Bitcoin: The Beauty of Mathematics (Part 53)

hey everyone and thanks for jumping back into the crypto today we're going to talk about Bitcoin the beauty of mathematics Part 53 if you guys like the content make sure you subscribe to the channel give the video a thumbs up and also check out the sale on into the cryptoverse premium at intothe cryptoverse [Music] that I believe gives you access to this chart in case you want to follow along anyways as of December 1st 2024 the total cryptocurrency market capitalization is coming in at around 3492 trillion and the fair value logarithmic aggression trend line is

at approximately 3146 trillion now this represents a slight overvaluation of approximately 11% now the way this works and we've been tracking this for a number of years is the asset class tends to go through periods of overvaluation and undervaluation and rationally speaking you know it would obviously be nice if the market just always tracked the fair value logarithmic aggression trend line which more or less helps us identify you know the rate of of real World Adoption of the cryptoverse okay but that's not the way the markets work human psychology is a very you know complicated

thing and so what ends up happening is we get these boom and bust Cycles where you will spend years below the fair value and sometimes you'll spend years above the fair value and what the general idea is to ACC culate when you're below the fair value that doesn't mean you necessarily have to sell the minute you go above the fair value but you can see that at some point above the fair value is the time to start at least considering it right um but you'll see that I mean there's been plenty of time spent below

the fair value in the past now let's go back through these and and look at what happened in Prior Cycles so what you'll notice for this cycle so far is that Bitcoin you know went durably undervalued in August of 2022 this s this is the total cryptocurrency market cap it's not just Bitcoin but it went durably undervalued in August of 2022 and it got above the fair value in March of 2024 it did something very similar last cycle we saw it go undervalued and then it went overvalued in June of 2019 this was one of

those comparisons we made to 2019 back in March where we suggested that we would likely get a 6 to 9 month downturn right 6 months just normal right 9 months if you get a landing somewhere between 6 to n months we saw Bitcoin in the entire asset class break out about the 7 to8 month Mark so if you look at that you can see that it resembles this to a large degree now what's really interesting about it is this isn't the first time we have seen that pattern even though it might feel like it if

you go back a few Cycles ago in the first cycle after the bare Market Bitcoin went undervalued it then had a rally to sort of a local top and then went undervalued again went back above the fair value for a few days back down Consolidated and then went off now let's take a look every cycle when did the asset class go durably overval and when I say durably overvalued I mean at least 6 months right not not any of this nonsense where it just goes above it for a few weeks right or or even in

this case over here like in 2019 where it did go above it but I'm talking about you know six to 12 months of durable overvaluation not just a little bunny Hill above the fair value now if you do that if you do that you will see that last cycle we went durably overvalued you can see it sort of went overvalued in August but then it came back down we didn't go durably overvalued until November of the having year right November of the having year well right now it's November of the having year right and you

can see that Bitcoin has made and the entire asset class has made a similar move now that doesn't mean it it is immune to Corrections we saw uh last cycle we got above it again in the having year and then we got another selloff now that was the pandemic so I'm not suggesting we should plan for that but if you go back and look you know a few Cycles before you'll see another example where we got above the fair value and then we had another drop and then the market Consolidated and then went up but

last cycle it got above the fair value durably in November of 2020 now we didn't know it at the time right but when you look back you can see that it didn't go undervalued again until June of 2022 so you're talking about a year and a half later now if you look at the cycle before that the asset class didn't go overvalued until April of 2017 that would represent another 5 months from now essentially now arguably it's not 5 months depending on how you measure it back then if you measure it from the having start

back then the having was later in 2016 right than it was this cycle right this cycle the having occurred in April the 2016 cycle I believe it occurred in July so May June July You could argue that's three months different so perhaps if you equate it to this cycle it would correspond to January but regardless April 2017 Q2 of the post having year cycle before that it took until February of 2013 so q1 of the post having year and if you go before that you can see that it went durably overvalued in April of 2011

