Bitcoin below $ 22K looks juicy compared to gold’s market value
The Bitcoin (BTC) price is down 56% so far this year, but the correction was not strong enough to remove the digital asset from the list of top 20 global tradable assets. Bitcoin’s current market value of $ 400 billion is higher than traditional companies such as Exxon Mobil, Walmart and Procter & Gamble, but it is always a question of a direct comparison between a commodity such as Bitcoin and stocks is valid.
Equity analysts and investors are constantly reminding cryptocurrencies that Exxon Mobil has provided $ 25.79 billion in revenue over the past 12 months, as a justifying example of the valuation. But on the flip side, earnings do not necessarily explain how Boeing booked losses of $ 16.1 billion in two years, even though it has a market value of $ 87.1 billion.
Measuring a commodity market value can be difficult. For example, in the case of silver, only 50% of precious metals are used in industrial applications. There are individuals and companies who hold the asset for investment in the form of bars, coins or jewelry, and these are not “productive” income-generating assets.
Bitcoin’s value is far inferior to gold’s market value of $ 11.2 trillion, but what does ‘$ 400 billion’ even mean, and how does it compare to broader asset classes such as global stock, real estate and debt markets?
Was Bitcoin’s “digital gold” dissertation wrong?
The first question to ask is: Has gold been a good store of value for the last five years? To find answers, traders need to compare the price with other trillion dollar asset classes such as global equities, oil and real estate. The overall goal of any value store is to maintain purchasing power, regardless of price fluctuations during the period.
From July 2017 to July 2022, gold has fallen below 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-increasing prices of stocks, housing and energy. In comparison, the US monetary base, bank deposits and cash increased by 48.5% in the same period.
It can be argued that gold has failed to maintain its purchasing power over time, but it is likely that more time will be needed to evaluate how the precious metal will behave if the current global crisis accelerates or extends beyond expectations. Meanwhile, in the same time period, Bitcoin yielded 840% gain from July 2017 to July 2022.
Here is the solution to Bitcoin’s price volatility
It is a valid question about the volatility of Bitcoin and rightly so given the fact that the asset regularly meets 20% or higher weekly price movements. But it is a simple and quick solution to alleviate this fluctuation, or at least reduce the impact on a longer time frame. The dollar cost average (DCA) strategy consists of regularly purchasing preset quantities of an asset on a daily, weekly or monthly basis.
For example, following this strategy over the last five years would have resulted in an average entry cost of $ 19,192. So while the gain of 8.3% at the current price of $ 20,800 may not be enough to compete with gold, it shows certainly a more predictable form of using Bitcoin as a long-term asset.
Gold ETF vs. Bitcoin investment products
According to CryptoCompare, the Bitcoin investment cars under management (AUM) amounted to $ 15.9 billion in June. This calculation includes exchange-traded products such as Grayscale GBTC and exchange-traded notes from several suppliers. This ratio corresponds to 4% of Bitcoin’s current market value of $ 400 million.
In comparison, the gold-backed ETF products were $ 221.7 billion in June, according to data from GoldHub. Excluding 50% “non-financially related use of gold” as jewelry and industry, the remaining market value is $ 5.6 trillion. Therefore, the fund’s exchange-traded investment instruments correspond to 4% of the market value of adjusted gold.
Related: Bitcoin is now in its longest “extreme fear” period ever
At $ 20,800, Bitcoin’s investment car inventory matches the gold markets. While the market value of $ 400 million may be of concern to some investors, the adoption of the assets is minimal compared to the use of gold, a precious metal with a 7,000-year history as a means of investment.
Considering the five-year period analyzed and using a simple DCA strategy to rule out sharp price fluctuations, gold is currently a better asset, but that does not invalidate Bitcoin’s 8.3% gain during the period. In short, both assets have not yet been proven.
The views and opinions expressed here are solely those of author and does not necessarily reflect the views of the Cointelegraph. Every investment and trade involves risk. You should do your own research when making a decision.
