People continue to draw parallels between Bitcoin and gold. Some traits of both commodities make those comparisons pretty compelling, especially in terms of value and market cap. Right now, the Bitcoin market cap is equal to 1% of the total gold market cap. However, one Bitcoin is worth three times more than an ounce of gold. It will be interesting to see how these numbers evolve over the coming months.
Bitcoin and Gold are Still Apples and Oranges
It is not hard to see why people would be comparing Bitcoin and gold. Both commodities share a few traits, although they remain completely different from one another in virtually every aspect one can think of. Both units of value are scarce, although Bitcoin has a known fixed supply cap and gold has a finite (though currently unknown) amount in Earth’s crust. We do know gold is a finite resource, but tons of it are mined every single year. The number of bitcoins to be mined annually can be determined well in advance, making it a more straightforward supply increase.
One of the main reasons people compare Bitcoin and gold is because both units are considered safe stores of value. In a world where fiat currencies lose purchasing power nearly every year, identifing a stable store of value is invaluable to a lot of people. Gold has held that moniker for quite some time, even though its value per ounce can be subject to significant volatility as well. Over the past few years, the price of gold has remained somewhat stable, despite moderate declines. Gold is far less favorable when things are going well in the traditional financial sector.
Bitcoin, on the other hand, is known for its relative volatility. More often than not, that volatility actually works in favor of the world’s leading cryptocurrency. In fact, Bitcoin has been the world’s best-performing asset six times in the last seven years, beating gold by large margins every single time. The year 2017 will not be any different in this regard, assuming the current price does not collapse entirely during the second half of the year. So far, it seems we will only see more bullish momentum in the month of August.
Right now, the value of all bitcoins in circulation is US$72.1 billion. That is a significant amount of money, especially when considering that this number was well south of US$40 billion just a few months ago. At this value, the Bitcoin market cap is approximately 1% of the total gold market cap. According to OnlyGold, the value of all gold in the world is US$7.79 trillion. This is a very large number, but it is not impossible to foresee gold’s cap coming down and Bitcoin’s total value going up over the coming years. With the price of one Bitcoin worth over three times an ounce of gold, we already see an interesting trend.
Additionally, one could argue the Bitcoin supply is more finite than that of gold right now. We know all bitcoins will be mined by 2140, a date originally determined by Satoshi Nakamoto many years ago. It is certainly possible people will still be mining millions of dollars worth of gold by that time, further adding to a “finite” supply with no known upper limit. Until we know how much gold is left to mine on a global scale, it is impossible to call the bullion supply finite by definition. Bitcoin, on the other hand, will not see more than 21 million coins, even though not all developers may necessarily agree with that number.
The bigger question is whether or not Bitcoin will overtake gold at some point. To do so, the Bitcoin market cap would need to grow by a hundredfold over the coming years. That is not entirely impossible, as US$72 billion is still a drop in the bucket when looking at the bigger picture. However, one always has to be cautious when dreaming big, as a US$7 trillion market cap would value every Bitcoin currently in circulation at nearly US$424,000. That would not be impossible by any means, but it would require a lot more money from institutional investors to make it happen.