I have been reading a lot of posts in various threads and noticed many people can't imagine that bitcoin could be on its way to market cap parity with gold.
I thought I should take the time and have a look at some numbers and graphs in order to see what direction bitcoin is going and at what pace. I would also like to address those who can't let go of the idea that some shit coin could take over, crushing bitcoin dominance. That is why I begin my little presentation here with a graph about bitcoin dominance.
Everyone knows where the first significant decline in dominance came from. It was the shit coin craze in 2017 when bitcoin's market cap got considerably diluted while at the same time this led to many people in the space learning their first lesson. While 99(.99)% of the shit coins never recovered, bitcoin was just getting started. I remember people hoping for ethereum to take #1 and I think it was kind of a self-fulfilling prophecy that it was climbing in value so fast and so much because so many people thought the time has come, bitcoin is going to be dethroned. But I believe that some very smart and now even wealthier guys knew when to pull the plug. The closest that ethereum got to bitcoin was in June 2017.
And today.
I am not against coins other than bitcoin per se and everyone should invest as they please, but - and I admit it took me some time - I agree that bitcoin is the one to focus on. There might be use cases that are better served by some other coin, but bitcoin is the marker to monitor and understand how healthy or unhealthy, how promising or hopeless the overall state of the sector is.
Bitcoin's dominance today compared to earlier periods is interesting because it vastly recovered its dominance while being close to the ATH. This means proportionally significantly more money was invested in bitcoin despite rapidly rising prices, i.e.
because of rapidly rising prices. Usually, bitcoin has a hard time keeping its dominance through bull market times as other coins often rise faster during good times and either or drop faster during bad times. Those who have their doubts, think about that. There are some folks claiming that smart money would leave bitcoin. There are other statistics that tell the opposite, but I leave that for another topic.
The following chart is displaying the gold-bitcoin correlation and provides an impression of how to understand the contemporary price development of the two asset classes.
It is charts like these why I understand that some folks can't grasp with ease why some people are very optimistic about bitcoin's price potential. The chart is designed such that both price scales fit in, correlation can be derived and the average user gets a first idea about correlation/ratios. But what you can't really see is the pace at which bitcoin caught up to gold. It's because bitcoin starts literally at zero and it is impossible to properly depict via the distances between the two graphs how mind-blowing bitcoin's growth has been. Ultimately, the graphs serve correlation calculation and only some number crunching helps to retrieve some further insights from the chart.
I have prepared a quick overview with excel. There are a few things I need to mention beforehand.
- I have taken all numbers from around July 20th for each year, give or take -2/+2 days.
- This means that I can miss ATHs and ATLs on a yearly basis. (Example: 2017, 2021, 2023)
- I have rounded where it made things easier, but without essentially skewing the result.
- I have taken the current bitcoin price and did not standardize it by adjusting current market cap by total supply
- I have standardized gold ounces:
here it says that there are 208,874 metric tonnes. This translates into 7.336 billion ounces. I rounded it to 7.0 billion ounces and divided the price per ounce by 3, which provides the price per ounce assuming that instead of 7.0 billion ounces, there are now 21 billion ounces in order to match the current market cap of gold.
- I then took the unit mBTC instead of BTC. As mentioned above, I assume total circulating supply, which equals 21 billion mBTC. This led me to the calculation of the following table.
I used numbers and letters for the rows and columns because I thought it makes discussion here easier. If someone wants to point out a specific data point, please use the format letter;number.
I used some color below the table as I wanted to group some of the years. But as I said before, it isn't perfect as I neglected some of the yearly ATHs and ATLs, which would have had an impact as I didn't take yearly price averages, but specific price points. Though I did use the same time give or take and this provides us with some insight into the pace at which bitcoin developed.
In July 2010 the price of 1 mBTC was $0.00007 because the price of BTC was $0.07 divided by 1,000. To match the price of 1 ounce of gold, the required multiplier per mBTC was 5,661,904. In 2011, 1 mBTC matched 1 ounce at a multiplier of 38,880.
This is a huge jump and I think it is safe to say that most of this progress was due to geeks speculating like crazy (but still for a reason...). It stays around that until July 2012 although the bitcoin roller coaster never stood still. Who would have thought that 1 mBTC would ever cross $1, let alone $0.10?
In July 2013 the multiplier for 1 mBTC to match 1 ounce of gold dropped to 4,977. In July 2014 it dropped to 715.54. Now bitcoin went through a time of back and forth until 2016. In 2017, 1 mBTC crossed the $1 mark and the multiplier dropped to 162.62. This is the year where you can see that July price was far below that year ATH and the multiplier would have already been considerable lower. In 2018 it dropped to 50.24. Some back and forth until 2020.
In 2021 the multiplier drops to 18.45. In other words, 18.45 mBTC equal 1 ounce of gold. In 11 years, 1 mBTC dropped its multiplier to match 1 ounce of gold from 5,661,904 to 18.45. But this is not the end point yet as I haven't yet had the pleasure to coincidentally pick a price point close to the ATH. Since the peak is now holding for a longer period of time, the price per 1 mBTC close to its ATH now comes into play and reduces the required multiplier to 11.89 in July 2024.
1 ounce of gold is 11.89 times more valuable than 1 mBTC. If hypothetically 1 mBTC were to reach 933.33 and 1 ounce of gold is at $2800, parity would be reached. This also means that at parity (all things equal), bitoin (BTC) would have to increase by $33,000 to match a $100 increase in gold in order to maintain parity. More gold could be found, numbers might be off somewhat, you name it.
One of the most impressive observations here is that when 1 ounce of gold went from $1,189 in July 2010 to $2,388 in 2024, 1 mBTC reduced the required multiplier to match one ounce of gold from 5,661,904 to 11.89.
Private financial assets globally are estimated to be somewhere around $470 trillion. This is an important detail to know because many people think that gold as an asset class is so huge overall that it either has to shrink in order to allow bitcoin to grow, or bitcoin could never reach parity because there is not enough value in the world that could flow into the network. But rest assured, global bank deposits are on the decline and are shifted into securities and other financial assets like real estate and bitcoin. But there are still trillions threatened by devaluation and with time passing by, more and more people will be looking for alternatives and take the time to understand those alternatives. Bitcoin is one of them.
Whether money is being shifted from gold into bitcoin or not is a good question. I found some statements by banks saying that this is not the case, but keep in mind that banks would never undermine their own portfolio with implicit or explicit put or buy suggestions. But at the end of the day, my point is that gold money isn't needed in bitcoin in order for these two asset classes to reach parity. The pace at which 1 mBTC has fractionalized the required multiplier to match 1 ounce of gold is just mind-blowing.
With all the information out there, the need for borderless value mobility, verifiability and transparency, censorship-resistance, protection against inflation and so on and so forth, I can't see any plausible reasons as of yet why this magnificent chase for parity should come to an end anytime soon.
