Bitcoin's 'Mayer Multiple' Nears Point of Undervaluation Ahead of Fed

Expectations of a hawkish Fed cloud the prospects of a bullish reversal.

AccessTimeIconMay 4, 2022 at 10:49 a.m. UTC
Updated May 11, 2023 at 4:38 p.m. UTC
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Bitcoin (BTC) appears to be in the final stage of a bear market characterized by undervaluation and submission, a popular technical analysis indicator suggests. The indication comes as the market braces for rapid liquidity tightening by the U.S. Federal Reserve.

Bitcoin's "Mayer Multiple," the ratio of the cryptocurrency's price to the 200-day simple moving average (SMA), is just shy of 0.80. In other words, the cryptocurrency is trading at a nearly 20% discount to its 200-day SMA. Such a price structure has been relatively rare in bitcoin's 11-year history, making the 0.80 reading on the Mayer Multiple a point of undervaluation.

"We have mapped out a Mayer Multiple of 0.8 (green trace) as a historical 'undervaluation' level. The basis for this is that less than ~15% of bitcoins trading life has been at, or below this level, providing a more probabilistic view," Glassnode analyst James Check wrote in a weekly analytics newsletter published on Monday.

In the past, the indicator has printed a double bottom under 0.80 during bear cycles, with the second dip under the critical level marking capitulation of longs and an eventual price bottom.

The indicator's impending dip under 0.80 could be the second of the 2021-2022 cycle. Capitulation refers to the point in a market downturn when investors give up on recapturing lost gains and sell rather than hold a given asset.

"Bear market floors of past cycles are typically hammered out in two phases relative to the 0.8xMM level, first in the early stage of the bear (#1), and then again following a major capitulation event (#2). The market is currently hovering just above this key level in what could be argued to be a part of the 2021-22 cycle Phase #2," Check noted.

Bitcoin's Mayer Multiple (Glassnode)

While the Mayer Multiple is approaching the point of undervaluation, it doesn't necessarily imply a quick bullish shift in the momentum, thanks to expectations of a hawkish Fed.

The Fed is expected to hike the benchmark interest rate by 50 basis points (bp) later on Wednesday, having kicked off the tightening cycle with a 25 basis point hike last month. The central bank is also likely to announce quantitative tightening, shrugging off the negative first quarter gross domestic product print. Quantitative tightening refers to process of reducing the balance sheet size that has more than doubled to nearly $9 trillion in two years.

"It would be an incredible surprise if the Fed didn't lift rates by 50bp at this meeting – this is well priced, with the swaps market pricing 51bp of hikes – where we do see an issue is pricing around the June FOMC (Federal Open Market Committee) meeting, with a 25% chance of 75bp hike – this seems a tad lofty, but it has come down from 50% last week," Chris Weston, head of research at Pepperstone, wrote in the Daily Fix newsletter.

Weston added that under the current pricing, the market expects the Fed to take the fed funds rate above the neutral rate of 2.4% and into the restrictive territory by September. That would require a 50 basis point hike later Wednesday and similar moves in June, July and September.

"Within a backdrop of deteriorating economic conditions, a hawkish Fed poses a significant threat to crypto markets in the short-term. And until markets have clarity on the macro backdrop, capital allocations towards risk assets will be limited," said CoinDesk's sister concern Genesis Global in a newsletter dated May 3.

That said, the cryptocurrency could see a minor relief rally if the Fed matches the widely expected, and priced in, 50 basis point hike.

"We think that the market is fully expecting a 50-bp rate hike and announcement of QT at $95 [billion] per month. If the FOMC decision is in line with expectations, we may see a relief rally," Dick Lo, founder and CEO of TDX Strategies, said in a Telegram chat.

"We've seen client interest in buying short-dated upside calls and call spreads as a cheap way to profit from a potential relief rally," Lo added.

Bitcoin was recently trading near $38,900, representing a 3% gain on the day, according to CoinDesk data.


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Omkar Godbole

Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team.

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