ByteTree Warns AI Rally Is A 1999 Rerun, Groups Bitcoin With Inflation-Era Hard Assets

• In the second quarter, ByteTree's Whisky portfolio sold its blockchain equities positions and bought Berkshire Hathaway and other value stocks.
• Morris noted that it was “a matter of time before the bubble bursts," adding that the semiconductor index gained $10 trillion in market value last year.
• Bitcoin's decline is fueled by rising real rates, as shown in 2018 and 2022, when Bitcoin plunged 73.8% and 64.3%, respectively.

ByteTree said its Whisky portfolio sold its blockchain equities investments in the second quarter (Q2), switching to Berkshire Hathaway (BRK-A) and other value names as founder Charlie Morris said the AI-driven semiconductor surge is reminiscent of 1999.

"It is a matter of time before the bubble bursts,” Morris wrote in the firm’s second-quarter investor letter published on Sunday, noting that the semiconductor index added $10 trillion in market cap over the past year to reach $16 trillion, equal to the entire EuroStoxx 600.

The firm’s Money Map concept positions Bitcoin (BTC) alongside gold and value stocks as hard assets that outperform during inflationary periods, whereas shares and bonds perform best when inflation is contained.

Macroeconomic Headwinds

Bitcoin’s slump is being driven by higher real yields, claimed ByteTree, citing a macro environment that corresponded with the cryptocurrency’s two biggest contemporary drawdowns.

Bitcoin’s ByteTrend score is at zero after the price struck a fresh low, the business stated, with “no way to sugarcoat this in the short term.” The price has also fallen below its 200-week moving average, reducing the weekly score to 1, although ByteTree said that circumstance was also the turning point of the 2022 bear market.

Bitcoin’s price rose over 0.1% to $62,730 in the last 24 hours. On Stocktwits, retail sentiment around it improved to ‘bullish’ from the ‘neutral’ zone, while chatter dropped to ‘low’ levels from ‘normal’ levels over the past day.

Even with the fall, the research firm claimed Bitcoin had provided a 42% internal rate of return on a trend basis from the high in 2017, considerably above the 27% delivered by the Magnificent Seven tech equities. Now, the price is 1.5 standard deviations below that trend, which might just be a pause after a powerful cycle, the firm noted.

"The current Bitcoin bear is long in the tooth, and the best news I can deliver is that real rates won't rise forever," ByteTree founder Charlie Morris wrote in the note, co-authored with analyst Shehriyar Ali. "Sooner or later, they'll turn. If they don't, it won't just be Bitcoin that feels the pinch."

The pressure appears to be coming from flows rather than fundamentals. ByteTree claimed the network was in good order. On-chain transaction value surpassed $13.5 billion a week, five times 2022 levels, while daily trade volumes of over $35 billion compete with Nvidia (NVDA) and surpass Tesla (TSLA).

Read also: Bitcoin's Entire Return Hinges On Just 10 Days A Year, Says BitMine’s Tom Lee

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