Summary The US economy shows mixed signals with inflation near 3%, decent GDP growth, but a softening labor market amid high 10-year yields and Fed politicization. Yet, US equities are at an all-time high. I think this is an effect of USD debasement; the S&P 500 is flat in gold terms since 2016 and declining in Bitcoin terms. Global expansionary monetary and fiscal policies, compounded by demographics, AI disruptions, and geopolitics, erode governments' credibility worldwide, including America's. I think Bitcoin on-chain metrics signal growing maturity: short-term cost basis rising to $110,000-$118,000, balanced long-term holder activity, and declining exchange balances. My updated valuation model targets $1 million in a bullish reserve asset case versus $100,000 in a bearish one; my expected value for a BTC bet, at $162,500-$275,000, exceeds the current ~$120,000 price. The state of the US economy has been a hot topic of discussion for most analysts lately. US inflation seems to be sticking closer to 3% than the theoretical 2% target. In that context, the Fed might not have much room for any significant cuts in the coming quarters. The economy has been growing, with recent estimates of up to 3.8% GDP growth in Q3. However, employment numbers give a conflicting view following multiple revisions, indicating a somewhat softening labor market. To complicate matters, we have an unorthodox administration pursuing isolationism and a government shutdown, all putting pressure on the bond market: the United States 10-Year Bond Yield ( US10Y ) yields 4.10%, a rate I would expect with a more hawkish Fed stance. America is far from being alone in being in a tricky situation, with Europe and China having their own issues - including a demographic crisis and stagnant economies. All the while, US equity markets are sitting at or close to All-Time-Highs. How is that possible? As I argued some time ago, the reason is that we are making a mistake when we think in USD terms. When measured in gold , the S&P 500 is roughly at 2016 levels. When measured in Bitcoin ( BTC-USD ), the S&P 500 has been on a decline since 2018 (see chart below). SP500 measured in gold (BITBO) I think it is not equities (nor gold or Bitcoin) that are rallying, but rather the USD currency (together with other fiat currencies) that is collapsing as a result of a “perfect storm” of macro indicators and questionable policymaking. That affects the price of “real” assets disproportionately - those that generate yields and/or are completely independent from governments. Today, I am updating my Bitcoin bull case, commenting on recent price movements, on-chain metrics, and Bitcoin ETF inflows. The picture that will emerge is that of an asset that, I believe, is rapidly maturing and should be present in most people’s portfolios as a hedge against a global crisis of governments’ credibility. Bitcoin: possibly the ultimate hedge against government recklessness In my past Seeking Alpha coverage , I discussed in detail why I see Bitcoin as an excellent bet in the context of a multipolar world order and the collapse of US credibility. I encourage readers to go through my previous work. In a nutshell, these are the two main reasons: Its technical qualities, which render it technically superior to gold and any other reserve asset. These include its durability, divisibility, fungibility, portability, verifiability, and, most important, its scarcity. The asymmetric nature of an investment in BTC today. Compared to gold, a “mature” Bitcoin can appreciate by a significantly greater order of magnitude if it does become a global asset. To be clear, I have nothing against gold per se. I do own a small position in gold as part of one of my retirement accounts. However, I think there is room for more than one global reserve asset, and I believe Bitcoin is poised to become one. Not only do I think Bitcoin has the technical qualities to become a global reserve asset, I also believe that we live in times where the need for a new global reserve is becoming more clear. From a macro standpoint, I see a strong acceleration of currency debasement and a global crisis in governments’ credibility (note how I use the plural in governments, as this goes well beyond America). Below, I summarize the monetary and fiscal policies by macro geographical region: Monetary Policy Fiscal Policy USA Turning expansionary, with the Fed being pressured into cutting rates. Expansionary - government deficits of 5%+ in times of full employment. Europe Expansionary - ECB interest rates at ~2% and Swiss rates at 0%, with inflation in check. Expansionary - EU overall deficit at 3%+, with core countries like France running wider deficits. China Expansionary - declining interest rates and stimuli packages . Expansionary - China is running an 8%+ budget deficit to finance stimuli packages. Japan Expansionary - with rates at 0.5%, Japan never really started a contractionary cycle. Expansionary - with one of the highest public debt-to-GDP ratios, Japan has been running wide deficits for decades. The above observations are only compounded by the following macro trends, which I think will put ongoing pressure on governments and central banks to maintain expansionary policies: An ongoing global demographic crisis , impacting Europe, China, and Japan in particular. Rising welfare costs (linked to pensions and healthcare) are a long term headwind against fiscal discipline. AI potentially disrupting the job market and leading to higher structural unemployment. While an AI industrial revolution has the potential to “fix” national debts by igniting a new wave of GDP growth, short- and mid- term it represents a threat from the perspective of government spending (governments will need to increase spending further if mass unemployment does happen). An increasingly multi-polar world, where non-aligned countries like India, Brazil, Indonesia, and those in the African continent will have more economic and demographic weight globally, to the detriment of Europe, America, and China. While in the past America could be trusted also in virtue of its sheer size, the future may look different. When it comes to America in particular, I see the ongoing politicization of the Fed as the potential fall of the last global bastion of monetary rigor. As per my table above, the Fed was (and perhaps is, to some extent) the only significant global institution to not yet run a fully expansionary policy of any sort. It is now starting to pivot, despite inflation being far closer to 3% than to its theoretical 2% target. In this context, I think we are witnessing a significant erosion in America’s credibility - something that can be seen in the decline of the US Dollar Index ( DXY ), as well as stubbornly high yields on American debt. The asymmetric bet: Is Bitcoin maturing as a reserve asset? To understand whether or not Bitcoin is maturing as a reserve asset, I will be analyzing the evolution of some on-chain metrics. Simply put, these