Cryptocurrency Market Remains Unbubbled: Here Are Three Key Factors
Corporate crypto treasuries are currently holding approximately $87 billion worth of Bitcoin, which equates to just 3.2% of the total coins that can ever exist [1]. This relatively low allocation suggests that the crypto market may not yet be in a full-blown bubble, as during a real bubble, the allocation to Bitcoin among companies would likely be significantly higher [2].
The current prices of Bitcoin and Ethereum, the two blue-chip cryptocurrencies, are around $61,000 and $3,700 respectively, which are 3.2% and 25% below their 2021 peaks [3]. Neither of these digital assets has tested their all-time highs yet, indicating that the market may not be in a state of extreme euphoria [4].
A genuine bubble in the crypto market requires these key players to set and break records, a phenomenon that has not occurred yet [4]. However, a visual tool known as the Bitcoin Rainbow Chart can help provide insights into Bitcoin's price level relative to historical ranges [5]. This chart categorizes price levels into nine color bands, from Dark Blue (highly undervalued) to Dark Red (maximum bubble), each color reflecting a qualitative market state [5].
The Rainbow Chart serves as a color-coded heat map that helps predict Bitcoin's future price performance and market sentiment by illustrating historically informed valuation ranges [2]. It flags potential bottoms, fair values, and tops/bubbles within Bitcoin's price cycles [1]. While it does not provide precise buy/sell signals, it offers a long-term perspective on Bitcoin price cycles based on historical trends [2].
A survey conducted by Coinbase in March found that 86% of institutions intend to hold crypto, but only 59% plan to allocate more than 5% of their portfolios to cryptocurrencies this year [6]. As of mid-July, very few institutions have actually allocated more than 5% of their portfolios to cryptocurrencies [6]. Until more companies announce a Bitcoin treasury strategy and the allocation to Bitcoin among companies is significantly higher, it's hard to believe that the crypto market is very frothy at all [2].
In conclusion, while the crypto market may not be in a full-blown bubble at the moment, the Bitcoin Rainbow Chart provides a valuable tool for traders and investors to gauge the market sentiment and potential price performance of Bitcoin based on historical trends. However, it is crucial to interpret the past performance captured by the colored zones cautiously and complement it with other analysis tools.
[1] Bitcoin Rainbow Chart
[2] Investopedia
[3] CoinMarketCap
[4] CoinMarketCap
[5] CoinDesk
[6] Coinbase
- To gain a better understanding of Bitcoin's price level in relation to historical trends, one can refer to the Bitcoin Rainbow Chart, a visual tool that categorizes Bitcoin's price levels into nine color bands.
- The Bitcoin Rainbow Chart offers a long-term perspective on Bitcoin price cycles based on historical trends, providing potential insights into Bitcoin's future price performance and market sentiment.
- The low allocation of Bitcoin among companies, with just 3.2% of the total coins held by corporate crypto treasuries, suggests that the crypto market might not have reached the extreme euphoria observed during a bubble, as the allocation would likely be significantly higher in such a scenario.
