Bitcoin (BTC) has seen an impressive rally this year, but the digital asset has struggled to clear the $45,000 resistance recently. This level has no historical significance, because it was easily overcome many times. The same can be said about Bitcoin’s capitalization of $850 billion, which is nowhere near $1.4 trillion from Silver or Amazon and Google’s $1.7 trillion market capitalization.
The market capitalization of Bitcoin is often compared to gold, which has a total value of $12.3 trillion and is currently the leading global value trading solution. So the answer to the $45,000 resistance may lie in institutional investors comparing BTC to gold. However, given the assets under management of institutional investor funds and the daily trading volume, a 93% discount to Bitcoin’s market capitalization is justified.
The thesis of “digital gold” has been confirmed.
Gold has long been seen as a proxy for Bitcoin and Cointelegraph has previously covered a number of Bitcoin’s uses, but the story that it’s a store of digital value has always been the lead.
Governments around the world have introduced stricter 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 loans or even using the transportation system.
Most recently, on February 15, Canada’s short-term emergency law gave financial institutions the discretion to freeze protesters’ bank accounts without civil liability. Google Bay.
This development could make the analysis of the relationship between gold and the market value of Bitcoin more relevant.
The world’s most valuable tradable asset. Source: 8marketcap.com
According to the above data, the current market capitalization of BTC of $837 million is around 7% gold. To understand how these markets are evaluated, one must compare their daily trading volume and institutional holdings.
Cryptocurrencies are notorious for their inflated stock numbers, but some vendors, including Nomics, have their own adjusted volume accounts.
30-day cumulative trading volume as of March 2, in US dollars. Source: Nomex
The above data shows a 30-day bitcoin trading volume of $404 billion, which equates to $13.5 billion per day. According to a February 2022 CryptoCompare report, exchange-traded products such as Grayscale Bitcoin Fund (GBTC) increased daily liquidity by another $0.4 billion. Thus, Bitcoin currently represents a cumulative average daily volume of $13.9 billion.
Average daily trading volume in billions of US dollars. Source: gold.org
Gold has $170 billion in daily liquidity, including OTC transactions, according to GoldHub. This is in addition to the regulated futures markets and the products traded on the Gold Exchange. Thus, the volume of bitcoin is currently about 8% of the volume of gold.
ETF vs Bitcoin Exchange Products
Several bitcoin exchange products, such as Grayscale GBTC and banknotes, have grown significantly. As a result, $37.8 billion in assets under management were locked up in bitcoin exchange products. This is equivalent to 4.5% of the current cryptocurrency market capitalization of $840 million.
Total investment instruments included in bitcoin, in US dollars. Source: Fund, Bloomberg, ETF.com.
Gold-backed ETFs totaled $221.2 billion as of February 25, according to GoldHub data. Excluding the cumulative non-financial use of gold as jewelry, industry and others at 61%, the remaining market value is $6.0 trillion. Thus, the fund’s EITs correspond to 3.7% of gold’s adjusted market capitalization.
At $45,000, the average volume of bitcoin and institutional investors’ portfolio is roughly in line with the gold markets. While the $850 million market cap may be a short-term issue for investors, there are other new uses for the cryptocurrency, such as El Salvador’s micropayment channels that use Lightning Network technology.
Since “digital gold” has only become a part of Bitcoin’s valuation pattern, traders are more likely to appreciate the potential for a higher rally, thus the $45,000 level should serve as a distant memory.