Bitcoin: Is it a bubble or is it not the bubble? Perhaps this is NOT the question we should be asking. Instead, maybe we should be looking at other asset classes and seeing how all of them seem overvalued relative to their history. Loose monetary policy and easy credit has led to some odd market behaviors in the past few years and has led to investors chasing both yields and returns.
As a result, many investors are adding alternative, nontraditional assets to their portfolios, including Bitcoin. Many people cite the dot-com bubble as evidence that Bitcoin is a bubble, but there are many differences. The largest among them is the size differential between the size of crypto and the tech market back in 2000. This is the result of traditional investors having nearly zero idea how to gain exposure to Bitcoin. The premium for the Bitcoin Investment Trust is evidence that these investors want in, but don’t any real avenues to do so and hence the approval of an ETF should lead to a huge increase in capital inflows.
In addition, financial advisors are beginning to look at the place of Bitcoin in the modern portfolio due to its low correlations with other asset classes. Yet, it still behaves similarly to gold in short-term volatility spikes during times of geopolitical instability, suggesting it has some hedging qualities. It also provides a safe haven for countries with no real alternative such as Venezuela.
The point is, there are tons of demand sources for Bitcoin. Meanwhile, equity valuations continue to extend, bond prices are still bubbly, and real estate is back to where it was in 2008 and securing mortgages is becoming easier again. Forget the mention of student loan debt.
If you come from traditional finance, give it a second thought as to whether or not Bitcoin is a bubble. While there is much “irrational exuberance,” there are many merits to the technology and value in the service it provides. For those of you coming from crypto, I hope you can also open your eyes to the possibility that Bitcoin can become overvalued too as the result of speculative behavior, rather than saying Bitcoin is going to $1,000,000 despite the disconnect between the increased market cap and number of daily transactions.
As usual, I hope you all enjoy the video. I’d love to hear your thoughts in the comments. I have posted the article for this video in 3 places. Pick your poison!
Seeking Alpha: https://seekingalpha.com/article/4114643-bitcoin-stocks-bonds-houses-happy-bubble
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Seeking Alpha: https://seekingalpha.com/author/truth-investor/articles