- March 2, 2022
- Posted by: Bogdan
- Category: Canada, etf, funds, GBTC, Gold, Grayscale, Markets, sanctions, silver, social credit, valuation
Bitcoin (BTC) pulled off an impressive double-digit rally this year, but the digital asset has been struggling to break the $45,000 resistance lately. This level does not hold any historical importance because it has been easily breached multiple times. The same can be said for Bitcoin’s $850 billion capitalization, which isn’t anywhere close to silver’s $1.4 trillion, or the Amazon and Google’s $1.7 trillion market value.
Bitcoin’s market cap is often compared to gold, which has a $12.3 trillion total value and is currently the leading global store of value solution. Therefore, the answer to the $45,000 resistance might lay in institutional investors’ comparison of BTC versus gold. By looking at institutional investor funds assets under management and daily trading volume, it is possible to infer that Bitcoin’s 93% market capitalization discount is justified.
The “digital gold” thesis is being proven right
Gold has always been viewed as a proxy for Bitcoin and Cointelegraph previously covered Bitcoin’s multiple use cases, but the narrative that it is a digital store of value has always been its flagship feature.
Governments around the globe have implemented tighter financial controls for many reasons, which could reinforce the self-sovereign and decentralized advantages of cryptocurrency. For example, China’s social credit system places offenders on a social credit blocklist, which will stop them from securing loans or even using the transportation system.
Most recently, Canada’s short-lived Emergencies Act gave financial institutions the discretionary power to freeze protesters’ bank accounts with no civil liabilities on Feb. 15. Another example is this week Russians have been sanctioned from payment services like Apple Pay and Google Pay.
These events could make an analysis of the gold to Bitcoin market capitalization even more relevant.
According to the above data, BTC’s current $837 million market capitalization translates to roughly 7% of gold. To assess how those markets are valued, one should compare their daily traded volume and institutional holdings.
Cryptocurrencies are known for inflated exchange-traded numbers, but some providers, including Nomics, have their own adjusted volume calculations.
The above data shows a $404 billion 30-day exchange volume for Bitcoin, which is equivalent to $13.5 billion per day. Exchange-traded products such as the Grayscale Bitcoin Fund (GBTC) added another $0.4 billion daily liquidity, according to CryptoCompare’s February 2022 report. Therefore, Bitcoin currently presents an aggregate $13.9 billion average daily volume.
Meanwhile, according to GoldHub, there is $170 billion in daily liquidity for gold, including registered over-the-counter transactions. This is in addition to regulated futures markets and gold exchange-traded products. Thus, Bitcoin volume currently presents roughly 8% of gold’s.
The gold ETF versus Bitcoin exchange-traded products
Bitcoin’s multiple exchange-traded products such as Grayscale GBTC and exchange-traded notes have grown considerably. As a result, there are $37.8 billion in assets under management locked in Bitcoin exchange-traded products. That is equivalent to 4.5% of the cryptocurrency market’s current $840 million market capitalization.
Gold-backed ETF products total $221.2 billion, according to GoldHub data on Feb. 25. Excluding the aggregate 61% non-financial gold use (jewelry, industrial, others), the remaining market capitalization stands at $6.0 trillion. Therefore, the fund’s exchange-traded investment vehicles correspond to 3.7% of the adjusted gold’s market value.
At $45,000, Bitcoin’s average volume traded and institutional investors’ holdings roughly match gold’s markets. While the $850 million market cap level might be a short-term concern for investors, the cryptocurrency has other emerging use cases, such as El Salvador’s micropayment channels that use Lightning Network technology.
As “digital gold” becomes only a part of Bitcoin’s valuation model, traders are likely to price in higher upside, and consequently, the $45,000 level should become a distant memory.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.