The king has no real rival.
Next, translate parts 1-6 of the Messari Report...
We all know that the upcoming crash might be milder than in previous cycles, but how much upside is left? Even with the tailwinds we just discussed, doesn't a $30 billion meme coin and Times Square NFT billboards feel like it's getting a bit out of hand?
Below are various signals the author will pay attention to:
Bitcoin
The king has no real rivals.
As a non-yielding monetary asset, as a priced and valued asset, it means Bitcoin is almost always judged relative to gold.
But Bitcoin does have "fundamentals" worth tracking.
Coin Metrics has come up with a measure called MVRV, which is a powerful metric that uses on-chain data to identify market tops and bottoms and provides information about the overall health of a crypto asset. It is the ratio of Market Value (market capitalization/market value) to Realized Capitalization (realized capitalization/realized value).
Realized capitalization is a metric created by Coin Metrics. It calculates each supply unit at the price it last moved on-chain (i.e., the price at its last transaction).This differs from traditional market capitalization, which uniformly values each supply unit at the current market price.
For example, if the current price of Bitcoin (BTC) is $10,000, traditional market capitalization would equalize the value of every coin to $10,000. If the total supply of BTC is 18 million, the total market capitalization of BTC would reach $180 billion (18 million multiplied by $10,000).
The realized value is calculated based on the price of each coin the last time it was transferred on the chain. Therefore, if the price of BTC at the time of a coin's last transaction was $2500, from the perspective of realized value, the price of this coin would be $2500 (not the current market price). The realized value is the sum of the values of all coins priced at this price.
The market value can remain unchanged while the realized value surges, and vice versa.
One is a snapshot of the number of bitcoins multiplied by the price; the other is a dynamic measurement that also brings liquidity into the equation.
If you're not a HODLer (BTC holder) and can't endure a four-year bear market, then it's often a good time to sell for profit whenever MVRV reaches 3; when MVRV is below 1, you should buy without hesitation or even sell your kidney to buy coins (the translator does not recommend this).
You can predict whether it is a bubble phase through MVRV, and this information is hard to determine from the price chart alone.
In the previous "double bubbles," the time MVRV stayed above 3 was getting shorter and shorter.
In 2011, MVRV stayed above 3 for four consecutive months.
In 2013, it stayed there for ten weeks.
In 2017, three weeks.
In 2021, three days.
What does it mean in dollar terms if history is to repeat itself? Reaching an MVRV of 3 again in 2021 would put BTC in the $100,000 - $125,000 range.
If things go completely beyond this range, then Bitcoin's next target will be the market capitalization of gold. At today's gold price, parity with gold implies a Bitcoin price of $500,000. So, there is still a 10x investment opportunity.
But compared to Bitcoin's historical returns, even the above To Da Moon scenario represents a relatively low upper limit.
Of course, unless the upper limit completely disappears, which means fiat money has failed and we default to pricing in Bitcoin. 1 BTC = 1 BTC.
ETH
There have been a lot of "reckless" comments recently from ETH bulls.
Can ETH outperform BTC in this cycle? Unlikely.
Due to Ethereum's ongoing scaling challenges, competition from Layer 1 alternatives, and the willingness of infrastructure companies and application builders to embrace the possibility of a multi-chain future.
However, the author still believes that the combined market capitalization of Layer 1 platforms may surpass that of Bitcoin; similar to how the combined market cap of FAMGA (Facebook, Apple, Microsoft, Google, Amazon) exceeds M1 (money supply: M1 - cash in circulation + checking deposits).
Can ETH's market cap surpass that of Microsoft, Apple, or Google? If it does, it would be 3-5 times its current price; if it surpasses the total of FAMGA, it would represent a 15-20 times increase. Currently, ETH accounts for 5% of FAMGA's market cap, which feels a bit low, but fully surpassing it would still be a daunting task.
Solana, etc.
The new "it girl" of cryptocurrencies is vying for third place in the crypto market cap ($60 billion); Polkadot ($40 billion) and Avalanche ($30 billion) are also making strong pushes.
If the argument for these Layer 1 alternatives is that they have higher beta than ETH, which will erode Ethereum's dominant market share, then you have to ask, what about Terra ($16 billion), Polygon ($12 billion), Algorand ($11 billion), Cosmos ($7 billion)?
Their current value trades all boil down to BD (business development) wins (distribution of applications) and hiring wins (ability to attract developers to build on non-Ethereum blockchains).
The "Ethereum killers" all have the resources to compete, but as an investor, your choice is either to pick a winner or buy the basket (i.e., short Ethereum's dominance as a Layer 1); however, either way, these assets are tethered to the value of ETH.
DeFi
Long DeFi, short bankers, amirite (Am I Right)?!
Despite DeFi's astonishing performance in 2020, its trading volume is less than 1% of the global banking market capitalization, indicating how much upside remains in the long term.
The prices of some top DeFi protocols have stagnated, but if there is confidence that the crypto capital markets will accelerate the replacement of centralized institutions, it may offer better risk-reward opportunities than other places in today's market.
Competition between protocols is fierce, regulatory scrutiny is coming, technical vulnerabilities are everywhere, systemic defaults could weaken the entire market, and high gas fees are eroding unit economics.
From many metrics (price-to-sales ratio and price-to-earnings ratio), DeFi remains compelling, but because it requires heavy reliance on mathematics, it is currently only accessible to Whale users.
NFT
Given that they are non-fungible and lack liquidity, it is difficult to apply any reliable "market cap" calculation to NFTs.
DappRadar estimated the NFT market capitalization at $14 billion in early September, and this figure has been rising ever since.
Given the design space that NFTs open up for the entire crypto user economy, the long-term size and scope of this submarket are very large.
Meltem believes that the overall value of NFTs can be compared to LVMH ($375 billion market cap), while Su Zhu believes that NFTs will account for 10% of the crypto market cap (which would be $225 billion based on today's calculation).
The author does not believe that the NFT trend has ended, but what remains are more opportunities for NFT creators and infrastructure builders, while most specific NFT projects do not possess investment value.