Bitcoin Is Undervalued—Yes, Really!
October 07, 2021
Read Time 1 MIN
As Bitcoin breaks above $50K, it is worth noting that recent returns are coming from fundamentals and not multiple expansion.1 What we mean by that is that the ratio of network value (market cap) to on-chain volume (value transferred) is close to a 3-year low at 23x.2 We can think of this "NVT" (network value to transactions ratio) as similar to a "price to GMV" (gross merchandise value) ratio for Web 2.0 or fintech comps.
Bitcoin Network Value to Transaction Ratio (NVT)
Source: Glassnode. Data as of 10/4/2021.
While it is possible that El Salvador's Bitcoin gambit or some other as-yet undisclosed institutional purchase led to chunky one-time transfers temporarily inflating the denominator of "NVT," our base case is that the momentum is sustainable. At least twenty-seven publicly-traded corporations now own 1.11% of all Bitcoin outstanding, or $10.6B at the current exchange rate. Add in exchange-traded Bitcoin funds and the number is 4.7%.3 This small but fast-growing percentage represents lumpy institutional demand. Subtract the coins which haven't moved in more than five years (another 22.5% of current supply) and the available liquidity at the current price shrinks even further.4
Meanwhile on the demand side, there are several developments. Media reports suggest Brazil may be next to declare Bitcoin legal tender as soon as this month.5 Credit card reward schemes should kick in with at least eight such cards already launched in developed markets.6 Crypto forensic specialists such as Chainalysis and Merkle Science are no doubt at work trying to identify and track the wallets associated with these accounts; for now, data is limited. Micropayments from Bitcoin gaming are also growing from a very low base: VanEck has made several venture investments in this space including Zebedee7 whose recent blog post "how to play games for Bitcoin" detailed six such options.8 Lastly, seasonals are highly supportive with the average 10-year return for Bitcoin in October and November at 33% and 47%, respectively.9
And yet, I believe the Bitcoin network is undervalued by recent historical standards, and the relevant equities even more so in my view. Digital asset enablers, as tracked by the MVIS Global Digital Assets Equity Index, now trade at an average PE of 40x, down from a recent peak of well over 100x.10 Their market cap now approaches that of gold miners, reflecting the high growth and emerging profitability in the sector.11
MVIS Global Digital Assets Equity Index PE Ratio
Source: MVIS, Bloomberg, VanEck. Data as of 9/30/2021.
Gold Miners vs. Crypto Enablers (market cap)
Source: MVIS, Bloomberg, VanEck. Data as of 9/28/2021.
Related Topics
Related Insights
Related Topics
Related Insights
DISCLOSURES
Important Information Regarding Cryptocurrencies.
VanEck assumes no liability for the content of any linked third-party site, and/or content hosted on external sites.
MVIS Global Digital Assets Equity Index tracks the performance of companies that are participating in the digital assets economies.
NYSE Arca Gold Miners Index track the overall performance of companies involved in the gold mining industry.
The information herein represents the opinion of the author(s), an employee of the advisor, but not necessarily those of VanEck. The cryptocurrencies discussed in this material may not be appropriate for all investors. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
This material has been prepared for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any cryptocurrencies, or to participate in any trading strategy.
Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. References to specific securities and their issuers or sectors are for illustrative purposes only.
Cryptocurrency is a digital representation of value that functions as a medium of exchange, a unit of account, or a store of value, but it does not have legal tender status. Cryptocurrencies are sometimes exchanged for U.S. dollars or other currencies around the world, but they are not generally backed or supported by any government or central bank. Their value is completely derived by market forces of supply and demand, and they are more volatile than traditional currencies. The value of cryptocurrency may be derived from the continued willingness of market participants to exchange fiat currency for cryptocurrency, which may result in the potential for permanent and total loss of value of a particular cryptocurrency should the market for that cryptocurrency disappear. Cryptocurrencies are not covered by either FDIC or SIPC insurance. Legislative and regulatory changes or actions at the state, federal, or international level may adversely affect the use, transfer, exchange, and value of cryptocurrency.
Investing in cryptocurrencies, such as Bitcoin, comes with a number of risks, including volatile market price swings or flash crashes, market manipulation, and cybersecurity risks. In addition, cryptocurrency markets and exchanges are not regulated with the same controls or customer protections available in equity, option, futures, or foreign exchange investing. There is no assurance that a person who accepts a cryptocurrency as payment today will continue to do so in the future.
Investors should conduct extensive research into the legitimacy of each individual cryptocurrency, including its platform, before investing. The features, functions, characteristics, operation, use and other properties of the specific cryptocurrency may be complex, technical, or difficult to understand or evaluate. The cryptocurrency may be vulnerable to attacks on the security, integrity or operation, including attacks using computing power sufficient to overwhelm the normal operation of the cryptocurrency’s blockchain or other underlying technology. Some cryptocurrency transactions will be deemed to be made when recorded on a public ledger, which is not necessarily the date or time that a transaction may have been initiated.
- Investors must have the financial ability, sophistication and willingness to bear the risks of an investment and a potential total loss of their entire investment in cryptocurrency.
- An investment in cryptocurrency is not suitable or desirable for all investors.
- Cryptocurrency has limited operating history or performance.
- Fees and expenses associated with a cryptocurrency investment may be substantial.
There may be risks posed by the lack of regulation for cryptocurrencies and any future regulatory developments could affect the viability and expansion of the use of cryptocurrencies. Investors should conduct extensive research before investing in cryptocurrencies.
