Bitcoin: Is it a Bubble or a Fair value? Part 1

Figure 1 Source: Yahoo Finance

Summary:

1. Bitcoin has rallied significantly more than traditional asset classes since October 2023 and has corrected almost 20% since the announcement of the spot ETF.
2. The analysis is the first of two parts and points to more correction in the short-run of Bitcoin USD.

As the SEC approved the Bitcoin spot ETF two weeks ago, a natural question for many is whether one should add to the cryptos, specifically Bitcoin. It is noteworthy that this was also not the first ETF ever launched. However, it is also striking that during the last couple of weeks since the spot ETF launch, the Bitcoin USD dropped almost 20% from its peak. A natural question is whether to scale up into the Bitcoin portfolio. The article is the first part of the two to three series to answer the question on Bitcoins. All analysis and references are to Bitcoin USD.

Note that most of the BTC gains for the year, as shown in Figure 1 from finance.yahoo.com above, have been since October 2023, and the period also marked a transition in the view of many investors, resulting in significant gains in various asset classes, including the equity markets. Usually, there is a confluence of factors that lead to the gains, but the Federal Reserve Bank (FED) easing the rate hikes and increased chances of rate cuts were the dominant ones.