Summary Bitcoin is suffering from a broad market rotation away from speculative assets, despite positive crypto-specific developments. BTC’s unique value propositions—absolute scarcity, decentralization, security, and sound money traits—differentiate it fundamentally from meme stocks and unprofitable tech. The MVRV Z-Score indicates Bitcoin is approaching historical oversold levels, signaling a potential high-reward accumulation window. BTC’s correlation to liquidity and its depressed Bitcoin/Gold ratio suggest asymmetric upside if macro conditions or sentiment shift. Introduction: The depressing state of the crypto market The overall crypto market has been a big disappointment to investors recently. Since Trump's victory in November 2024, positive headlines emerged such as the appointment of pro-crypto SEC chair Paul Atkins, approval of the Genius Act and increased institutional adoption. If I told a reasonable investor about these positive developments beforehand, in November 2024, he would probably expect Bitcoin (BTC-USD) to be at all-time highs today. Most market participants did exactly that and made bullish Bitcoin forecasts (as shown in the table below). Market Participant Bitcoin Forecasts (2026) Citi $143,000 JP Morgan $170,000 Bernstein $150,000 VanEck $180,000 Average $160,750 Yet, Bitcoin is currently down 50% from its recent highs, back to its pre-election price level. Data by YCharts Best metrics show Bitcoin is Undervalued The three charts below illustrate Bitcoin's oversold condition and signal strong recovery potential, including new all-time highs. Bitcoin MVRV Z-Score The Bitcoin MVRV Z-Score, which I first encountered through Lyn Alden, is, in my view, the single best indicator for gauging Bitcoin valuation. Here's how to interpret it. The black line represents Bitcoin's market cap --- simply the price multiplied by the number of outstanding coins. The blue line represents Realized Value, which is the average price at which each Bitcoin was last transacted on-chain, multiplied by total circulating supply --- essentially the aggregate cost basis of all Bitcoin holders. The orange line is the Z-score, measuring how far market value deviates from realized value in standard deviations, and flagging periods of extreme overvaluation or undervaluation. Bitcoin MVRV Z-Score (glassnode.com) When the MVRV Z-Score is high, many holders are sitting on large unrealized profits, making it likely that long-term holders will begin distributing. When it is low, Bitcoin is historically oversold --- an opportune moment for investors to accumulate. At present, the indicator is approaching its 2015, 2018, 2020, and 2022 lows. If you had bought Bitcoin in those periods, the forward one-year return was a whopping 184%. Bitcoin/Gold Ratio In my view, one of the worst feuds in the financial markets is the one between gold bugs and bitcoin enthusiasts. Both assets derive value from similar attributes, such as sound money traits, and both help investors protect their wealth against monetary debasement. They have different strengths and weaknesses, of course. Gold has a strong track record going back 2,500 years, while Bitcoin allows for increased privacy and self-custody. Nevertheless, their shared characteristics indicate that they should move together depending on the macro backdrop. Typically, when a prevailing market narrative creates a large outperformance of one or the other, it is a good time to buy. At current levels, Bitcoin buys only 12 ounces of gold, the lowest since 2023. Bitcoin/Gold Ratio (TradingView) Note that since late 2023, the correlation between gold and Bitcoin has risen substantially, suggesting the market is increasingly recognizing Bitcoin's store-of-value properties - making the current selloff look like a temporary dislocation rather than a structural shift. Data by YCharts Liquidity There are many ways to measure global liquidity, but for this analysis, we'll use US M2---a broad measure of money supply that includes physical currency, checking accounts, savings deposits, money market securities, and other forms of easily accessible cash. Historically, Bitcoin's price has moved in lockstep with US M2 growth spikes, as the chart below clearly shows. Take the steady M2 climb from 2015-2018 under the Fed's near-zero rates, or the massive post-COVID money flood in 2020 to prop up the economy---both times were rocket fuel for BTC, turning liquidity into explosive gains. Since the Fed peaked rates at 5.50% in mid-2023, liquidity conditions have turned decisively favorable. The Fed has cut ~175 bps to the current 3.50–3.75% range, with further easing expected throughout 2026. Meanwhile, unprecedented peacetime deficits (~6% of GDP) continue flooding the system with Treasury supply. While Bitcoin's response to liquidity sometimes lags, the relationship is grounded in sound fundamentals---prices will catch up. US M2 x Bitcoin Price (Bloomberg Data) The problem: Bitcoin caught in the middle of the Halo trade As shown above, Bitcoin has seen increased institutional adoption, a positive change in the regulatory environment, while at the same time the main metrics scream a buying opportunity. How on earth is the Bitcoin price still falling? The problem is not with Bitcoin specifically, but with broad market sentiment. The S&P 500 YTD does not point to a bear market but to a major rotation. Investors are selling technology and high beta stocks and rotating to more defensive sectors like staples, energy, and materials. S&P 500 YTD Return Breakdown by Sector (Bloomberg) The rotation is explained mainly by concerns about technology disruption. With the rapid improvement of AI models, we are witnessing historic technology advancements; some argue they are even greater than the rise of the internet. Investors are trying to figure out which sectors will be disrupted and become obsolete. Forecasting complex third-order effects of technology developments is no easy task, so investors are making it simple: "sell whatever asset has even a remote chance of being disrupted and buy heavy assets, low-obsolescence companies, currently referred to as 'HALO'." Bitcoin was caught in the middle of the crossfire, since it may be a victim of a nascent technology: Quantum Computing. If a sufficiently powerful quantum computer were developed, it could theoretically reverse-engineer private keys from public keys, compromising wallet security. Although I don't intend on becoming a quantum expert, I feel these concerns are overblown. Current quantum computers are nowhere near the estimated 4,000 logical qubits needed to threaten Bitcoin's encryption. Google's Willow, the most advanced quantum computer, operates at 105 qubits. The timeline for a credible threat is measured in decades, not years, and the Bitcoin developer community is already researching post-quantum cryptographic solutions. Below, I attempt to show how Bitcoin has traded in line with disruptive technologies recently by comparing it to ARKK. ARKK is an actively managed ETF that concentrates on disruptive, growth companies favored by retail and momentum-driven investors. Data by YCharts A similar dynamic happened in the 2022 bear market. At first, Bitcoin sold-off together with disruptive stocks, as the market was concerned about technology stocks in general. Later in 2023, Bitcoin initiated a strong rally against the backdrop of BlackRock ETF filing in June 2023 and Fed pivot, outperforming ARKK by 41.6% over the period, even accounting for the recent drawdown. Data by YCharts I believe the same dynamic will play out this year. As the true impacts of technology disruption become clearer, investors will begin to separate the wheat from the chaff and Bitcoin will be bid. They will observe more carefully the increased institutional adoption, realize Bitcoin is here to stay and that it should actually be more correlated to gold than to technology stocks. Risks All of the main data points and frankly basic common-sense point to a much higher Bitcoin price one year from now. However, investing in Bitcoin always involves a degree of speculation and uncertainty. Unforeseen events could push the price 20% lower, including a further escalation in the US-Iran conflict, a recession, or the bankruptcy of a large crypto player. A faster-than-expected advancement in quantum computing remains a tail risk worth monitoring. Nevertheless, investing is not about certainties but about probabilities. And the probability of a higher bitcoin price is too great to ignore. Taking into account a continuous improvement in liquidity conditions (M2), and assuming the Bitcoin/Gold ratio normalizes at 26 ounces, as the correlation of Bitcoin to tech assets breaks, I forecast a price of $140,000 in the next twelve months.
