Bitcoin appears to have a much higher upside than gold, analysts wrote
Bitcoin could reach a price of $1.3 million while gold may top $31,000 per ounce, if the assets become the sole reserve asset across the globe, respectively, according to a new report.
As the U.S. and some other western countries sanctioned Russia by freezing its central bank’s reserves, which include the euro, US dollars DXY, +0.26%, gold and China’s yuan among others, it should “reduce demand for hard currencies as reserve assets, while increasing demand for currencies that can perform the original functions of these former reserve currencies,” analysts at investment manager Van Eck Associates Corp. wrote in notes this week.
“We believe Central banks will act, as will private individual actors,” wrote Eric Fine, head of active emerging market debt and Natalia Gurushina, chief economist on emerging markets fixed income strategy at Van Eck.
Gold GC00, -1.31% and bitcoin BTCUSD, -0.63% are the likely choices, while other assets such as real estate could be alternatives too, the analysts wrote.
If gold becomes the only reserve asset, the metal’s implied price, calculated through dividing global money (M0) by global gold reserves, is $31,000 per ounce on average for countries with the largest gold holdings. If calculated using M2, gold’s implied price could reach $105,000 per ounce.
M0 and M2 are both classifications of monetary supply, where M0 includes the narrowest forms of the money supply, such as all paper and coin currency in circulation, plus reserves held by the central bank. M2 is a broader version.
Gold for June delivery GC00, -1.31% GCM22, -1.31% fell $25.6, or 1.3%, to $1,927.7 an ounce on Friday.
As bitcoin has a maximum supply of 21 million, it is much closer to gold than other cryptocurrencies, the report noted. The crypto could reach a price of $1.3 million calculated using M0 and may top $4.8 million using M2, according to the analysts. Bitcoin is trading at around $46,363, up 1% over the past 24 hours, according to CoinDesk data.
Bitcoin appears to have a much higher upside than gold, though the latter is “the more straightforward initial response by central banks in particular,” the VanEck report noted.
Still, the scenarios are extreme and the projected prices “obviously need to be adjusted downward,” the report noted. “Investors should, at least, determine a subjective probability for the outcome. Or they should choose an extent for the outcome: are gold or Bitcoin going to be the sole reserve assets, or will that status be shared with other assets?”
“For example, an investor who sees a 10% chance of gold becoming the reserve asset might say that our ‘extreme scenario’ price of $31,000 per ounce represents a practical price target of $3,100 per ounce. They may see that as an attractive upside relative to current prices, or not,” according to the report.