Bitcoin: The Beauty of Mathematics (Part 37)

Hey everyone and thanks for jumping back Into the cryptoverse today we're going To talk about Bitcoin the beauty of Mathematics part 37. 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 Cryptographers premium at into the Let's go ahead and jump in now we do This video series on the first of every Month and the reason we do it every Month is because we want to make sure That we keep tabs on how the asset class Is progressing as a function of time In any given day or week of course There's a lot of noise but providing a Monthly update should at least keep us More or less on track with the ultimate Direction of the asset class as a whole The fundamental purpose of this series Is to assume and it is a a big Assumption but is to assume that the Fair value of the cryptocurrency asset Class is increasing as a function of Time the reason for this is of course Because we think or at least I think That adoption does occur on a very long Time scale right you might not always See it on a day-to-day basis but you Just fast forward through the years and You can see quite a lot of adoptions Going on And the idea of course is that the fair

Value of the asset class increases Monotonically meaning that it only ever Goes up now markets on the other hand do Not only ever go up they they tend to go Up right like markets tend to go up and Occasionally we will have bear markets You can see the asset class as a whole Tends to go up as a function of time Again we're plotting out here the total Cryptocurrency market capitalization so As a function of time The market cap tends to go up okay we Can make that statement Now in any given cycle you have bull Markets and bear markets and Accumulation years and and whatnot but As a function of time if you cut through The noise the fair value goes up and the Market cap goes up However the market cap of crypto has a Way of going through over valuation Phases and under valuation phases you Can see that we were overvalued in 2011 And in 2013 and 2017 and in 2021 You can see that we were undervalued in 2012 and in 2015 and 2016 and for most Of 2019 and 2020 and then also of course Mid-2022 to the present day so all in All there are phases where we are Overvalued and there are phases where we Are undervalued now we must remind Ourselves that we spend a long time in Over evaluation territory and an Undervaluation territory

You don't typically just go into the Overvaluation territory for a few months You tend to spend a long time there With of course a few exceptions you will See that in 2019 we spent a little bit Of time in overvaluation territory this Was the pre having year 2015 Um we we came relatively close to Breaking above it but we were unable to Break above it and in 2011 you can also See that we were briefly briefly above It okay but for these sustained moves Where you spend you know a year or two Above the fair value logarithmic Regression trend line we can see that it Tends to occur not always I mean here's A an example where you can see this move Actually occurred Um before this first move here occurred Before the having but we tend to see it Occur After the having right after the having Is what we've at least what we've seen In the last three Cycles now As of July 1st the total market cap of Crypto is coming in at 1.198 trillion The fair value according to to this fit Which is fit to all data is one point or Sorry 2.087 trillion this represents an Undervaluation of approximately 42.67 percent What's interesting is really for the

Last year the market cap has mostly gone Sideways If you were to zoom in I mean it doesn't Feel like that of course it feels like It's been all over the place for the Last year But If we're honest with ourselves The market cap today of crypto Was also more or less the market cap About a year ago as well Now since that time we've gone to lower Valuations and we've also gone to higher Evaluations again while Bitcoin is Sitting at its yearly high at around 31k Total market cap has not put in a new Yearly high at this point this goes back To the idea of what we are experiencing Right now is a fundamental shift in what People are putting more of their money In and that I think is what we're seeing We're seeing a rotation of capital from The altcoin market to bitcoin that is What I I've said many times over the Last year that we're just seeing a Fundamental shift in the in the Allocation that people have they're They're they're more interested in the Blue Chips during this phase of the Cycle than they are the riskier altcoins And so normally during these pre-halving Years what you see occur Is that rotation of capital where people Get out of the riskier stuff and they

