Macro guru Raoul Pal is arguing against the idea that Bitcoin and the crypto markets are merely in a bubble.
In a tweetstorm, the former Goldman Sachs executive compares Bitcoin’s behavior to the performance of tech unicorn Amazon in its early days.
Pal says he recalls believing that Amazon was in a bubble a long time ago.
“I remember personally saying the same about Amazon, pretty much since inception.”
The closely followed analyst says that while Amazon might have been in a short-lived bubble in 2000, it ultimately carried on in an uptrend on the heels of network effects, or the idea that the more users a network has, the more valuable it is.
“But I didn’t get it was not a discounted cash flow business but a future potential cash flow business – a network effect stock valued on Metcalfe’s Law. And thus it was exponential in nature and required log chart to understand….one bubble 2000, the rest normal…”
Pal also uses a logarithmic chart to suggest that the Nasdaq-100 Index (NDX) has been fairly valued over the last 20 years, except for one bubble in the early 2000s.
“And the NDX is the same – one bubble in 2000 and the rest, normal and correctly priced.”
As for Bitcoin, the macro guru suggests that BTC has traded within the boundaries of a logarithmic chart in the last ten years, with the exception of one bubble in 2013
“And Bitcoin is the same…one bubble in 2013 and a mild one.”
The Real Vision Group founder identifies network effects as a potential new business model and says that 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 re-think valuation, and 30 years of outperformance over time suggests we can’t ignore it and write these trends off as bubbles. But they are volatile, and that is ok as there is no reward without risk.”
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