are the movements that can be observed on Bitcoin's blockchain (its transparent ledger). Because Bitcoin is an asset that does not generate any future cash flow, I think on-chain metrics can prove very helpful in gauging what market participants are thinking and doing. First, I find it helpful to refer to its Short-Term Cost Basis (see chart below). This represents the overall cost basis of recent Bitcoin holders. I believe this is an important psychological threshold, as people may be less willing to sell their Bitcoin below their cost basis. Short Term On Chain Cost Basis, BTC ( Glassnode ) Historically, this resistance has served well as an indicator of recent market bottoms. It currently stands around the $110,000-118,000 mark and has been on a steady rise in the past months. To note, Long-Term Holders Realized Price is currently at ~$36,000 , a much lower figure. This metric is up ~22% since May 2024, the time of my first coverage of Bitcoin on Seeking Alpha. The fact that both metrics are rising is, in my opinion, a positive development for Bitcoin. It means that we are likely to see higher bottoms for BTC, even in case of market correction. In my Bitcoin valuation model, which I will update and cover later, I do take into consideration both figures. Another interesting on-chain indicator, in my view, is the Long-Term Holder Net Position change. This indicates whether long term BTC holders are selling or buying Bitcoin (see below). Long Term Holders Net Position Change, BTC ( Glassnode ) Contrary to what readers might think, I believe that long term holders selling is a healthy dynamic. Ultimately, if Bitcoin is really to mature into a reserve asset, it is necessary that it passes hands from long term holders to new holders, including institutional investors. The fact we are seeing a healthy balance between sellers and buyers indicates, in my opinion, that Bitcoin is passing hands while its price is still sustained by long term holders. Finally, for a possible short or midterm catalyst for BTC I like to look at the number of Bitcoins on exchanges. This metric has been on a steady decline for the past months, as the chart below shows. Bitcoin on exchanges (MacroMicro) This decline has been accelerating since the introduction of Bitcoin ETFs and increased regulatory clarity following the advent of Trump’s administration. On top of representing a potential catalyst (with Bitcoin demand eventually outpacing what’s readily available on exchanges), I see this trend as healthy for Bitcoin. It means that holders are increasingly choosing to move their BTCs to cold storage - a behavior consistent with people seeing Bitcoin as a global reserve asset. Updating my Bitcoin valuation model: a great entry point My Bitcoin valuation model, which I last updated in November last year, relies on two cases. My bullish case sees Bitcoin maturing as a global reserve asset, roughly matching gold in market capitalization. In my past model I used $750,000 per BTC as a target, but given gold’s sustained rally in the past years, I have updated my model to $1,000,000 per BTC . Note that Bitcoin at $1 million per coin would still be ~20% smaller than gold in terms of market capitalization at the time of writing. My bearish case sees Bitcoin as an “online casino.” In this scenario, Bitcoin would never mature but rather remain a failed experiment. I never believed that, even in a bearish scenario, Bitcoin could actually reach zero. That’s simply because there will still be value in using Bitcoin for short term trades (taking profit from its volatility) and for some fringe cases, such as sending money abroad or paying for goods and services in a relatively anonymous manner. For this scenario, my target is $100,000 per Bitcoin . This target is in between the short-term and long-term holders realized prices that I discussed in my previous section. For each of my two cases, I assign three scenarios of probability for them to happen: 25%, 35%, and 50% probability that the bullish case takes place. The outcome of my model is an expected value of a Bitcoin bet (as in, the probability that a scenario takes place multiplied by the target prices of said scenario) between $162,500 and $275,000 per Bitcoin. BTC valuation model, Geneva Investor (Author's work) Given that Bitcoin is trading at roughly ~120,000 at the time of writing, I believe today’s prices represent a great entry point - below even the lowest expected value of my valuation model. In plain terms, while Bitcoin has matured massively in the past years; with ETF launches, regulatory clarity, and global macro headwinds, I think its price has remained somewhat stable and represents an interesting entry point. I see Bitcoin as having the potential of eventually reaching my bullish scenario, at $1,000,000 per Bitcoin. That is why I rate it a STRONG BUY . Risks of investing in BTC today Just because Bitcoin has all the technical characteristics to be a global reserve asset, it doesn’t mean it will actually mature to become one. Bitcoin remains, even today, a relatively high risk bet and an asset with high volatility. While I believe Bitcoin’s risk profile is extremely attractive, readers should carefully consider whether it is adept to their profile and to what extent to integrate it in their portfolios (if at all). Regarding my valuation model, its main limits concern my assumptions. Readers can play and assign what they think are more “realistic” or likely probabilities for each scenario to happen. Assigning lower probabilities will inevitably result in lower expected values. As an asset that does not generate any yield or predictable cash flow, any valuation model has to inevitably rely on a somewhat qualitative assessment of probabilities. Finally, there is also a risk tied to opportunity cost. If Bitcoin is to remain an “online casino” (my bearish case), investors would not only be exposed to high volatility but also suffer from the opportunity cost of not having invested in better performing assets. Conclusion I see widespread governmental fiscal recklessness (both global and America-specific) only compounding an ever increasing monetary supply. America’s credibility crisis, signaled by the decline of the US Dollar Index and high yields on US debt, is only accelerating a global phenomenon where every major government and central bank is now in a de facto expansionary cycle. This is the world we live in, which I see as in dire need of global reserve assets to shield investors from asset (and not only consumer) inflation. Bitcoin happens to be such an asset, with all the technical characteristics to mature into what gold is today. That is not to say that Bitcoin will replace gold (at least in the short- or mid- term), but rather that there is room for more than one global reserve asset. Given this current macro context, I think an exposure to Bitcoin is recommendable for most investors. That's why I rate Bitcoin once again a STRONG BUY, seeing it as an asymmetric bet.
