Can we give value to bitcoin?

Bitcoin has undergone an around 20% correction after a rally as never seen before right at the start of the year. Even so, it towers on high (considering it traded at $8,000 a year ago). This latest episode is not without recalling events in January 2018, when there was an 80% drawdown. We propose analysing the recent dynamics from three angles: macro, fundamental and technical (liquidity, positioning). Bitcoin remains de-correlated from the main macro variables, even though its role as a hedge against inflation and as an alternative to gold will take on more importance going forward. However, it seems to react to a weakening dollar and to the i ncrease in central banks’ balance sheet s. Fair value models for Bitcoin that we put through their paces indicate that it is overvalued, but to a lesser extent than in 2018. The arrival of institutional investors (see our report on cryptocurrencies in asset allocation ) and vulgarisation of blockchain and cryptocurrencies were the factors that buoyed the Bitcoin market in 2020, indicating that this still nascent and highly volatile market is starting to attain a degree of maturity. As regards the positioning, the whales (i.e. accounts holding more than 1,000 BTC) are still present (in contrast to December 2017 when they started taking their profits), but their market share has diminished since the start of the bull market. Also, liquidity is weak, leading to significant volatility. Though the market environment is more favourable and mature than in 2018, our view is that current valuations appear rather unattractive, suggesting that a further correction could be imminent, though it should not be on the scale witnessed three years ago. Faced with the continued decline of the dollar, the maintenance of an ultra-accommodating monetary policy, the scarcity effect and the growing interest of institutional investors, Bitcoin should recover during the year.