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Hi Everyone,
To say the market has been hot lately would be a gross understatement. Some of the moves we've witnessed in the last few weeks have been the most powerful rallies that I have ever seen, with many coins gaining hundreds of percentage points since the start of the year.
There is no doubt that having Elon Musk joining the party, even though he was late, kept things going for a while. You might even say we turned the music up for him.
At this point, people have to be asking just how much longer the party might last?
So, without any intention of sounding bearish in a raging bull market, today I'd like to explore where we're at in the cycle and just how much room we may have to run. As we know, a retracement of 20% to 30% is common even in a bull market, and it could happen at any time.
On the other hand, the sheer interest in the space and new money that is reportedly being pumped into bitcoin as a hedge against copious amounts of money printing from Federal Reserve Chair Jerome Powell and the Biden administration could well send bitcoin right past the $50,000 mark and into the stratosphere.
In short, this market is volatile. We've gone from zero to lambo-moon inside of a few months, with all the correct justifications from the fundamental perspective, but looking at the charts and the technical analysis, things seem extremely overextended. |
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Overvalued stocks
We should also point out that the stock markets have been on a historic bull run as well. With a few short exceptions, we've basically been in a bull market since 2009. We could show the graph of the S&P 500 over the last few decades, but I think it is more apt to show the valuation over this time, as this is what stocks are actually worth.
In this graph we can see the earnings per share ratio for the S&P 500 for the last half a century. As we can see, stocks are really expensive right now, trading at 40 times the actual earnings they generate. |
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| Looking at history can sometimes be misleading though. Never before have we seen this level of money printing from the world's governments. We've shown this chart several times already, but I think it bears reposting. This is the M1 money supply going from $4 trillion at the beginning of last year to almost $7 trillion today. |
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| So that's a growth of about 70% in less than a year's time. Really not sure who needs to hear this, but we're very likely to see lots of inflation in the coming months. On top of that though, is President Joe Biden's plan to add another $1.9 trillion worth of stimulus, which will also increase the money supply. |
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Clear as a bell
There is no doubt that many who have recently started on their journey through the financial markets are already aware of this. In fact, I've already heard the same thesis or a similar form of it from more than a dozen people.
Asset inflation is real, and in order to improve our socioeconomic status, we need to invest. While we advocated this well before the pandemic struck, we feel it is even more pertinent now.
So not only is there more money in the system, there are more investors now than ever before.
For bitcoin, it's pretty clear that the fundamentals are in charge. There's a limited number of coins in the market, and the great race to see who can get them has recently been joined by many of the world's wealthiest people and companies.
For Ethereum, I also feel like there's something being built that does have a real value, and the market is constantly in search of what that value is, a task made more difficult without any historic precedent or standard valuation metrics such as the PE ratios we used for the stock market.
For many of the altcoins however, especially the ones that have yet to attract any real usage, I feel like this entire ordeal may end in tears. After all, a vast majority of startups do end up failing, so a lot of these new tokens could end up at zero.
Wishing you a wonderful evening. |
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Mati Greenspan Analysis, Advisory, Money Management |
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