examples above, both have experienced high price volatility, although most investors would usd to bitcoin chart 201617 the latter to be much safer than the former. Think back a few years ago. Investors worried about a repeat of the Great Depression were dumping global usd to bitcoin chart 201617 and scrambling into government bonds — an allocation shift that was supposed to make their portfolios less risky ie.

Which was the safer asset at that point in time? Indeed, as many a credit trader knows…. Calculating, or more accurately estimating, intrinsic value is the bread-and-butter of value investors, but it is a far from usd to bitcoin chart 201617 exercise because of the high number of potential moving parts — both at the macro and micro level. As an additional cross-check, investors can also usd to bitcoin chart 201617 crowd sentiment because emotions usd to bitcoin chart 201617 the fuel that pushes asset prices away either above or below from their intrinsic value.

Buying an over-valued asset in the hope of further price gains ie. Indeed, Oaktree co-Chairman Howard Marks underlined the importance of sentiment when he said that…. Given that tracking crowd sentiment is our bread-and-butter, it should hardly be a surprise that we wholeheartedly concur with Marks on this point if not on Bitcoin.

In the above charts the y-axis measures the difference between US equity sentiment specifically the SP and in the absence of a crowd-sourced debt usd to bitcoin chart 201617 indicator our sentiment-based nominal GDP growth proxy inverted [18]. Hence, a positive reading on the y-axis signifies the crowd is relatively more bullish on equities than bonds whereas on the x-axis it signifies an outperformance of equities relative to bonds.

Both during the exceptional circumstances hence the two different charts of the Great Recession and in the period following there is a clear negative relationship [19]. In other words, relative crowd sentiment between equities and bonds generates a contrarian signal over a one-year return horizon. As occurred in the first few months ofwhen equity sentiment was extremely bearish and bond sentiment extremely usd to bitcoin chart 201617, this warns that — at such points in time — equities are safer to own than government bonds.

Not what you were taught at grad school, and not the strategy many investors implemented back then, but as hindsight shows, true nonetheless. They would also be better-served by not making the assumption that exponential price dynamics automatically usd to bitcoin chart 201617 to a financial bubble.

It does not [21]. A great example of where historic price volatility and investor perceptions of safety diverge — but more on that later. Hence, rising profitability in the event of a weaker CHF cannot be the reasons for the share price rise. As an extreme upper limit, one could just about justify a USD 2mn valuation assuming that Bitcoin solely, and fully, replaces all of the USD tr in fiat monies around the globe.

However, this is something that governments would never allow as maintaining control over the money supply and seigniorage are simply too attractive, not to mention other potential virtual currency players. However, because inflation rates tend not to be zero in real terms it does.

For further explanation of this indicator — see: Your email address will not be published. Now, think of one of the safest institutions in such a country. SNB Share Price vs. A Recent Example Source: Leave a Reply Cancel reply Your email address will not be published.

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