This Is Why Old Models Don't Work With Bitcoin According to Raoul Pal
The old economic models used to grasp various asset price bubbles from the past are distorting our view of bitcoin (BTC)'s recent price spike, as cryptocurrencies should be considered as exponential trends powered by network effects, according to macro investor Raoul Pal. This is due to the uniqueness of digital assets whose users and owners are the same, spurring a powerful network effect, he added.
Using the example of the 1980 silver bubble, Pal said that, to those who struggle to understand bitcoin’s latest surge, old frameworks cloud their judgment, as “we are trained in mean-reversion (i.e. this time is not different) of linear-trend assets.”
However, digital assets are in fact “exponential trends driven by network effects. These are powerful long-term secular shifts [that] are very different in nature to linear trends. As investors, we really aren't experienced in this, in general. So we apply our old bubble framework and it doesn't work,” the CEO and Founder of Real Vision said.
According to him, this distortion causes many experienced investors to jump off such trends in their early phases and seek bearish outcomes.
“But exponential trends revert back to their exponential moving average, not price trend. This is crucial to understand. Because BTC is the network effect of money, it gets speculative and overshoots and corrects to 300-week [exponential moving average], before rising again,” the investor said.
With total crypto market capitalization standing well above USD 1trn, Pal forecasts there is room for a hundred- or even two hundredfold increase in the coming 10 years, marked by a series of ups and downs along the way.
In April 2020, he predicted that BTC might reach a price of USD 1m within the next few years.
As reported, over USD 2bn in BTC trading positions has been liquidated in the past 24 hours alone as overly optimistic traders were using margin trading to open large positions in the hope that BTC will continue to rally.
At the time of writing (11:54 UTC), BTC trades at USD 45,651 and is down by 16% in a day and almost 6% in a week. It dropped by 21% from its all-time high of USD 58,641, reached this past Sunday.
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