Bitcoin appears to be trading significantly below its typical valuation compared to gold and the broader money supply, suggesting the cryptocurrency might be on the verge of a substantial price increase. Samson Mow, CEO of Jan3, a Bitcoin tech firm, points out that Bitcoin currently sits 24% to 66% below its long-term trend relative to gold’s market cap and global money supply, while gold itself is considered overextended.
Mow’s analysis leans heavily on the Bitcoin-to-gold ratio Z-score, which measures how far Bitcoin’s price strays from its historical average against gold’s value. A negative Z-score indicates undervaluation, with past observations showing that values dropping below -2 often precede significant rallies in Bitcoin’s price. Presently, the Z-score hovers around -1.24-still below average but not yet at the critical threshold for a major rally.
Historical echoes: rally patterns from past crises
Looking back, when the Bitcoin-to-gold Z-score fell below -3 in late 2022 during the collapse of the FTX exchange, Bitcoin soared over 150% within a year. A similar drop below -2 occurred in March 2020 amid the COVID-19 market turmoil, preceding a 300% surge in Bitcoin over the subsequent year.
These historical parallels demonstrate how periods of distress and undervaluation against gold can precede strong rebounds. Yet, it’s important to note that such rallies tend to follow significant market shakeups, not gradual declines.
Contrasting views amidst mixed market signals
Despite these historical signals, many analysts remain cautious or bearish. Some predict Bitcoin could dip as low as $50,000, citing ongoing geopolitical tensions and investor uncertainty. This contrasts sharply with Mow’s more optimistic view.
Recent price action adds complexity to the picture: Bitcoin fell over 50% last year from its peak before recovering partially to around $66,400, buoyed by unexpected developments in global affairs. Such volatility showcases the unpredictable interplay between macroeconomic factors and crypto markets.
Additionally, Bitcoin’s relationship with gold-a traditional safe-haven asset-reflects broader shifts in investor appetite for risk and inflation hedges. While Bitcoin’s volatility remains high, its relative discount to gold raises questions about whether traders are undervaluing its potential as a long-term store of value amid uncertain economic conditions.
Still, betting on a major rally requires patience and tolerance for continued fluctuations. For now, Bitcoin’s undervaluation signals opportunity but not immediate certainty.