Macro guru Raoul Pal takes issue with the idea that Bitcoin and the crypto markets are simply in a bubble.
In a tweetstorm, the former Goldman Sachs executive compares Bitcoin’s behavior to the performance of the tech unicorn Amazon in its early days.
Pal says he remembers believing Amazon was in a bubble a long time ago.
“I personally remember saying the same thing about Amazon pretty much since its inception.”
The analyst followed closely said that although Amazon may have been in a short-lived bubble in 2000, it ultimately continued in an uptrend on the heels of network effects, or the idea that the more users a network has, the more it is precious.
“But I didn’t understand that this was not a discounted cash flow business, but a future potential cash flow business – a network effect valued under Metcalfe’s law. . And so, it was exponential in nature and required a log chart to figure out… a 2000 bubble, the rest normal… ”
Pal also uses a logarithmic chart to suggest that the Nasdaq-100 (NDX) has been fairly valued over the past 20 years, except for a bubble in the early 2000s.
“And the NDX is the same – a bubble in 2000 and the rest, normal and correctly rated.”
As for Bitcoin, the macro guru suggests that BTC has traded within a logarithmic chart for the past ten years except for a bubble in 2013
“And Bitcoin is the same … a bubble in 2013 and a slight one.”
The founder of Real Vision Group identifies network effects as a potential new business model and says investors should keep the concept in mind when trying to evaluate new technologies like Bitcoin.
“It’s a new business model – network effects. It forces us to rethink valuation, and 30 years of outperforming over time suggests we can’t ignore it and view these trends as bubbles. But they’re volatile, and that’s okay because there isn’t a risk-free reward. “
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