Bitcoin-Gold Ratio and Debt Risks: Why BTC Could Be Undervalued

Bitcoin-Gold Ratio and Debt Risks: Why BTC Could Be Undervalued

While gold continues to trade near its all-time highs, benefiting from geopolitical tensions, Bitcoin could be fundamentally undervalued – at least relative to the precious metal and global money supply. At the same time, warnings of systemic risks in the financial system are mounting, showing fatal parallels to the 2008 financial crisis. For Bitcoin investors, this creates a complex picture: short-term volatility meets long-term upside potential, while conditions in the traditional financial system appear increasingly fragile.

The current market situation raises fundamental questions: What role can Bitcoin play in an environment characterized by record debt levels, loose credit standards, and technological disruption? And why could a phase of relative weakness against gold lay the groundwork for the next significant rally?

The Facts

Samson Mow, CEO of Bitcoin technology company Jan3, sees Bitcoin as significantly undervalued at present. His analysis shows that Bitcoin is trading approximately 24 to 66 percent below its trend relative to gold's market capitalization or global money supply, while gold itself appears overvalued ^[3]. Mow cites the Z-score of the Bitcoin-to-gold ratio as a central indicator. This metric measures how far the Bitcoin price deviates from its historical average relative to gold. A Z-score of zero represents the average level, while values below zero signal undervaluation.

The crucial point: When the Z-score of the Bitcoin-to-gold ratio falls below minus two, it has historically been followed by significant price rallies ^[3]. Currently, the value stands at approximately minus 1.24. In November 2022, during the FTX collapse, the metric fell below minus three – in the following twelve months, Bitcoin rose over 150 percent. A similar pattern emerged in March 2020 during the Corona crash: the Z-score fell below minus two, Bitcoin reached a low of approximately $3,717, and gained over 300 percent in the subsequent twelve months before reaching the then all-time high of around $69,000 in November 2021 ^[3].

Parallel to these technical signals, Jamie Dimon, CEO of JPMorgan, warns of structural problems in the financial system reminiscent of the precursors to the 2008 financial crisis. At that time, risky mortgage lending to borrowers with poor creditworthiness – so-called subprime loans – led to a global shockwave. These claims were bundled, securitized, and sold to investors. When housing prices fell and borrowers defaulted, confidence collapsed. The bankruptcy of Lehman Brothers in September 2008 marked the climax, credit markets froze, and the global economy slipped into a deep recession ^[2].

Dimon sees similar behavioral patterns today: Some actors are once again doing "stupid things" and taking greater risks for slightly higher returns ^[2]. Particularly in the area of private credit – loans from specialized funds outside regulated bank balance sheets – and leveraged loans, high-yield corporate loans to already heavily indebted companies, strong growth is being observed. "In every credit cycle, there's a surprise," Dimon warns. "This time it could be the software industry, because of AI" ^[2]. The rapid development of artificial intelligence creates new uncertainties about business models and investment returns.

While Bitcoin struggles in this uncertain environment, gold shows impressive strength. Gold futures for April delivery closed Friday at $3,247.90, while tokenized gold like PAX Gold (PAXG) currently trades at approximately $3,404.14 ^[3]. This creates new opportunities for crypto-oriented investors: gold-backed tokens like Tether Gold (XAUT) and PAXG enable straightforward 24/7 trading, are divisible into fractions, and can be held in wallets ^[1]. Each token represents one fine ounce of physical gold stored in certified vaults. However, these products carry specific risks: smart contract vulnerabilities, counterparty risks, and in extreme scenarios like a gold ban, the danger of government confiscation of centrally stored holdings ^[1].

Analysis & Assessment

The convergence of these three developments – technical undervaluation, systemic financial risks, and gold strength – paints a complex picture for Bitcoin investors. The low Z-score of the Bitcoin-to-gold ratio suggests an attractive entry level, but macroeconomic uncertainty could cause further volatility in the short term.

Historically, Bitcoin emerged in 2009 as a direct response to the financial crisis. The genesis block immortalizes a headline about government bank bailouts – a deliberate message against expansive monetary policy and central bank interventions ^[2]. The algorithmic scarcity of a maximum 21 million units fundamentally distinguishes Bitcoin from fiat currencies. However, this structural characteristic does not protect against short-term market shocks. In acute stress phases, investors typically sell risky assets to secure liquidity – Bitcoin would likely not be exempt from this.

The timing is crucial: Should Dimon's warning prove accurate and a credit cycle shock occur, Bitcoin would likely come under pressure initially. Only in a second phase, when central banks respond with interest rate cuts and bond-buying programs, could the tide turn. The resulting expansion of money supply creates the potential for rising prices of alternative assets, but without actual capital inflows, the effect remains limited ^[2]. However, history shows: After 2008, massive liquidity expansion led in the medium term to a boom in real assets and later also in Bitcoin.

The current gold strength underscores the growing need for safe havens in an environment characterized by geopolitical tensions and inflation ^[1]. That Bitcoin lags behind in comparison could paradoxically represent an opportunity. Historical comparison shows: Phases of strong undervaluation in the Bitcoin-gold ratio were often turning points. The combination of technical undervaluation and a potentially expansive monetary policy environment could significantly benefit Bitcoin in the medium term – provided confidence in traditional financial systems continues to erode.

Conclusion

• The Z-score of the Bitcoin-to-gold ratio indicates significant undervaluation of Bitcoin – historically, such phases have been precursors to significant price rallies, with falling below minus two proving particularly significant in the past

• Jamie Dimon's warning about systemic risks in the credit system is reminiscent of 2008, which could put short-term pressure on all risk assets including Bitcoin, but makes expansive monetary policy and thus potential inflows into scarce assets likely in the medium term

• Gold shows extraordinary strength as a classic safe haven, while Bitcoin as a digital alternative currently lags – this discrepancy could correct itself with increasing acceptance of Bitcoin as "digital gold"

• Tokenized gold offers crypto-oriented investors a practical diversification option, but does not replace physical custody in extreme system risks due to counterparty and confiscation risks

• Investors should prepare for increased volatility: short-term weakness in the event of a credit market shock is likely, but Bitcoin's structural characteristics – fixed scarcity with rising money supply – could lead to significant price gains in the medium term