The price of Bitcoin (BTC) is down 56% since the beginning of the year, 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 market capitalization of $400 billion stands higher than traditional companies like Exxon Mobil, Walmart and Procter & Gamble, but there is always a question as to whether a direct comparison between a commodity like Bitcoin and stocks is correct.
The most valuable global asset to trade. Source: 8marketcap.com
Equity-favoring analysts and investors constantly remind cryptocurrency advocates that Exxon Mobil has posted $25.79 billion in profits over the past 12 months, as a justifiable example of its valuation. But on the flip side, earnings don’t necessarily explain how Boeing lost $16.1 billion in two years, even as it retained market capitalization of $87.1 billion.
Measuring the market value of a commodity can be difficult. For example, in the case of silver, only 50% of the precious metal is used in industrial applications. There are individuals and companies who own the assets to invest in the form of bullion, coins, or jewelry, and these assets are not “productive” income generating.
Bitcoin’s value is much lower than gold’s $11.2 trillion market cap, but what does “$400 billion” mean, and how does it compare to broader asset classes such as global stocks, real estate and debt markets?
Was the Bitcoin ‘digital gold’ thesis wrong?
The first question one should ask is: Has gold been a good store of value over the past five years? To find answers, traders have to compare its price against other trillion-dollar asset classes such as global stocks, oil and real estate. The general objective of any store of value is to maintain purchasing power, regardless of price fluctuations during the period.
Gold against WTI oil, the S&P500 index, and the Case-Shiller house price. Source: TradingView
From July 2017 through July 2022, gold underperformed the remaining asset classes at 18% or higher. The precious metal broke above $2,000 in August 2020, but could not keep up with the ever-increasing prices of stocks, housing and energy. In comparison, the US monetary base, bank deposits and cash expanded by 48.5% in the same period.
One could argue that gold has failed to maintain its purchasing power over time, but it is likely that more time is needed to assess how the precious metal will behave if the current global crisis accelerates or extends for longer than expected. Meanwhile, in the same time period, Bitcoin delivered an 840% gain from July 2017 to July 2022.
Here is the solution to Bitcoin price fluctuation
There is a valid question about Bitcoin’s volatility and rightly so given the fact that the asset regularly experiences 20% or higher of weekly price movements. But there is a simple and quick solution to mitigate this fluctuation, or at least reduce the impact in a longer time frame. The dollar cost averaging (DCA) strategy consists of the regular purchase of predetermined amounts of the asset on a daily, weekly or monthly basis.
Bitcoin price in US dollars against the 5-year moving average. Source: TradingView
For example, following this strategy for the past five years could have resulted in an average entry cost of $19,192. So even if an 8.3% gain to the current price of $20,800 isn’t enough to compete with gold, it certainly shows 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 providers. This percentage is equivalent to 4% of Bitcoin’s current market capitalization of $400 million.
Total investment instruments listed in cryptocurrency, billion USD. Source: CryptoCompare
By comparison, gold-backed ETF products totaled $221.7 billion in June, according to data from GoldHub. If one excludes 50% of the “non-financial use of gold” such as jewelry and industry, the remaining market value is $5.6 trillion. Therefore, the fund’s exchange-traded investment vehicles correspond to 4% of gold’s adjusted market capitalization.
Related: Bitcoin Now In Longest ‘Extreme Fear’ Period Ever
At $20,800, the ratio of holdings of the Bitcoin investment vehicle matches that of the gold markets. While the market capitalization level of $400 million may worry some investors, the adoption of the asset is negligible compared to the adoption of gold, a precious metal with a 7,000-year history as an investment vehicle.
Looking at the five-year period analyzed and using a simple DCA strategy to exclude sharp price swings, gold is currently a better store of value, but this does not invalidate Bitcoin’s 8.3% gain in this period. In short, the assets have yet to prove themselves.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. All