which was in fact a preh having year so this is where the market is right now right you know it's it's been undervalued according to this chart essentially since June of 2022 now what I like to do is take the percent difference and actually what we can also do is we can overlay the summary risk onto the chart and you will see you know historically when it's a good time to generally acculate um and then once it starts hitting these red dots you know it's usually a good time to run for the hills um but

what I'd like to do is I'd like to take the percent difference between the total market cap and the fair value logarithmic regression trend line so if you do that you get a chart that looks like this all right now when you look at this chart what you'll notice is that it tends to bottom out at around 40 to 50 to 60% undervaluation right undervaluation now you can see that at the current time this cycle the the most undervalued it got was back in October of 2023 now obviously Bitcoin in the entire asset class was

higher in October 2023 than it was in October 2022 but you have to remember that the reference point is a monotonically increasing function right the red line continues to go up so you know while the fair value in 2022 was 1 trillion the fair value in late 2024 is close to 3 trillion so if for example something catastrophic happened and the asset class dropped back down to the lower logarithmic aggression trend line that would put it at around 1 trillion which would still be higher than it ever was you know or than it than it

was back in 202 too but it would be more undervalued because the fair value is is just that much higher so hopefully that makes sense and I'm not saying that we have to see something like that I'm just saying you know it's worthwhile to always be prepared for all possible outcomes and you know and a lot of times what I what I've what I've tend to notice is that it kind of seems like the markets sort of is sort of skip a cycle in in how they behave and what I mean is that like if

you were to go look at at Roi after the having for Bitcoin you know in in Cycles one and three Bitcoin basically only went up after the having right there it didn't dip back down below the having price but in Cycles two and four you can see that Bitcoin did dip back below the price when the having occurred so that's what I mean you know if you look at it like that you can see that every cycle while slightly different tends to mimic maybe two cycles ago rather than just simply um the last cycle so

just something to keep in mind but with that said right with that said it's always important to remember that at any moment anything is possible um and and so I would say in this scenario you always hope for the best you plan for the worst and hopefully the asset class just continues to go more and more overv valued right above the fair value now that terminology might not sit well with a lot of people to say overvalued but you have to recognize that you know whenever the asset class does go durably overvalued it normally lasts

for well over a year the question is is are we entering that right now or is there going to be something that comes along um that makes us question that and then we go durably overvalued in the post tapping year it's not what I'm I'm not really 100% sure obviously as to how it's going to play out but it is an interesting thing to think about you know last cycle when the asset class went overvalued again you know sort of after rate Cuts began you can see that it's almost it's funny how the asset class

has basically 10x in the last four and a half years right because back then total market cap was 38 billion today total market cap is 3.4 trillion so the entire asset class has essentially 10x from that point it always feels like it can't possibly keep Pace you know with this with this trend and then you look back after a few more years you're like well it's did a pretty good job so I would continue to look at this and and see if it can stay above this level if you look at at where it previously

got to sort of after the second tag above the above the overvaluation obvious viously the 2016 2017 cycle once it went overvalued it was just Off to the Races there was no looking back right and you have to be aware that that is a potential outcome here um there's no telling I mean if Bitcoin can break through 100K who knows but if you look at the other two cycles right here after it sort of went overvalued back down and then slightly overvalued back down and then here overvalued back down slightly overvalued back down and then

they went and even here right when it went overvalued it went it went back down a little bit so I guess the thing to look for is how overvalued would it need to go in order to reach a level that at which point historically the market just keeps on going more and more overvalued so you can see that in 2012 it hit about 5 and a half% overvalued got another correction and then continued on um last cycle it got about 14 about 15% overvalued before getting another correction right now it's currently about 11% above the

fair value but in the 2016 cycle you can see that once it got above it right once it hit say 20% 30% overvalued and just like every other cycle once it hits 20 to 30% it just continues to keep on going so certainly an interesting way to to view the market and you know I like to put up this chart because it's easy to get you know sort of bogged down by what's happening on the day-to-day time frames and and trying to figure out you know like is the pump right now or is the pump

