Gold entering bear market. Bitcoin to the moon!

See the latest Australian dollar analysis here:

Macro Afternoon

UBS has summed up my view on gold pretty well:

We forecast a further weakening of gold (USD 1,600/oz end-2021) and recommend investors manage their gold positions more actively.

Investors who hold gold strategically and don’t want to protect against near-term downside can pick up an additional yield by systematically selling the upside potential.

Our analysis shows that there is a positive volatility risk premium in gold option markets. Investors can make use of such premium to enhance their returns when engaging in gold. Without materially compromising on upside participation, investors could have generated additional returns 1-2% p.a.since 2008.

Gold has been under steady downward pressure sinceFebruary. Higher US nominal and real interest rates, as wellas broad USD strength, have weakened gold demand andsubsequently prices.

Yep. Not so for Bitcoin which, if it is some kind of new gold, it is not valued like the old stuff:

JPM tries its hand at valuing the unvaluable:

Theory suggests that, in equilibrium, the intrinsic value of Bitcoin relative to fiat currency is equal to the marginal cost of production, and, therefore, the economics of mining.

Prices have generally not been mean reverting around simple estimates incorporating the network hash rate and difficulty target.

This likely in part reflects other inputs, including dynamic pricing and availability of equipment …

… as well as more intangible considerations like political and environment risk, which have become more important as mining has been commercialized and increasingly requires access to large pools of institutional capital.

The most profitable locations tend to have worse environment records as well as higher levels of political risk,with the latter including stability, corruption, rule of law, regulatory quality, and governmental effectiveness.

Taken together, the true marginal cost of production is likely higher than simple estimates, although unlikely to close the gap with current market prices.

A “digital gold” framework suggests that the relative volatility between Bitcoin and gold is an important metric for long-term upside potential …

…were they to equalize, we would expect BTC/USD to trade around~130k, but this convergence will likely be a multi-year process; in the meantime,65k seems a more plausible medium-term ceiling.

Or, maybe it is the first truly global ponzi-scheme and the larger it gets the closer it is to failure at the hands of regulators.

Houses and Holes

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