Summary: Bitcoin could attempt another breakout attempt if BTC trades above 38,000. This would then lift Bitcoin towards our 40,000 to 45,000 year-end target range. Some Bitcoin proxies (Grayscale GBTC and MicroStrategy) appear overvalued, while Coinbase, Marathon, and Ethereum appear undervalued relative to the price of Bitcoin. The relative valuation of listed crypto companies has swung widely and this is also a sign that the BlackRock Bitcoin ETF will have more influence than some are predicting.
Analysis:
Bitcoin could attempt another breakout if prices reach 38,000. This would then set up the market for our year-end target of 40,000 to 45,000, which we identified on February 1, 2023. Some commentators have voiced concern that a BlackRock Bitcoin ETF would have only marginal significance as “everybody who wants to buy Bitcoin can already do it in other ways”.
This view seems too pessimistic as we noticed strong buying in Bitcoin-related stock market proxies since the announcement in mid-June. For example, the Grayscale GBTC discount has narrowed by 30% since the announcement, and according to our regression model vs. Bitcoin, the Grayscale Trust is now 7% overvalued. However, it still trades at an 11% discount to its net asset value, which is probably justified because of its high fees and its closed-end-fund type.
MicroStrategy is another listed Bitcoin proxy. The stock traded at a -17% discount to Bitcoin based on our model and shortly after the BlackRock announcement, MicroStrategy’s shares were +23% overvalued. Currently, the shares are +9% overvalued and investors could find value in other Bitcoin proxies.
Ethereum trades at the steepest discount over the last two years. While Ethereum was +32% overvalued around the Shanghai Merge upgrade in August/September 2022, Ethereum started to trade at a discount this year and the discount has continued to widen. At a -24% discount to Bitcoin, Ethereum is starting to look attractive, especially as we notice Ethereum’s turnover increasing relative to Bitcoin, with the Bitcoin dominance also appearing to have peaked out.
Bitcoin mining stocks appear the most undervalued currently with Marathon being -56% undervalued. In mid-2022 and early 2023, the stock hit similar undervalued levels and a strong rally followed subsequently. In March 2023, we thought that several of the Bitcoin mining companies appeared cheap while by July 2023 those stocks had sufficiently closed the discount.
Previously, in our end-of-September report, we mentioned how Galaxy Digital was undervalued, and the stock subsequently rallied by +78%. But despite the rally, the stock still seems to be undervalued by -45% and could rally by +81% to close the discount.
Coinbase also trades at a -38% discount and could rally by +62%.
Bitcoin could still continue to rally into year-end and there is a large divergence between listed Bitcoin mining companies and investors could reposition their portfolios and take advantage of those opportunities.
Listed Crypto Companies with the Most Upside / -Downside based on our regression model
Would require minimum R2 (regression) > 70% to be statistical relevant
