Amidst fervent discussions about Bitcoin’s market potential in comparison to gold, recently approved Bitcoin Exchange-Traded Funds (ETFs) have thrust the cryptocurrency onto a trajectory that could see it vying closely with gold’s market dominance.
Jurrien Timmer, the Director of Global Macro at Fidelity Investments, has recently provided an illuminating analysis of the rivalry between Bitcoin and “monetary gold” — the share of the precious metal predominantly held in reserves by central banks and invested by private entities, excluding that which is used for jewelry or industrial objectives. According to estimates based on World Gold Council data, Timmer points out that monetary gold is roughly 40% of the world’s existing above-ground gold.
The compelling study by Timmer indicates that Bitcoin is poised to capture up to a quarter of the monetary gold market. With the market valuation of monetary gold circling the $6 trillion mark and Bitcoin’s capitalization hovers around $1 trillion, the digital asset could be on the cusp of a financial sea change.
The analysis by Timmer doesn’t stop there; it traverses the historical influence of Bitcoin’s halving events, which, to date, have played a pivotal role in inflating the cryptocurrency’s value. He proposes, though, that as the issuance of new Bitcoin lessens with each halving, the resulting price surges from these events might yield diminishing returns.
Timmer highlights the contrast between the existing and incremental supply of both gold and Bitcoin, suggesting that as the available amount of Bitcoin for mining decreases, the impact of each halving event will likely wane over time.
To predict future price movements accounting for these supply changes, Timmer innovates the lens through which to view Bitcoin’s valuation. He adapts a Stock To Flow (S2F) curve, unveiling a model that overlays an asymptotic supply curve—this curve considers the percentage of already-mined coins against the finite maximum supply—over the traditional S2F curve.
Using this nuanced amalgamated S2F, Timmer projects Bitcoin’s price could reach a milestone of $100,000 by the end of 2024. His projections are a testament to the cryptocurrency’s potential in mirroring the scarcity dynamics of gold, with the anticipation that its price would increase steadily if it were to capture 25% of the monetary gold market.
Currently, Bitcoin trades at $51,100, and this looming paradigm shift, as envisaged by Timmer’s analysis, might very well redraw the financial landscape in the years to come, elevating Bitcoin to a significant player in the wealth distribution of our time.