Hunker down in Bitcoin and I don't see Why this cycle should be any different And so far we have seen that play out Because while Total market cap Has more or less remained unchanged for The last year The dominance of Bitcoin has gone from 39 to 51 percent So again we are experiencing that Rotation of capital in any given week or Month it might not be so obvious right It might not be so obvious in any given Month but when you zoom out you can see It happening right you can see it Clearly happening because one of the one Of the questions I get in this series is Well you know why are you know why are You so against the altcoin market you Know If we're in under valuation territory Okay and admittedly It is a fair question okay in Prior Cycles in Prior Cycles I would have been Right there with you okay but what I've Learned at least my own navigating Navigation of the cryptoverse in the Past is that normally Bitcoin Um is you know provides better Risk-adjusted returns at this phase of The cycle and if you look at most all Coins they're just bleeding on their Bitcoin pairs that's not to say that at Any given month they can't go up but on

The over the macro scale most of the Altcoins bleed against Bitcoin so you Want to value your portfolio in terms of Its Satoshi value okay if you're if You're if you've just been spent the Last year accumulating all coins And and maybe you know maybe they're at The same USD evaluation that they were a Year ago but many of them are down 50 or More since then if you actually go look You might feel like it you know it's It's an okay thing but I mean Bitcoin Has has vastly outperformed and so That's why I've said you know at least I Talk about again this more on on ITC Premium is that Um you know during this phase of the Cycle Bitcoin heavy crypto portfolios Tend to perform better than altcoin Heavy portfolios now anytime I say that There's always some pushback and some of It's fair and and where it comes from is There's this idea well there are some All coins that are outperforming so why Do you ignore those I'm not ignoring Those it's just if you if you understand Where I'm coming from there's always Going to be you know new things popping Up there's always going to be some Altcoin that's going against the trend Right but the general trend of of a Rotation of capital from the altcoin Market to bitcoin has been what we have Seen okay that has been what we have

Seen and I think that it will continue To play out Um for quite some time Now who knows what happens in the month Of July I don't know but in general we Have seen this trend play out and one of The interesting things about this chart Is that at least so far It looks more like this cycle over here Than this one then 2019 because in this Cycle what happened is that we Capitulated below the fair value Logarithmic regression trend line and Then we more or less went sideways until We hit the lower green regression line Okay now what's interesting is when from This capitulation in January 2015 we Didn't really get to the lower part of This until about Q3 of 2015. Where are we today well you can see that We came below this in mid 2022 but we're Still we we still haven't hit the lower Green logarithmic regression trend line Right we still have not hit that now Again there is no guarantee that we hit It I mean if you look at the prior Cycles you know we we did come pretty Close Um but what I've said before is that There is this idea that the real Market The real bull market that people want to A sustained period of of new highs and Not just like a move like 2019 Would typically come

After you go into the lower part of the Regression line right like so the lower Green logarithmic regression trend line That is what history shows us now if you Think about all the price action that's Occurred over the last six months it Certainly doesn't feel like sideways Price action right I mean a lot of People aren't going to say that the Market has gone sideways but again I Would challenge you to just look at this Chart and say that is how history will Likely remember it I mean you know in The same way that we look over here and Say that the market went sideways you're Probably going to look over here and say The market went sideways as well it's Just that when you're living through it It doesn't feel like sideways why Doesn't it feel like sideways well one Of the reasons is because Bitcoin has Gone up 2x but Bitcoin also went up About two backs over here as well the Other reason it doesn't feel like Sideways is because the price action has Generally been higher lows for Bitcoin So then why is total market look Sideways it's because the altcoin market Has been going lower Right so while Bitcoin right while Bitcoin Has generally gone up As you can see right while Bitcoin has Generally gone up total three the

Altcoin market has been going down So again just overlay the price of Bitcoin With total three this is why total Market cap looks like it's going Sideways because yes while Bitcoin has Been going up you can see that there is A Divergence here to some degree on Total three where it started going down So again this is where the argument Comes in of where it's what we're Witnessing in my opinion is a rotation Of capital from lower liquid assets to Higher liquid assets and that's why when You look at things like total three Divided by Bitcoin You'll see that in general It's an oscillator At best right an oscillator at best and I mean again like zooming out you can Really see what I mean like it we sort Of just ebb and flow from from one Extreme to the other and you know when You're up here now whatever things are Going to go down here when you're down Here no one ever thinks you're going to Go back up but I I believe what we're Experiencing right now is a rotation of Capital from all coins To bitcoin because as this goes down it Means the dominance of Bitcoin is going Out so that's why we spend so much time Talking about that is because if you Blink you can miss it right like if you

