Diamonds aren’t anything special.
At the end of the day, they’re rocks mined out of the ground. Shiny rocks, but still just rocks.
They only have value because everyone believes they do. And we have De Beers to thank for that.
De Beers is the world’s largest diamond miner. In 1947, they launched the still-running “A diamond is forever” ad campaign. Seventy-five years later, almost every American woman owns a diamond ring.
One clever ad created an entire market.
Now, the same thing is happening again… But the rocks are digital and the miners are semiconductors.
Bitcoin miners have helped popularize digital currency. Using memes like “HODL” (hold on for dear life) and “strong/diamond hands,” they’ve convinced countless people that Bitcoin is real — and that they should hold it through 80% losses.
Crypto diehards are convinced that Bitcoin will come roaring back from this bear market. Then, everyone will see they’ve been right all along.
But unfortunately for them, this chart is saying something much different…
Finding Bitcoin’s Fair Value
If you want to find out the value of your diamond ring, you simply take it to a jewelry appraiser.
But valuing an intangible asset like Bitcoin is much more complicated.
Some say it’s the price. If someone decides to pay $60,000 for a Bitcoin, that’s its value.
I don’t like that model, because it doesn’t work in an illiquid market.
ARK research shows nearly 15 million of the 19 million Bitcoin in circulation are in “locked supply” — held in wallets or locked up in DeFi protocols. That means just 23% of the total Bitcoin in circulation are liquid.
If that locked supply were to suddenly unlock, the price would crash.
And it bears out in the volume. Less than $250 million worth of Bitcoin traded hands on the most active day last week. On that same day, more than $6 billion worth of stocks traded.
In Bitcoin, there’s not enough liquidity to sell significant quantities at the market price. We see proof of that all the time with brief, 15-minute crashes.
A better value indicator is a metric called the market value to realized value (MVRV).
MVRV was designed specifically for Bitcoin. It shows whether it’s overvalued or undervalued at any point in time.
MV is the market price. RV is the average price all mined coins last traded at — or, put another way, the average price all Bitcoin owners paid. MVRV is the ratio of the two.
In economic terms, MVRV measures the amount of inflation in Bitcoin. So to find the fair value of Bitcoin, we have to “deflate” the price of Bitcoin with MVRV.
Here’s what that looks like:
(Click here to view larger image.)
Bitcoin’s fair value is the blue line. It’s been remarkably steady near $22,000 for the past year. When Bitcoin was higher than that, it was a speculative frenzy.
Bitcoin has been overvalued for almost three years now. This bear market has simply put the crypto in its place. It’s once again trading near its fair value.
And if you ask me, we’ll see it trade at undervalued levels before the next bull market starts.
This is NOT a time to buy Bitcoin. According to Mike Carr, it could fall another 50% from here.
Instead, you’re much better off actively trading it on the way down… and back up.
With Mike’s custom indicator, members of One Trade just leveraged a small rally into a 100% gain — in two days.
And they’ve already rolled their money into the next trade, betting on a further decline.
To get the full details straight from Mike, click here now. (This video is only up through tonight. Don’t miss it.)
Senior Analyst, True Options Masters