Sub-22K Bitcoin looks juicy when compared to golds market capitalization
the price of bitcoin (btc) is down 56% so far this year, but the correction was not strong enough to remove the digital asset from the list of the top 20 global tradable assets. Bitcoin’s current $400 billion market capitalization is higher than that of traditional companies like Exxon Mobil, Walmart, and Procter & bet, but there is always the question of whether a direct comparison between a commodity like bitcoin and stocks is valid.
Analysts and investors favoring stocks constantly remind crypto advocates that Exxon Mobil posted $25.79 billion in earnings over the past 12 months, as a justifying example of its valuation. But on the flip side, earnings don’t necessarily explain how Boeing booked $16.1 billion losses in two years, even as it holds an $87.1 billion market capitalization.
Reading: Bitcoin market cap vs gold
Measuring the market value of a commodity can be tricky. For example, in the case of silver, only 50% of the precious metal is used in industrial applications. there are people and companies that have assets to invest in the form of bullion, coins or jewelry and these are not “productive” assets that generate income.
Bitcoin’s value is far less than gold’s $11.2 trillion market capitalization, but what does “$400 billion” even mean and how does it compare to broader asset classes such as global equities, real estate and debt markets?
was bitcoin’s “digital gold” thesis wrong?
The first question one should ask is: has gold been a good store of value in the last five years? To find answers, traders have to compare its price to other trillion-dollar asset classes, such as global stocks, oil, and real estate. the general objective of any store of value is to maintain purchasing power, regardless of price fluctuations during the period.
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From July 2017 until July 2022, gold has underperformed the remaining asset classes by 18% or higher. The precious metal broke above $2,000 in August 2020, but it could not keep up with the ever-growing prices of stocks, housing and energy. In comparison, the United States monetary base, bank deposits and cash, expanded by 48.5% in the same period.
It could be argued that gold has failed to maintain its purchasing power over time, but more time is likely to be needed to assess how the precious metal will perform if the current global crisis accelerates or lasts longer than the expected. meanwhile, in this same time frame, bitcoin posted gains of 840% from July 2017 to July 2022.
here is the solution to bitcoin price volatility
There is a valid question about bitcoin’s volatility and rightly so, given that the asset regularly faces weekly price movements of 20% or more. but there is a simple and quick solution to alleviate this oscillation, or at least reduce the impact over a longer time frame. The dollar cost averaging (DCA) strategy is to regularly buy preset amounts of an asset on a daily, weekly, or monthly basis.
For instance, following this strategy for the past five years would have resulted in a $19,192 average entry cost. So even if the 8.3% gain to the current $20,800 price might not be enough to compete with gold, it certainly shows a more predictable form in which to use Bitcoin as a long-term store of value.
gold etf investment products vs. bitcoin
According to cryptocompare, bitcoin investment vehicles under management (aum) totaled $15.9 billion in June. This metric includes exchange-traded products such as GBTC Grayscale and multi-vendor exchange-traded notes. this ratio is equal to 4% of bitcoin’s current $400 million market capitalization.
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In comparison, the gold-backed ETF products stood at $221.7 billion in June, according to data from GoldHub. If one excludes the 50% “non-financial-related use of gold” like jewelry and industry, the remaining market capitalization stands at $5.6 trillion. Therefore, the fund‘s exchange-traded investment vehicles correspond to 4% of the adjusted gold‘s market value.
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At $20,800, bitcoin’s investment vehicle holding ratio matches gold markets. While the $400 million market capitalization level might concern some investors, adoption of the asset is minimal compared to the adoption of gold, a precious metal with a 7,000-year history as an investment vehicle.
taking into account the five year period that was analyzed and using a simple dca strategy to rule out sharp price swings, gold is currently a better store of value, but that does not invalidate the 8.3% gain of bitcoin in the period. In short, both assets have yet to prove their worth.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. you should do your own research when making a decision.
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