Blink you can miss it you might assume That everything in the cryptoverse is Doing well when in reality you know the Altcoin market just closed three red Months in a row You might say what Is that true Doesn't feel like that right I mean it Certainly feels like the last several Months haven't been all that bad but That's because you're you're you're Looking at Bitcoin Look at the altcoin market three red Months in a row Again the rotation of capital so Bitcoin Has gone up The altcoin market has gone down so net You're watching Total market cap more or Less go sideways again it can oscillate A few hundred billion what's a few Hundred billion among friends right I Mean this is this is an asset class that That has volatility and we need to Accept that volatility for what it is so Yes today the total Market Kappa crypto Is at 1.197 trillion the fair value is At 2.087 trillion representing an Approximate undervaluation of 42.67 Percent as I have said in every video This year I believe I have said that I Believe we will spend the duration of This year Between these two trend lines I do not Think we will see us go outside of these

Two trend lines we could deviate briefly There's always a chance we get a a brief Deviation just like we did in 2019 Always a chance something like that Happens it could be to the upside it Could be the downside but I would expect Us to spend Either the entire year or a majority of The year below the red line and above The lower green line And so far this expectation has been met In any given day it feels like the Market's going crazy you zoom out and You're going to wonder why you stress so Much about the market during this phase Of the cycle okay So for me as I've said right Bitcoin has Been and at least for a while will Continue to be the best risk adjusted Returns play in the crypto errors right I think it has it will provide you know In terms of the risk reward it provides The best option at this phase of the Cycle that doesn't mean that Bitcoin Can't go down we know that it can but It's just that if Bitcoin goes down It'll likely take the altcoin market Even further down and if Bitcoin goes up Then we would expect the altcoin market To bleed to it because we're in the Phase of the cycle where we're getting That rotation of capital total market Cap sideways Bitcoin has gone up total Three has gone down

Whatever Bitcoin does we would expect it To generally outperform the altcoin Market whether it goes up or down Okay So that's the general expectation now if You take the percent difference between Total market cap and the fair value Logarithmic regression trend line you Get a chart that looks like this I really like this chart right I mean I Feel like it tells a fairly compelling Story and that is that the extension From the fair value diminishes each Market cycle Right Hits the green line but the extension From the fair value diminishes At each major Peak You can see that as we go through the Cycles it's pretty clear What's also clear is that we tend to Spend a lot of time in undervaluation Territory and the thing that I mentioned Earlier I'll say again this cycle looks more Similar to this one over here than the Last one because remember the last one Only barely came undervalued bounced Back up then went down for about nine Months and then you know just went into Another bull market that just went up You know 20x in a really short period of Time Is what's going now what is is what has

Been going on I mean I think about like this like Total Market If it were doing something very Impressive then why does the chart look Like this right you know I mean like it It hasn't really moved a whole lot down Here This is nothing compared to the bull Markets that we've seen Again a rotation of capital if you were To plot this out for say Bitcoin it Would look more impressive if you plot It out for just total market cap doesn't Really look as impressive right because The altcoin market is bled and it's Because of that bleed that I think has Led the Bitcoin price higher as Liquidity moves from the altcoin market To the Blue Chips Now what you'll notice Is that as I said before we're currently Sitting Um about 42.67 undervalued so let's just call it 43 undervalued if you look at where we Were last cycle before the the real move Came that took us to new highs you can See that we actually went to about 57 58 under value I mean it's it's not a Fair comparison exactly because this Move here doesn't actually capture the Full Wick that occurred so if you Actually capture the full Wick we know

