A monthly research report from Bitwise’s European arm released this week pegs the theoretical “fair value” of bitcoin at around $224,000 if the asset were widely adopted as portfolio insurance against G20 sovereign debt defaults.
The research team, however, described this figure as a “model-implied guideline figure, not a price target or forecast.”
This figure stems from a theoretical framework first proposed by analyst Greg Foss in 2021, which treats bitcoin as a credit default swap on sovereign bonds.
Since the Bitcoin network has no central issuer and operates without a sovereign safety net, the Foss model presents it as an uncorrelated hedge against the possibility of major sovereign defaults.
The implied fair value of $224,000 depends on the weighted probability of default among the Group of 20 (G20) states and the market capitalization of the theoretically insured bonds.
He built his argument around tensions in the sovereign bond markets. Yields on 30-year Japanese government bonds have reached record highs while yields on 10-year JGBs are at multi-decade highs.
The International Monetary Fund and OECD have warned that governments and businesses will need to borrow $29 trillion in bond markets this year, 17% more than in 2024. The IMF describes markets as increasingly less forgiving and investors are increasingly questioning the limits of sovereign borrowing capacity.
Bitwise singled out the Japanese JGB market as particularly vulnerable, citing its size of around $7.5 trillion as the world’s second-largest sovereign bond market, with Japanese investors holding around $1.2 trillion in US Treasury securities and Japan’s debt-to-GDP ratio of around 230%.
He noted that 10-year swap spreads, which measure sovereign risk premiums, are at their highest levels since the 2011-2012 European debt crisis on major sovereign bonds.
But the report also flagged near-term headwinds for bitcoin.
Higher global bond yields have made Strategy’s STRC perpetual preferred stock (MSTR) dividends less attractive to investors, and STRC has recently traded below par.
Strategy purchases accounted for roughly two-thirds of institutional demand for Bitcoin through global treasury firms and Bitcoin ETPs through 2026, by Bitwise’s count, meaning a block on Strategy’s STRC-funded accumulation could significantly reduce the flow.
The optimistic scenarios described by Bitwise depend on monetary policy and sovereign tensions.
A Fed pause under new Chairman Kevin Warsh against rising inflation could push real yields lower, which the report cites as a historic tailwind for Bitcoin. A capitulation of sovereign bonds that requires the central bank to intervene to safeguard financial stability could validate Bitcoin’s role as a decentralized hedge against sovereign counterparty risk.
When it comes to valuation, the report flagged one of the most extreme divergences it has seen between bitcoin and large-cap US tech. Bitcoin’s market value to realized value ratio is in the lower half of its historical distribution, with only 36% of historical readings below the current level.
In contrast, the NASDAQ 100’s price-to-book ratio is at its highest level on record, with 99% of historical values below the current level.
Bitcoin was trading near $66,300 on Wednesday after sliding more than $71,000 earlier this week.