that's going on right does it represent a super overvalued market or does it not um and what you see is that at least you know throughout this last few years the only time that it is really gone overv valued uh was in March 2024 and then now it's done doing it slightly again so yes I mean the market is is a little bit heated obviously um but it's also not nearly as heated as it was back in 2021 and 28 2017 and 2013 and 2011 and that's the you know we talk about the social risk

right the social risk is you know helps us identify when is the market actually overheated and I always like to pull that up because sometimes it it feels like something is something specific is going on right it feels sometimes like retail is back in full force and there's just no denying it and and everyone's already invested that's going to be invested but the funny thing is if you look at the social risk um we've had some great rallies in the cryptoverse right we had some great rallies but what's really interesting is despite all these rallies

and I'm not saying no one's here right obviously people are are here obviously we are seeing an influx of some new subscribers and viewers to the CP derse I'm not suggesting that no one's here what I am suggesting is that compared to 2021 people aren't here that's what I'm saying right it's not that no one's here it's just that compared to 2021 they're not here or compared to 2017 2018 they're not here that doesn't mean they won't come right I mean it doesn't mean they won't come um when you can see that sometimes when the

social started to go up it it got some drops right and and maybe it's just putting in maybe it's about to put in a higher low right um but that's the you know that's one of the things I look at right are people actually here or do we just think they are and look with the social risk going back up to 04 that's basically the same level that it went back up to in March so and or April so clearly some people have returns that's fascinating is that social risk top in April of 2024 is

almost identical to where it just hit in November of 2024 it's it's almost remarkable how how similar it is especially considering that it takes into account five different social metrics right I mean this is an average of five different social metrics so when you think about you know the extension from the fair value and and you know like is this everyone right is has everyone possibly piled in you look at it and you're like well not necessarily not if your your reference point is 2021 so I guess here's the thing this is how how I

think about the market right now if retail is durably coming back right now right if they're actually on their way back and it's not just a one-off thing like April where they kind of come back and then they just don't actually stay then it's possible you get you know another selloff make people think about things for a little bit longer longer and then maybe we go up if retail's coming back right let's say Bitcoin breaks through a 100K and and starts moving higher and the altcoins keep on pumping then you want to look at that

social risk and see if our people still coming back are they actually coming back or are they just kind of looking around seeing that nothing you know seeing that everyone's just chilling meme coins Non-Stop and like yeah we dealt with that last cycle I'll see you guys whenever you guys mature right I don't know I I don't know what what it's going to be I do know that in April when the having was occurring it felt like people were coming back right it certainly felt like it um but and then they didn't you know and

and so that's kind of what I'm curious about and and look I I think there's a much higher chance now that so risk can go up as compared to April April just seems too too soon because we hadn't even had rate Cuts yet you know no rate cuts no QE now we've at least had some rate Cuts but we haven't had QE um so I'd say we have a much better chance of seeing social risk turn around now than we did back over here so we'll see what happens now again remember it's made up of

several different metrics and if you look at at you YouTube views um and if you look at at at YouTube views to different crypto YouTube channels there's no denying that there's been a surge right but the surge we've seen so far is no is not really different than what we saw back in you know April of 2024 hopefully it turns into something different but you can see the longer that we go without Bitcoin breaking through 100K right you know the social view the views are starting to fall off again probably cuz people just want to

see it happen and then it's not happening so like well you know Wake Me Up When It Happens um sort of thing so we'll see what happens there but anyways guys that'll wrap it up for this video If you guys like the content make sure you subscribe to the channel give the video a thumbs up and we do have the sale on into the cryptoverse premium at intothe crypto.com link is in the description below or the pinned comment I do guys I do appreciate you guys tuning in uh and I do appreciate you subscribing I

will see you next time bye