Like bitcoin is regaining its footing, optimism has returned to the market, and several observers are calling the latest price increase the start of a decisive bull run for valuations well beyond last year’s $126,000 peak.
But a look back at trends in bitcoin and Nasdaq valuations, adjusted for the cost of capital represented by the US 10-year yield (US10Y), suggests bull runs may be more measured. (check today’s signal)
Both the BTC/US10Y and Nasdaq/US10Y ratios have failed to eclipse their 2020-2021 peaks, even as their dollar-denominated prices set new record highs over the past 12 months. In other words, when adjusted for the cost of capital, the true macro peaks for bitcoin and the broader tech sector likely occurred in 2020-21.
This divergence between nominal prices and yield-adjusted valuations can be resolved in one of two ways. Either yields collapse, shrinking the denominator and driving these ratios toward another breakout, or the dollar prices of these assets fall to adjust to the structural weakness that the ratios show.
The latter scenario appears more likely for two reasons. First, recent rhetoric from Fed officials has remained decidedly hawkish, with some even floating the possibility of rate hikes.
