Mark Yusko, CEO and Chief Investment Officer of Morgan Creek Capital Management, joined Benzinga’s PreMarket Prep trading show on Wednesday morning. Yusko discussed the recent rally in bitcoin, which has sent the Grayscale Bitcoin Trust (OTC: GBTC) up 10.5 percent in the past two weeks.
“Bitcoin is a really interesting thing. You mention that there’s no underlying value, and there actually is. It’s a network, it’s actually quite easy to value using Metcalfe’s Law,” Yusko said on the show.
Bitcoin As A Network
Metcalfe’s Law is a formula used to calculate the value of computer and telecommunications networks that states that a network’s value is proportional to the square of its users.
“There was a time back in 2017 when the price got much higher than the inherent value of the network, and we told our friends and clients and everyone that would listen that at $20,000 it probably had at least 50 percent downside,” Yusko said.
Yusko said traders often get caught up in the price of an asset and lose sight of the value.
“Price is a liar. The price of anything is just what two people will exchange that good or service for, but it really doesn’t have any information content on the underlying value,” Yusko said. “We’ll make the argument that the reason bitcoin prices are rising today is that for the last year in the brice bear market, there was a massive bull market in fundamentals.”
Bitcoin Fundamental Value
Yusko said record numbers of bitcoin wallets and transactions and an increasing adoption rate are all fundamental signs that the value of bitcoin is growing. Yusko said Amazon.com, Inc. (NASDAQ: AMZN) is a perfect example of a valuable network.
“It’s not a real company in the sense of what do they actually do? They don’t manufacture products. They don’t actually do anything other than be a search engine and connect buyers and sellers, but they are a network. The more people that use it, the more valuable that network is.”
Using Metcalfe’s Law as a basis, Yusko currently assigns a $12,000 to $13,000 fundamental value to bitcoin, suggesting roughly 37 percent upside from the cryptocurrency’s current price. He said calculating bitcoin’s value is an inexact science in that it involves assumptions about growth and usage.
Check out Yusko's full interview in the clip below. His spot begins at the 34:52 mark:
After a disastrous 2018 for bitcoin investors, the GBTC fund is now up 193.6 percent in 2019.
Bitcoin traded around $8,724 at time of publication.
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