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Why Bitcoin (BTC) May Be Digital Gold Despite Rough Bear Market

Feb 05, 2019

Better Data for Better Investment DecisionsBetter Data for Better Investment Decisions

 

  • Bitcoin (BTC) and the broader cryptocurrency market are currently in the longest bear market in the history of the new asset class. Since peaking at a price of USD$19,340.80/token on December 17th, 2017, the price of BTC has fallen 82.1% to USD$3,465.55 in today’s trading. Although BTC has lost such a large portion of its value in a relatively short period of time, we believe there is evidence that BTC is still the store of value, or digital gold, that so many crypto industry pundits believe it to be.  
     
  • Despite such a rough and extended bear market, BTC has served as a better store of value than any other major cryptocurrency (excluding stablecoins) since its price peaked, as can be seen in the table below:

Price Declines in Major Cryptocurrencies Since Their All-Time Highs

Name Symbol Peak Price Current Price Percent Decline
Bitcoin BTC $19,340.80 $3,465.55 -82.08%
Ethereum ETH $1,361.61 $107.25 -92.12%
Ripple XRP $3.37 $0.298408 -91.15%
Bitcoin Cash BCH $3,909.00 $117.86 -96.98%
Litecoin LTC $364.01 $33.87 -90.70%

Source: Coinmarketcap.com

  • Outperformance by BTC compared to other major coins since the cryptocurrency market peaked in early 2017 demonstrates that investors see the benchmark crypto as a better store of value than other major cryptocurrencies.  
     
  • More recently, the price of BTC has continued to demonstrate its characteristic as a type of digital gold through its extended sideways trading. Since January 29th, 2019, the price of BTC has traded within a tight range of between USD$3,521 and USD$3,406. Meanwhile, major coins like Ripple (XRP) and Bitcoin Cash (BCH) have been much more volatile. 
     
  • If BTC really is digital gold, then the assets under management (AUM) of gold ETFs may serve as an indicator for the market capitalization of BTC. Both are charted below:

Bitcoin (BTC) Price and Market Capitalization vs. Gold Spot $/Oz and Total Gold ETF AUM Over 5 Years

Source: Bloomberg

  • As can be seen in the chart above, the market capitalization of BTC briefly overtook the total AUM of gold ETFs after the former rallied in late 2017. BTC market capitalization spent nearly a year above total AUM of gold ETFs before November’s cryptocurrency sell-off sent BTC market capitalization below total AUM of gold, where it has remained since. Perhaps total AUM of gold ETFs will serve as a resistance level for the market capitalization of BTC in 2019.

 

We Crunch the Numbers, You Make the Trade.We Crunch the Numbers, You Make the Trade.

 

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