Bitcoin Below $22,000 still looking sharper against Gold market cap

Bitcoin Below $22,000 still looking sharper against Gold market cap

The price of bitcoin (BTC) is down 56% year to date, 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 cap is more than traditional companies like Exxon Mobil, Walmart, and Procter & Gamble, but it is still questionable whether a direct comparison between a commodity like bitcoin and stocks is valid.

The most valuable tradable assets in the world. Source:

Analysts and equity investors constantly remind Cryptocurrency proponents that Exxon Mobil posted $25.79 billion in profits over the past 12 months to justify its valuation. But on the other hand, profits don’t necessarily explain how Boeing posted losses of $16.1 billion in two years, despite its $87.1 billion market capitalization.

Measuring the market value of an item can be difficult. For example, in the case of silver, only 50% of the precious metal is used in industrial applications. Individuals and corporations hold this asset for investment purposes in the form of bars, coins, or jewelry, and are not “productive” income-generating assets.

Bitcoin’s value is well below gold’s $11.2 trillion market caps, but what does that “$400 billion” 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 to ask is: Has gold been a good store of value over the past five years? To find answers, traders need to compare their price to other multi-billion dollar asset classes, such as global stocks, oil and real estate. The general purpose of any store of value is to maintain purchasing power, regardless of price fluctuations during the period.

Gold versus WTI oil, S&P500 index and Case-Shiller house prices. Source: Trade View

From July 2017 to July 2022, gold has underperformed other asset classes by 18% or more. The precious metal broke through the $2,000 mark in August 2020, but could not keep up with the steady growth of stock, housing and energy prices. In comparison, the US monetary base, bank deposits and cash, grew 48.5% over the same period.

One could argue that gold has failed to maintain its purchasing power over time, but it is likely that more time will be needed to assess how the precious metal will fare if the current global crisis intensifies or if it lasts longer than expected. Meanwhile, in this same time frame, bitcoin showed gains of 840% from July 2017 to July 2022.

This is the solution to bitcoin price volatility

The issue of bitcoin volatility is relevant, especially since this asset regularly experiences weekly price changes of 20% or more. But there is a quick and easy solution to mitigate this oscillation, or at least reduce its impact over a longer period. The strategy is average dollar cost (DCA) is the regular purchase of pre-defined amounts of an asset on a daily, weekly or monthly basis.

Bitcoin price in USD relative to the 5-year moving average. Source: Trade View

For example, following this strategy over the past five years, the average cost of admission was $19,192. So while the 8.3% gain on the current price of $20,800 may not be enough to compete with gold, it certainly represents a more predictable form of using bitcoin as a long-term store of value.

Gold ETF vs bitcoin investment products

According to CryptoCompare, bitcoin investment vehicles under management (AUM) totaled $15.9 billion in June. This metric includes exchange-traded products such as Grayscale GBTC and exchange-traded notes from multiple vendors. This ratio is equivalent to 4% of bitcoin’s current market capitalization of $400 million.

Total cryptocurrency investment vehicles listed, in billions of US dollars. Source: CryptoCompare

By comparison, gold-backed ETF products were worth $221.7 billion in June, according to GoldHub data. Excluding the 50% of “non-financial uses of gold” such as jewelry and manufacturing, the remaining market capitalization is $5.6 trillion. Therefore, the fund’s exchange traded investment vehicles represent 4% of the adjusted market value of gold.

Also read: Bitcoin is currently experiencing the longest period of “extreme fear” in its history

At $20,800, the holdings ratio of bitcoin investment vehicles is in line with that of the gold markets. While the $400 million market cap level may worry some investors, taking this asset is small compared to taking gold, a precious metal with a 7000-year-old history as an investment vehicle.

Considering the five-year period analyzed and using a simple DCA strategy to rule out large swings in price, gold is currently a better store of value, but that does not invalidate the 8.3% gain bitcoin during this period. In short, both assets have yet to be created.

The views and opinions expressed here are solely those of theauthor and those do not necessarily represent Cointelegraph. All investment and business transactions involve risk. You should do your own research before making a decision.

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