The often contentious world of cryptocurrency discourse is divided on the issue. Just a few weeks ago, The Economist published a prophetic call for Bitcoin’s valuation to crash. Their analysis indicates that Bitcoin is highly overvalued. This statement has sparked a contentious argument between cryptocurrency proponents and traditional economic experts. This article aims to break down the Economist's argument, explore the underlying metrics, and consider alternative perspectives on Bitcoin's current value.

Kwame Nkosi, writing for BlockchainShock, makes a welcome attempt to clear up this confusing and complicated matter. He combines analytic rigor with clear and concise explanations to cut through the noisy cryptomarket waters. It is his keen focus on Africa’s burgeoning influence on the global fintech arena which really brings the specifics home.

Understanding the Overvaluation Claim

The Economist’s judgement rests on a handful of high-level indicators, first and foremostly the Market Cap to GDP ratio. This ratio has long been the key metric used to assess the stock market’s valuation. It takes the total market capitalization of an asset, like Bitcoin, and divides it by a country’s Gross Domestic Product (GDP). The formula is straightforward: Total Market Cap / GDP.

The entire market capitalization of every cryptocurrency is now over $1.5 trillion. If by July 31, 2025, this ratio does hit 171.1% or more, or even 200%, it will mean that the cryptocurrency market – Bitcoin included – is tremendously overvalued. Based on a new criteria established by the Economist, this self-assessment is perfect. For instance, the Economist employs a variety of measures to assess the stock market’s valuation. A ratio of 87% or lower indicates the stock market is deeply undervalued. At the same time, if the ratio is 87% to 111%, the market is slightly undervalued. A ratio between 111% and 136% means the market is about fair value, while a ratio between 136% and 161% means it’s modestly overvalued. Lastly, a ratio over 161% indicates that the stock market is very overvalued.

Monetary Policy and Bitcoin's Price

A fourth reason for the overvaluation worry is Bitcoin’s growing responsiveness to monetary policy — especially in the U.S. According to a recent paper, since 2020, Bitcoin prices have been increasingly responsive to shifts in US monetary policy. This kind of behavior locks in Bitcoin’s standing as a speculative, risky asset.

Curiously, Bitcoin prices denominated in Korean won and Chinese yuan appear to shoot up immediately after a US monetary tightening. Investors in emerging markets that increasingly adopt capital controls are thirsting for alternatives. As a result, they might start using Bitcoin to avoid these limits. Bitcoin’s decentralized, transparent, and borderless nature makes it a unique opportunity to evade capital controls. That potential, in turn, is fueling booming demand — especially from powerhouses like China. In the past whenever the US has tightened monetary policy, it resulted in a strong Bitcoin bull run. That trend flipped after 2020.

Counter-Arguments and Alternative Perspectives

Though the Economist’s warning is certainly one to heed, we should hear the other side, and reinforce other arguments and perspectives on why Bitcoin has value. Others believe that Bitcoin has some kind of intrinsic value that is not rooted in speculation. As Malekan points out, Bitcoin can serve as a store of value and a means of exchange in countries with unstable currencies, such as Iran and Argentina.

Bitcoin’s volatility, which is typically perceived as a negative, can instead be characterized as a positive feature. Even with all the ups and downs, Bitcoin has long-term suited upward movement over the last 10 years and for many investors, this allure is hard to resist. Bitcoin’s recent price increases have produced enormous gains for its investors. This newly created wealth can have a wonderful multiplier effect on the local economy. Malekan likens the work of the Bitcoin miner to that of a painter creating in-demand works of art. He claims that Bitcoin’s value isn’t just speculative, but rather determined by the users’ perception of its value.

Risks and Rewards

Naturally, Bitcoin is not without risks. Its price volatility, regulatory uncertainty, cybersecurity threats, and potential for market manipulation are legitimate concerns. Not surprisingly, critics such as U.S. Treasury Secretary Janet Yellen have expressed fears about cryptocurrencies facilitating the financing of illegal activities.

Bitcoin sure looked like a great hedge against inflation at first. Its price movements have long diverged from inflation expectations, leading many to question its trustworthiness.

It’s important to consider these risks against these potential rewards before investing in Bitcoin or any other cryptocurrency.

  • Pros:
    • Potential store of value in unstable economies
    • Opportunity for wealth creation
    • Decentralized and borderless nature
  • Cons:
    • Price volatility
    • Regulatory uncertainty
    • Cybersecurity threats

Kwame Nkosi as well as BlockchainShock both encourage investors and enthusiasts to remain educated. They further highlight the need for careful, thoughtful choices in this fast-paced space of blockchain and digital assets.

Kwame Nkosi and BlockchainShock encourage investors and enthusiasts to stay informed and make well-considered decisions in the dynamic world of blockchain and digital assets.