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As Crypto Market Matures the Gold Comparison Returns

As Crypto Market Matures the Gold Comparison Returns (article)

As market participants see the price of Bitcoin break above $7,400, the recent rally extends and transforms from a shot-cover technical spike to an entrenched and powerful trend. This market that was searching for price found equilibrium – the next factor we will focus on is volumes, especially volumes at inflection points. The $10,000 inflection point is one we like.

But note that this rally is deeper and in addition to the recent announcements about a CFA testing changes and infrastructure patents issued to MasterCard, the Bitcoin and Gold comparison has returned to front page news. Mr Gabor Gurbacs, director of digital asset strategies at VanEck/MVIS, pointed out, “Gold today has around $7 trillion outstanding. If you take, say, 5 to 10 percent – I`ll let everyone do the math – bitcoin has upside.” Mr Gurbacs expressed some interesting ideas on the idea of this digital gold on CNBC recently.

This theory was discussed by Fundstrat`s Co-Founder and Wall Street guru Tom Lee in 2017. Mr Lee suggested that even if 5 percent of gold reserves were sold with the funds moving into Bitcoin, the price per unit would reach new heights. With estimates of 7.0 to 7.5 trillion dollars of gold out there in mid-2018, even 5 percent is a significant number.

When asked about the gold standard, Mr Lee had a simple but clever answer. The US moved off the gold standard in the 1970s, so Mr Lee looked back at gold to dollar supply, a clever way of linking historical facts.

Mr Lee actually compared the amount of gold to dollar supply going back to 1900 in his analysis. He studied the ratio of gold to dollar supply for over 100 years. It was roughly 450 percent in 1932, when US citizens were required to return gold to the US Treasury. It was roughly 450 percent in 1973 and it roughly the same today. The rule of thumb is that it remains around 450 percent over long periods of time.

With this analysis Mr Lee was looking at $25,000 to $50,000 per unit in Bitcoin if in fact there was a transfer of funds from gold (5 percent) to Bitcoin. So despite challenges in compliance, theft and other issues being addressed by regulators, the long-term outlook for Bitcoin remains positive in the eyes of some key market experts.

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