Bitcoin prices are trading at an ‘extreme discount’, Bloomberg analyst says

Bitcoin is currently trading at a significant discount, according to Bloomberg Intelligence senior commodity strategist Mike McGlone.

He made this assessment as the digital currency, the most valuable in terms of market cap, has been stuck below $25,000 since June, TradingView data shows.

McGlone relied on several observations in making his case, and he also cited technical analysis, focusing on a specific indicator.

“The benchmark crypto hit an all-time low versus its 100-week moving average in July,” he noted, describing this situation as an “extreme discount in an enduring bull market.”

[Ed note: Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]

The Bloomberg analyst also highlighted the importance of stocks, which have repeatedly shown a remarkable correlation to bitcoin.

“The bottom line is that there are few more powerful forces in the markets than when the stock market falls at high speed as it did in 1H,” he said.

McGlone also emphasized the key role of the Federal Reserve, which has made aggressive rate hikes in 2022.

These developments could potentially provide headwinds for risky assets such as cryptocurrencies and stocks by increasing the returns paid by lower-risk securities and making them more attractive.

“Don’t fight the Fed has been my mantra for risk assets since the end of last year,” he said.

“Bitcoin and crypto were a major part of the 2021 rush and thus part of the 2022 flush, but I see Bitcoin and Ethereum coming out ahead.”

“Bitcoin is well on its way to becoming global digital security in a world moving that way, and Ethereum is a primary driver of the digital revolution, as evidenced by enabling the most traded cryptos – dollar tokens,” McGlone said.

Bitcoin ‘incredibly oversold,’ analyst says

Budd White, co-founder and chief product officer at crypto software company Tacen, also weighed in, claiming that the digital currency is currently trading far below its true value.

“I’m still very much of the opinion that Bitcoin is not only incredibly oversold, but also in a huge accumulation zone. With every price increase with Bitcoin, both its market value and its utility grow,” he said.

“If you look at Bitcoin’s market value to realized value, or MVRV, we see it around one, which suggests that the market value of this asset has fallen to its actual utility value,” White noted.

“This also suggests to me that due to the massive liquidations we’ve experienced in recent months due to Terra, Three Arrows and the party, the number of forced sellers remaining in the market is relatively small. Bitcoin therefore appears to have a fairly solid bottom at or about $18,000.”

Market resilience

White noted that despite strong support near the aforementioned price level, bitcoin has been “hovering” near $23,000 recently.

“So far — and beware that crypto prices can change quickly and dramatically — it’s held up very well despite a jobs report coming out that was much higher than expected,” White added.

“Markets appear to be already pricing in even more aggressive monetary tightening to be taken by the Federal Reserve as a result of these soaring numbers. Stocks have fallen and yields have risen,” he noted.

“And again, Bitcoin is just floating,” the market observer said.

“I’m not saying we’re experiencing a decoupling of Bitcoin from stocks. We could certainly be in for a leg down in Bitcoin’s price.”

“But this relative strength tells me that the bulk of the Bitcoin sell-off may be behind. And barring an exogenous shock to markets — such as credit markets that appear to be on the verge of breaking — I think investors are still looking at Bitcoin as a decent buy at these levels,” White said.

Potential disadvantages

While White spoke to bitcoin’s recent price resistance, Tim Enneking, CEO of Digital Capital Management, stated that the cryptocurrency could once again fall to its recent low below $18,000, which it reached in June.

“Bitcoin has made a nice, if not entirely convincing, move from $20k as recent resistance (until July 15th) to being support (after that date, tested once on July 26-27th, and solidly above since) ,” he said.

“While it’s been a nice move, it’s been pretty slow and seemingly uncertain, especially considering the summer dormancy,” Enneking said.

“As a result, most are still hedging their bets on whether BTC will again try to test the June 18 low at $17.6k.”

“Going forward, I would expect more general slips, some positive movement and that the last bottom will not be retested. It’s a 50-50 proposition whether the $20k will be retested,” he claimed.

Improving sentiment

The mindset of investors has grown increasingly stronger in recent weeks, according to the Crypto Fear & Greed Index provided by Alternative.me.

This index, which varies between zero for “Extreme Fear” and 100 for “Extreme Greed”, currently stands at 31, a number denoting “Fear”.

This number has followed a steady upward trend since June 19, when it reached a value of six, indicating a state of “extreme fear.”

Furthermore, the index has stood at 20 or higher since 18 July.

The picture below gives the latest reading for the measure.

Armando Aguilar, an independent cryptocurrency analyst, commented on how this measure has changed in recent weeks.

“The fear and greed index has recovered from the low 20s following the major collapse of some protocols and crypto service providers,” he said.

“Investors have gone back to buying digital assets and the fear gauge has trended towards yellow/buy territory,” Aguilar said.

“Historically, the market has seen price momentum when the index hits the mid-30s,” he noted.

An uncertain view

Aguilar went on to provide a broader analysis, considering the big picture.

“There are still macroeconomic and geopolitical pressures lurking, so Bitcoin could hit past lows if stocks take a hit and investors pull back from risk assets,” he said.

“Still, given the current environment and if Bitcoin can break upper resistance levels, it could experience some positive price momentum.”

Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether, EOS and sol.