bitcoin (BTC) made an impressive double-digit rally this year, but the digital asset has been struggling to break through the $45,000 resistance of late. This level has no historical significance because it has been easily violated multiple times. The same can be said for the $850 billion capitalization of Bitcoin, which is nowhere near the $1.4 trillion of silver, or the $1.7 trillion market value of Amazon and Google.
Bitcoin's market capitalization is often compared to gold, which is worth a total of $12.3 trillion and is currently the world's leading store of value solution. Therefore, the answer to the $45,000 resistance could lie in the comparison of BTC versus gold by institutional investors. Looking at institutional investor funds under management assets and daily trading volume, it is possible to infer that Bitcoin's 93% market cap discount is justified.
The “digital gold” thesis is being proven correct
Gold has always been seen as a proxy for Bitcoin and Cointelegraph covered above. The multiple use cases of Bitcoinbut the narrative that it is a digital store of value has always been its main feature.
Governments around the world have implemented tighter financial controls for many reasons, which could reinforce the self-sovereign and decentralized advantages of cryptocurrencies. For example, China's social credit system it places criminals on a social credit block list, which will prevent them from obtaining loans or even using the transportation system.
More recently, Canada's short-lived Emergencies Act gave financial institutions the discretionary power to freeze bank accounts of protesters no civil liabilities on February 15. Another example is that this week the Russians have been sanctioned payment services such as Apple Pay and Google Pay.
These events could make an analysis of the market capitalization of gold to Bitcoin even more relevant.
Based on the data above, BTC's current $837 million market cap translates to roughly 7% of gold. To assess how those markets are valued, compare their daily trading volume and institutional positions.
Cryptocurrencies are notorious for inflated exchange-traded numbers, but some providers, including Nomics, have their own adjusted volume calculations.
The above data shows a 30-day trading volume of $404 billion for Bitcoin, which works out to $13.5 billion per day. Exchange-traded products like Grayscale Bitcoin Fund (GBTC) added another $0.4 billion of daily liquidity, according to CryptoCompare's February 2022 report. Thus, Bitcoin currently features an aggregate average daily volume of $13.9 billion.
Meanwhile, according to GoldHub, there is $170 billion in daily liquidity for gold, including recorded over-the-counter transactions. This is in addition to regulated futures markets and exchange-traded gold products. Therefore, the volume of Bitcoin currently features approximately 8% of gold.
The Gold ETF vs. Bitcoin Exchange Traded Commodities
Bitcoin's multiple exchange-traded products, such as Grayscale GBTC and exchange-traded notes, have grown considerably. As a result, there is $37.8 billion in assets under management locked up in Bitcoin exchange-traded products. That equates to 4.5% of the current $840 million market capitalization of the cryptocurrency market.
Gold-backed ETF products total $221.2 billion, according to GoldHub Facts on February 25. Excluding the aggregate 61% non-financial gold use (jewelry, industrial, other), the remaining market capitalization is $6.0 trillion. Therefore, the fund's listed investment vehicles correspond to 3.7% of the adjusted market value of gold.
At $45,000, Bitcoin's average traded volume and institutional investor holdings roughly match the gold markets. While the $850 million market cap level could be a short-term concern for investors, the cryptocurrency has other emerging use cases, such as El Salvador's micropayment channels using Lightning Network technology.
As “digital gold” becomes just one part of Bitcoin’s valuation model, traders are likely to price it higher and consequently the $45,000 level should become a distant memory.
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.
Post navigation
