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Over the last 10 years, the Bitcoin price and the American S&P 500 have performed extremely well. For example, Jordan Brook of AQR Capital Management calculates that the S&P 500 has risen about 12% per year (adjusted for inflation) since 2013. Based on this strong performance, Jordan Brook predicts that it will be virtually impossible to continue this performance and that even average returns will be a difficult proposition for the S&P 500 and therefore Bitcoin.
“It would take a miracle to achieve the stock market performance of the last decade,” Brooks said.
If you look at company valuations, they may be way too high, but personally I think there’s something else going on that Jordan Brooks and his colleagues aren’t taking into account in their analysis.
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You get every Monday a market update with key macroeconomic developments for Bitcoin price and stocks. Then I select all of them Friday The five most important financial charts of the moment.
Why do stocks and Bitcoin do so well?
What Jordan Brooks and many other analysts do is focus too much on the company’s numbers. Based on this, they conclude that there is no room for improvement in the market and that the growth over the last 10 years has been incredible.
What they miss is that many people invest in index funds like the S&P 500 not only for the profits of the companies in the index fund, but also to protect their assets from inflation.
In the fiat monetary system, where central banks and commercial banks flood the economy with money, stocks are not just interesting for their profits; but also as a form of scarcity.
Stocks have become a kind of store of value (just like Bitcoin) that can protect people from inflation. That’s why the share prices of companies continue to rise, even though experts say that the sales and profit figures of these companies are no longer correct.
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What does this mean for the Bitcoin price?
There is a possibility that the Bitcoin price and stock prices are now facing a more difficult phase, but in my opinion it all depends on the monetary policy of central banks and the level of credit creation in the financial system.
Based on the chart above, it can be concluded that stocks are currently overvalued relative to their earnings numbers and we may revert to the long-term average (gray line), but there is no certainty in this case.
The continued rise in stocks and Bitcoin could also be the result of society slowly losing trust in governments’ fiat money. This could well be an issue that will come to the fore in the next 10 years.
If governments continue to expand the money supply indefinitely, the values of stocks and Bitcoin (expressed in this fiat money) will also continue to increase indefinitely.
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