That it it went lower in fact Um than what this is showing because This just captures daily data but if you Were to actually show the wick it Actually did go much further down closer To approximately a 65 percent under Valuation and what's interesting is if You go back to the cycle before you can Also see that we tagged about 60 under Valuation This one was about 60 undervaluation not Including that Wick so really it went up Probably about 65 undervaluation this Cycle was about 60 undervaluation the Cycle before was only about 40 under Valuation but the second before that Was about 65 under valuation right so You have 65 percent 65 over here if you Include the wick and then 60 percent The lowest we've been undervalued so far This time around is just over 50 percent Right so Um maybe maybe like 50 51 or so is is The lowest Um at this phase that we've actually Been Undervalued on a on a daily close I mean There have been some licks lower and Whatnot but that is what we're currently Looking at and so again I I think there Is a case to be made that this could Actually continue trending sideways Slash down now down does not necessarily Mean that total Market has to lose

Valuation it doesn't mean that it won't But it doesn't mean it has to remember Total market cap or sorry the fair value Is a monotonically increasing function So If we were to go sideways we would get Further away from the red trend line Right from the red log of the Congression trend line if we go sideways We get further away from it therefore Going sideways actually makes you more Undervalued if we were to go sideways Until we hit the green lower logarithmic Regression trend line it would take from Where we are right now from the total Market cap right now it would take Approx until approximately the summer of 2024. so approximately one year from now Is how long it would take for us to Reach a 65 undervaluation if the market Cap stayed the same right so if if we Did something like 2015 2016 and we just Went sideways until we hit it from where We are right now it would take Approximately one more year If we were to go down into it We would have to go down to about a 700 Billion market capitalization about 700 Billion or so If we were to go down to it say when we Went down to a last cycle so in q1 of 2024 because again we did it over here In q1 of 2020. If we did the same thing over here in q1

Of 2024 it would correspond to around 900 billion right so it all depends on On when it happens and of course it Doesn't have to happen there is no Guarantee in these markets right there's No guarantees as to anything you know Specifically going to happen there's our Projections as to what might happen There's probabilities as to what we Think could happen on any given day or Any given week or any given month but It's impossible to know and at the end Of the day I certainly cannot tell you What the price of Bitcoin or any altcoin Is going to do tomorrow My my general understanding of the Market sometimes it it might be ignorant Admittedly my general understanding of The market at this phase is that we're Experiencing a rotation of capital from The altcoin market to bitcoin the Dominance of Bitcoin is going up Regardless the direction of Bitcoin USD Total Market go going sideways Bitcoin Has gone up total three Has gone down Rotation of capital 43 undervaluation Same undervaluation that we've been at For a while a large part of this year Even though Bitcoin has gone up So the point is Is If we were to go back to where we were

In November at some point right it Wouldn't take nearly as long to get to 65 undervaluation if we went back to Where we were back in November They would only take until September of 2023 to reach 65 under valuation now There's an interesting thought here that Total Market there's a chance that total Market could put it a new low But Bitcoin not right like there's a Chance that something like that could Happen where the entire asset class goes Lower but Bitcoin puts in a higher low That's there's a potential outcome where That could occur and the reason why that Could occur is because people are just Leaving the altcoin market for the Relative safety of Bitcoin okay So that's just one potential idea again It's not necessarily the most likely Outcome but it is one thing to think About because again like Bitcoin has Gone up well total three has gone down Rotation to Capital so at the end of the Day We can see that we do tend to spend a Long time in the undervaluation Territory I also want to just you know Briefly say for a minute I know I've Been very critical of the altcoin market For the last 18 months I hope that you Understand Where you know why I have been and if You don't then perhaps that's my fault

