After some weeks and months of stagnation, the prices of Bitcoin have finally rallied and settled over $7,000. The enthusiasts about cryptocurrency are confident that the digital currency is not going to fall sharply and financial analysts also opined the same thing. The returns over the last year were better than the equity and gold markets. As a result of that, comparisons were also made between the two assets, with some believing that Bitcoin is going to become a store of value just like gold very soon.
Gold & Bitcoin
The director of digital asset strategies at VanEck/MVIS, named Gabor Gurbacs, has told CNBC that the market capitalization of Bitcoin could potentially double or even triple if it became a safe asset such as gold. Gold was traditionally viewed as a safe investment which provided gradual returns over a long-term period.
Gurbacs said that a maturing cryptocurrency market could probably lure investors away from the yellow metal. The investors hold a mixture of government bonds, as well as gold in the portfolio to balance and preserve it in a situation of an unlikely economic downturn.
However, Gurbacs also believes that Bitcoin could soon replace the gold as the preferred investment for passive investors. The downside is that Bitcoin, as well as cryptocurrencies, are in their nascent stage and hence, they are very volatile. This volatility has also detracted some investors from moving a part of their portfolio to crypto holdings.
He said that the gold nowadays has around $7 trillion outstanding. If you take, let’s say, 5 to 10%, you can let everyone do the math about the upside of Bitcoin.
Bitcoin also has a market capitalization of $128 billion, which is rather paltry when compared against the high $7.8 trillion market capitalization of gold. There is actually a considerable upside potential for the oldest digital currency.
The crypto market is maturing
The market for cryptocurrency is still going to need to evolve before it can become as vast as the gold market. Moreover, institutional investors are entering the market, as well as announcing crypto focused investment funds.
Also, there is more liquidity in crypto markets as the number of cryptocurrency exchanges increased recently. He stated that they believe there is enough liquidity. They also think that there are pricing benchmarks. They feel that there is a way to integrate Bitcoin into the financial ecosystem which they are used to for ETFs, stocks, bonds, and commodities.
Gold ETF versus Crypto ETF
The approval of SEC of a crypto ETF is maybe the most eagerly awaited event for the industry this year. The support of the commission for an ETF could actually trigger an influx of capital into crypto markets. Some more investors naturally translate into a higher price point.
The first ever gold-backed ETF was introduced in 2003 by the Rothschilds and Deutsche bank with gold prices trading at $300 an ounce. The gold ETF was also well received by investors and prices of the yellow metal saw about a 300% increase to reach $1300 an ounce.
It still left to be seen if the SEC does approve the first crypto ETF of the world. It had also termed cryptocurrencies as securities in the past, which could probably have paved the way for a publicly traded crypto ETF. The price of Bitcoin rally could be one of the cards should fund get a green light from the SEC.