1 Multiple expansion and contraction refers to the phenomenon by which stocks may rise or fall without changes in earnings expectations, due to changes in investor sentiment, interest rates, etc.
2 Source: Glassnode.
3 Sources: Public Companies with Bitcoin Holdings - CoinGecko; http://charts.woobull.com/bitcoin-etf-corporate-holdings/
4 Source: Glassnode.
5 https://coinquora.com/brazil-set-to-adopt-bitcoin-as-its-legal-tender/, https://www.pymnts.com/news/payment-methods/2021/in-brazil-bitcoin-acceptance-comes-with-more-regulation/
6 https://www.investopedia.com/best-bitcoin-debit-cards-5114761#compare-the-best-bitcoin-debit-cards
7 VanEck’s venture capital partner Cadenza owns less than 1% of Zebedee.
8 https://blog.zebedee.io/play-games-for-btc/
9 Source: Bloomberg.
10 Source: MVIS, Bloomberg, VanEck.
11 Source: MVIS, Bloomberg, VanEck.
Information provided by Van Eck is not intended to be, nor should it be construed as financial, tax or legal advice. It is not a recommendation to buy or sell an interest in cryptocurrencies.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results.
Related Funds
DISCLOSURES
Important Information Regarding Cryptocurrencies.
VanEck assumes no liability for the content of any linked third-party site, and/or content hosted on external sites.
MVIS Global Digital Assets Equity Index tracks the performance of companies that are participating in the digital assets economies.
NYSE Arca Gold Miners Index track the overall performance of companies involved in the gold mining industry.
The information herein represents the opinion of the author(s), an employee of the advisor, but not necessarily those of VanEck. The cryptocurrencies discussed in this material may not be appropriate for all investors. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.
This material has been prepared for informational purposes only and is not an offer to buy or sell or a solicitation of any offer to buy or sell any cryptocurrencies, or to participate in any trading strategy.
Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. References to specific securities and their issuers or sectors are for illustrative purposes only.
Cryptocurrency is a digital representation of value that functions as a medium of exchange, a unit of account, or a store of value, but it does not have legal tender status. Cryptocurrencies are sometimes exchanged for U.S. dollars or other currencies around the world, but they are not generally backed or supported by any government or central bank. Their value is completely derived by market forces of supply and demand, and they are more volatile than traditional currencies. The value of cryptocurrency may be derived from the continued willingness of market participants to exchange fiat currency for cryptocurrency, which may result in the potential for permanent and total loss of value of a particular cryptocurrency should the market for that cryptocurrency disappear. Cryptocurrencies are not covered by either FDIC or SIPC insurance. Legislative and regulatory changes or actions at the state, federal, or international level may adversely affect the use, transfer, exchange, and value of cryptocurrency.
Investing in cryptocurrencies, such as Bitcoin, comes with a number of risks, including volatile market price swings or flash crashes, market manipulation, and cybersecurity risks. In addition, cryptocurrency markets and exchanges are not regulated with the same controls or customer protections available in equity, option, futures, or foreign exchange investing. There is no assurance that a person who accepts a cryptocurrency as payment today will continue to do so in the future.
Investors should conduct extensive research into the legitimacy of each individual cryptocurrency, including its platform, before investing. The features, functions, characteristics, operation, use and other properties of the specific cryptocurrency may be complex, technical, or difficult to understand or evaluate. The cryptocurrency may be vulnerable to attacks on the security, integrity or operation, including attacks using computing power sufficient to overwhelm the normal operation of the cryptocurrency’s blockchain or other underlying technology. Some cryptocurrency transactions will be deemed to be made when recorded on a public ledger, which is not necessarily the date or time that a transaction may have been initiated.
- Investors must have the financial ability, sophistication and willingness to bear the risks of an investment and a potential total loss of their entire investment in cryptocurrency.
- An investment in cryptocurrency is not suitable or desirable for all investors.
- Cryptocurrency has limited operating history or performance.
- Fees and expenses associated with a cryptocurrency investment may be substantial.
There may be risks posed by the lack of regulation for cryptocurrencies and any future regulatory developments could affect the viability and expansion of the use of cryptocurrencies. Investors should conduct extensive research before investing in cryptocurrencies.
1 Multiple expansion and contraction refers to the phenomenon by which stocks may rise or fall without changes in earnings expectations, due to changes in investor sentiment, interest rates, etc.
2 Source: Glassnode.
3 Sources: Public Companies with Bitcoin Holdings - CoinGecko; http://charts.woobull.com/bitcoin-etf-corporate-holdings/
4 Source: Glassnode.
5 https://coinquora.com/brazil-set-to-adopt-bitcoin-as-its-legal-tender/, https://www.pymnts.com/news/payment-methods/2021/in-brazil-bitcoin-acceptance-comes-with-more-regulation/
6 https://www.investopedia.com/best-bitcoin-debit-cards-5114761#compare-the-best-bitcoin-debit-cards
7 VanEck’s venture capital partner Cadenza owns less than 1% of Zebedee.
8 https://blog.zebedee.io/play-games-for-btc/
9 Source: Bloomberg.
10 Source: MVIS, Bloomberg, VanEck.
11 Source: MVIS, Bloomberg, VanEck.
Information provided by Van Eck is not intended to be, nor should it be construed as financial, tax or legal advice. It is not a recommendation to buy or sell an interest in cryptocurrencies.
All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results.