Bitcoin at $45,000 Looks Cheap Compared to Gold's Market Cap

Bitcoin (BTC) has enjoyed a double-digit rally this year, but BTC has struggled to break above the $45,000 resistance of late. This level does not have any historical significance as it could easily be breached multiple times. The same goes for Bitcoin’s $850 billion market cap, which is a far cry from silver’s $1.4 trillion or Amazon’s and Google’s $1.7 trillion.

Bitcoin's market capitalization is often compared to that of gold, which has a total value of $12.3 trillion and is currently the world's leading store of value solution. Therefore, the answer to the $45,000 resistance may lie in how institutional investors compare BTC to gold. By looking at the assets under management and daily trading volume of institutional investor funds, it can be deduced that a 93% discount to Bitcoin’s market cap is reasonable.

It turns out that the 'digital gold' theory is correct

Gold has long been seen as a proxy for bitcoin, with Cointelegraph previously reporting on multiple uses of bitcoin, but its claim as a digital store of value has been its flagship feature.

Governments around the world have imposed stricter financial controls for a number of reasons, which could strengthen the autonomy and decentralization advantages of cryptocurrencies.

More recently, Canada’s Emergency Act gave financial institutions discretion on February 15 to freeze protesters’ bank accounts without civil liability. In another example, Russians were sanctioned this week by payment services such as Apple Pay and Google Pay.

These events may make it even more important to analyze gold’s impact on Bitcoin’s market cap.

Based on the above data, BTC’s current market capitalization of $837 million is equivalent to about 7% of gold. To assess how these markets are valued, their daily trading volumes and institutional holdings should be compared.

Cryptocurrencies are known for inflated exchange trade figures, but some providers, including Nomics, have their own adjusted volume calculations.

The above data shows that the 30-day transaction volume of Bitcoin is 404 billion US dollars, which is equivalent to 13.5 billion US dollars per day. According to a February 2022 report by CryptoCompare, exchange-traded products such as the Grayscale Bitcoin Fund (GBTC) are adding $400 million in daily liquidity. As a result, Bitcoin’s current average daily volume totals $13.9 billion.

Meanwhile, gold has $170 billion in daily liquidity, including registered over-the-counter trades, according to GoldHub. This is in addition to regulated futures markets and gold exchange-traded products. As a result, Bitcoin currently trades about 8% of gold.

Gold ETF vs Bitcoin Exchange Traded Products

Bitcoin’s multiple exchange-traded products, such as Grayscale GBTC and exchange-traded notes, have grown significantly. As a result, $37.8 billion is locked in Bitcoin exchange-traded products. This is equivalent to 4.5% of the current $840 million market capitalization of the cryptocurrency market.

Gold-backed ETF products totaled $221.2 billion, according to GoldHub data on Feb. 25. Excluding 61% of non-financial gold uses (jewelry, industrial, etc.), the remaining market cap is $6 trillion. These exchange-traded investment vehicles are therefore equivalent to 3.7% of the adjusted market value of gold.

At $45,000, Bitcoin’s average trading volume and institutional investor holdings are roughly comparable to the gold market. While the $850 million market capitalization level may be a short-term concern for investors, cryptocurrencies have other emerging uses, such as a micropayment channel in El Salvador using Lightning Network technology.

With “digital gold” only becoming part of Bitcoin’s valuation model, traders are likely to price it even higher, so the $45,000 level should become a distant memory.