For not being a better Communicator at Explaining why Bitcoin at this phase has And what I think will be can continue to Be a better risk reward Okay But I also will say you know you know The the people if if you are Accumulating all coins you know if if You are and I'm sure I'm speaking to a Lot of people right if you have been Accumulating all coins and and you still Are and you're down on your investment And you're kicking yourself because you Know you you bought these all coins in June of last year and you watch them go Down 50 and now you're watching Bitcoin 2x off the lows whereas the altcoin's Down 50 from where it was Um you know again like back over here in August of 2022 total three was at 454 Billion uh this is quite you know quite A move down here this is a 27 drop or so While Bitcoin is up significantly from Its June 2022 high right 20 up for Bitcoin 20 something percent down for alts on Average some all coins are down a lot More some all coins have not performed Bitcoin and you're probably wondering What I'm saying like you're probably not You probably don't agree with it because You have an altcoin that has Outperformed but I will say as I've said

Before It's not that some won't outperform Many can and will it's just that when You take the asset class as a whole we Are at the phase where most of them Bleed back to bitcoin that doesn't mean That there's not a five million dollar Market cap coin that has pumped 100 Since last Tuesday and you think it's The best thing in the world right I'm Not saying that it's just in general That is where we are in the cycle where The altcoin market Capital goes from the Altcoin market to the Blue Chips okay so The the thing I will say and I was sort Of saying this earlier is that if you're In that position where you have been Buying all coins and you're down you Know 20 30 and you're probably wondering Well why didn't you just buy Bitcoin Because it's uh I will say you know It's easy for me to say that I mean I've Lived through these Cycles more than Once so like I learned this the hard way Multiple times it's not like you know It's not like I just looked at a chart And knew this was going to happen it's Like I I lived through this brutally in The past Um so it's more so just a warning That Bitcoin would outperform the rest Of the market more than likely uh for a While I will say that some of them will

Probably come back okay like even even Though I I still think that the altcoin Market leads back to bitcoin I do think That some of them will eventually come Back and some of them could easily go to New highs eventually okay It never feels like it especially you Know especially when you're in the Prehabbing year a lot of these all coins Are down 95 percent by the end of the Year they could be down even more I Don't know Um but some of them will eventually come Back there is a danger though that some Of them will not and you need to accept That that's just a reality that we all Have to accept that some of them will Never come back they might just fade it Depends on the quality of the projects You're actually investing in the truth Is that a lot of them will never come Back Because a lot of them are cash grabs in The short term right they're just people They spin up an altcoin project they Promote it on Twitter and they disappear Okay these will likely not come back Some of the projects that don't do that Kind of stuff but are actually trying to Build something useful those could Actually come back during Better times okay so I'm just saying Right I know I've been critical of the Altcoin market I still likely will be

Critical of the altcoin market for at Least a few more months until I see Those Bitcoin pairs at levels that I'd Like to see Um but in the end this is the Undervaluation territory Okay so the projects course could Eventually recover okay even from these Levels even though total Market has gone Sideways total three has gone down Right And that's I think the issue is is They're like falling knives right They're like falling knives and it's Hard to know it's really hard to know Um where the uh where the knives stop Stop falling again looking at like Monthly candles for total three you can Really see I mean it it looks really Similar to this right you know down up I mean kind of looks similar right Anyways just know to think about Um I will continue to uh to provide my Opinions on the altcoin market uh as I See fit I do think they will continue to Bleed back to bitcoin and and that we Will likely spend the duration of this Year between these two logarithmic Regression trend lines I do think that At some point we likely will hit Um you know 65 undervaluation but for All I know it might not even be this Year it could be early next year last Cycle when it occurred it was in q1 of

Of the having year the cycle before it Occurred in Q3 of the prehabbing year so Who knows right there's a three-quarter Window where it's occurred before from Q3 of the prehabbing year to q1 of the Having year So I guess we'll just wait and see In general my expectations for the asset Class Is to head to 10 trillion okay I do Think we will eventually make it to 10 Trillion uh that is a target we've had On this channel for a long time Um I know right now we're only at one Trillion so it doesn't really seem like It's it's you know about to happen and Honestly it's probably not about to Happen uh but you never know lock and Change in in a few years who knows where We'll be Um you know a few years from now again The general goal is to reach that 10 Trillion dollar Milestone plus or minus A few trillion as we go to sleep at Night we cannot help but wonder what's a Few trillion dollars among friends


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