Bitcoin(BTC -0.21%) advocates often liken the cryptocurrency to digital gold due to its limited availability. However, is it possible that Bitcoin could surpass the total value of all physical gold in circulation in the future?
This scenario may be more plausible than it seems, even bordering on the inevitable. Here’s what needs to happen for this to become a reality.
The Numbers Are Only Part of the Story
For Bitcoin to exceed gold in value, it must achieve significantly higher valuations, but this is not as straightforward as it appears.
Currently, Bitcoin’s market cap is nearing $1.7 trillion, while gold’s total market cap sits around $20.1 trillion, based on recent valuations. Thus, Bitcoin’s value would need to increase by approximately 12.2 times its current price to equal gold’s total value, meaning each Bitcoin would need to be valued at over $1 million (it’s about $84,000 per coin now).
Over the past five years, Bitcoin has surged by around 1,460%. This indicates that the cryptocurrency has a track record of substantial growth, and the factors behind this impressive increase remain intact, making the potential for surpassing gold a legitimate possibility.
Investors typically buy gold expecting it to retain value over time, even in challenging economic climates, despite factors like inflation diminishing the value of fiat currencies. Gold’s scarcity, which requires substantial labor for mining and refining, contributes to its stability as a valuable asset. Furthermore, gold is traded on global markets with high liquidity, ensuring that sellers can find buyers even during economic downturns, and it has practical applications in industries like electronics.
While gold serves as a store of value, a medium of exchange, and possesses utility, it’s less convenient for investors compared to cryptocurrencies. Safely securing physical gold can be cumbersome, and liquidating it when necessary is more complicated than selling stocks or cryptocurrencies. Additionally, ETFs that provide gold exposure come with management fees, and claims to gold stored in bank vaults demand trust in third parties for trading.
Is This Scenario Possible?
For Bitcoin to dethrone gold in terms of value, it must gain further traction as it becomes adopted by financial institutions, governments, and investors globally.
This requires more nations to implement policies like the tentative U.S. Strategic Bitcoin Reserve, which has yet to be put into practice. Bitcoin will also need to strengthen its connection with traditional finance through the continued approval of ETFs that include Bitcoin and other cryptocurrencies. In essence, banks and financial players will lead this shift.
Currently, around 106 million people own Bitcoin, suggesting there’s a vast pool of potential investors. As accessibility to Bitcoin improves, more individuals will likely seek to acquire some exposure to it. If its price continues to rise, as seen historically, this will create a compelling incentive for new investors to buy and hold the asset long-term.
So, could Bitcoin one day surpass gold in total value? Yes, it’s possible, but it’s difficult to predict an exact timeline. A wise strategy might be to gradually accumulate Bitcoin and retain it, allowing one to benefit from its long-term growth even if it takes time to surpass gold.
