The market capitalization of BTC is much smaller than that of gold, but the daily volume of bitcoins and the amount under management suggest that the cryptocurrency is trading at a deep discount.
Bitcoin (BTC) has had an impressive double-digit rally this year, but the digital asset has been struggling to clear the $45,000 resistance lately. This level has no historical significance, as it was easily overcome several times. The same is true for Bitcoin’s $850 billion market cap, far from silver’s $1.4 trillion market value or Amazon’s and Google’s $1.7 trillion market value.
Bitcoin’s market cap is often compared to gold, which has a total value of $12.3 trillion and is currently the leading global store of value solution. So the answer to the $45,000 resistance could be that institutional investors are comparing BTC to gold. However, looking at the assets under management of institutional investors’ funds and the daily trading volume, one can conclude that the 93% discount on Bitcoin’s market cap is justified.
The thesis of “digital gold” is confirmed
Gold has always been seen as a substitute for Bitcoin, and Cointelegraph has previously covered various use cases for Bitcoin, but the narrative that it is a digital store of value has always been its flagship.
Governments around the world have introduced tighter financial controls for many reasons, which could enhance the sovereign and decentralized benefits of cryptocurrencies. For example, China’s social credit system puts offenders on a social credit blacklist, preventing them from obtaining credit or even using the transportation system.
Most recently, on February 15, Canada’s short-lived Emergency Law gave financial institutions discretionary power to freeze protesters’ bank accounts without any civil liability. Another example is this week, when Russians were sanctioned by payment services such as Apple Pay and GooglePay.
These developments could make the analysis of the relationship between gold and bitcoin market capitalization even more relevant.
The most valuable tradable global assets. Source: 8marketcap.com
According to the data above, BTC’s current market capitalization of $837 million is roughly 7% of gold. To assess how these markets are valued, one should compare their daily trading volume and institutional holdings.
Cryptocurrencies are notorious for inflating stocks, but some providers, including Nomics, have their own customized volume calculations.
Cumulative volume for 30 days as of March 2, USD. Source: nomix
The data above shows a 30-day bitcoin exchange volume of $404 billion, which works out to $13.5 billion per day. According to a February 2022 CryptoCompare report, exchange-traded products such as the Grayscale Bitcoin Fund (GBTC) increased daily liquidity by another $0.4 billion. Thus, the average daily volume of bitcoins is currently $13.9 billion.
Average daily trading volume, billion US dollars. Source: gold.org
Gold has $170 billion in daily liquidity, including registered OTC transactions, according to GoldHub. This is in addition to regulated futures markets and exchange-traded gold products. Thus, the volume of bitcoins is currently about 8% of the volume of gold.
Gold ETF vs Bitcoin Traded Products
Many Bitcoin exchange products, such as Grayscale GBTC and exchange notes, have risen significantly. As a result, $37.8 billion of assets under management are linked to Bitcoin exchange products. This is 4.5% of the current crypto market capitalization of $840 million.
The total number of investment instruments listed in bitcoins, USD. Source: funds, Bloomberg, ETF.com.
Gold-backed ETF products total $221.2 billion as of February 25, according to GoldHub data. Excluding just 61% of non-financial uses of gold such as jewelry, industry and others, the remaining market capitalization is $6.0 trillion. As a result, the fund’s exchange-traded investment instruments account for 3.7% of the adjusted market value of gold.
At $45,000, the average bitcoin trading volume and holdings of institutional investors are roughly in line with the gold markets. While the $850 million market cap may be a cause for concern for investors in the near future, there are other emerging use cases for the cryptocurrency, such as El.