This is possibly a controversial subject as there are some super die hard bitcoin maxis out there and I understand everyone has there own opinion, not to mention there is no proof of knowing the best way to do this.
But one thing I have noticed over the last few years is people who have only ever traded crypto, have the worst idea on how to evaluate an asset.
When I first starting trading I only traded crypto, and I firmly believe for various reasons crypto is a great place to learn how to trade financial assets.
However some people never make it past that point and just stay in there little crypto bubble with out venturing out into the world of fx, commodities or equity markets.
I feel because of this, they are very closed off to more traditional investing or trading technique's and metrics that are pretty well known across other asset classes.
I hear people say things all the time like "this coin is so undervalued is should be 10x this price by the end of the year" but when you ask them..."why?" they dont have an answer other than some recycled marketing dribble.
The truth is your typical crypto bubble trader wouldn't have the slightest clue in how to actually evaluate an asset and would rather rely on hopium or something they heard from your generic YouTube influencer.
If you mention things like discount cash flow method, pe ratios, secular trends, book value, comparable or risk adjusted returns they will look at you like a stunned mullet.
I understand when it comes to some crypto coins and tokens they resemble more of a currency so more understanding of economics is needed to probably estimate the value of these coins.
Its a bit hard to use tradition metrics like gdp, inflation etc when it comes to a lot of crypto assets because... well.... a lot of them are just theories and promises and dont really do anything "yet"
The one metric I have always found to be solid when it comes to Bitcoin is the NVT which uses a few data points and on-chain metrics to track things like wallet transactions, frequencies and sizes to see how many people are actually using the network and to what degree.
This IMO is one of the best ways to find some sort of intrinsic value of an asset like bitcoin as it falls more into the "Network Effect" and NO I'm not talking about how many people are "HODLING" bitcoin I'm talking about people using bitcoin, paying for things, sending it around and transacting, you know actually using it for its intended purpose.
The data is cross referenced against price action to determine if the asset is over valued in price compared to its actual use case.
I have revisited this chart a few times over the years and I find it pretty interesting that when we move into a bullish uptrend and have volatile price action we quickly fall into the over valued region but we can stay there for some time and price can continue to rise (making this indicator pointless for buy and sell signals if thats what your thinking) How ever what you can see is that every time we have finished a block of over value, we are met with some pretty length and large retracements some as far as 70% and some lasting years....
Do you think bitcoin is moving to fast for its own good?
Based on the data and NVT chart it still seems like bitcoin is continuing on a positive mean due to network effect but it tends to get a little a head of it self from time to time, maybe because of the people involved in participating in this market have slightly higher risk apatite than others and are happy to pile on risk during high volatility?
Anyway food for thought, I brought it up with my students a few months ago during that distribution point around 60k, Im not sure if anyone paid attention but if they did they would be sitting pretty comfy right now.
What's your thoughts, Do you think the NVT can be a good gauge on evaluating bitcoins intrinsic value?
But one thing I have noticed over the last few years is people who have only ever traded crypto, have the worst idea on how to evaluate an asset.
When I first starting trading I only traded crypto, and I firmly believe for various reasons crypto is a great place to learn how to trade financial assets.
However some people never make it past that point and just stay in there little crypto bubble with out venturing out into the world of fx, commodities or equity markets.
I feel because of this, they are very closed off to more traditional investing or trading technique's and metrics that are pretty well known across other asset classes.
I hear people say things all the time like "this coin is so undervalued is should be 10x this price by the end of the year" but when you ask them..."why?" they dont have an answer other than some recycled marketing dribble.
The truth is your typical crypto bubble trader wouldn't have the slightest clue in how to actually evaluate an asset and would rather rely on hopium or something they heard from your generic YouTube influencer.
If you mention things like discount cash flow method, pe ratios, secular trends, book value, comparable or risk adjusted returns they will look at you like a stunned mullet.
I understand when it comes to some crypto coins and tokens they resemble more of a currency so more understanding of economics is needed to probably estimate the value of these coins.
Its a bit hard to use tradition metrics like gdp, inflation etc when it comes to a lot of crypto assets because... well.... a lot of them are just theories and promises and dont really do anything "yet"
The one metric I have always found to be solid when it comes to Bitcoin is the NVT which uses a few data points and on-chain metrics to track things like wallet transactions, frequencies and sizes to see how many people are actually using the network and to what degree.
This IMO is one of the best ways to find some sort of intrinsic value of an asset like bitcoin as it falls more into the "Network Effect" and NO I'm not talking about how many people are "HODLING" bitcoin I'm talking about people using bitcoin, paying for things, sending it around and transacting, you know actually using it for its intended purpose.
The data is cross referenced against price action to determine if the asset is over valued in price compared to its actual use case.
I have revisited this chart a few times over the years and I find it pretty interesting that when we move into a bullish uptrend and have volatile price action we quickly fall into the over valued region but we can stay there for some time and price can continue to rise (making this indicator pointless for buy and sell signals if thats what your thinking) How ever what you can see is that every time we have finished a block of over value, we are met with some pretty length and large retracements some as far as 70% and some lasting years....
Do you think bitcoin is moving to fast for its own good?
Based on the data and NVT chart it still seems like bitcoin is continuing on a positive mean due to network effect but it tends to get a little a head of it self from time to time, maybe because of the people involved in participating in this market have slightly higher risk apatite than others and are happy to pile on risk during high volatility?
Anyway food for thought, I brought it up with my students a few months ago during that distribution point around 60k, Im not sure if anyone paid attention but if they did they would be sitting pretty comfy right now.
What's your thoughts, Do you think the NVT can be a good gauge on evaluating bitcoins intrinsic value?