Bitcoin’s status as store of value is being questioned frequently of late, due to its volatile price action. Marion Laboure, Analyst at Deutsche Bank Research said that she could potentially see Bitcoin becoming the 21st-century gold. She explained that even gold was volatile historically, but,
“It is important to keep in mind that Bitcoin is risky”
Also, forecasting the ultra-volatile foreseeable future for Bitcoin, she explained that it is too volatile to be a reliable store of value today. However, Laboure did emphasize that many see it as a hedge against inflation. She further described three reasons why Bitcoin can be considered digital gold. Firstly, she said that about two-thirds of Bitcoins are used for investments and speculation. Secondly, few large purchases or market exits can have a major bearing on the supply-demand equilibrium. And lastly, investor perceptions will drive or plunge the prices of Bitcoin.
Having said that, the lack of a regulatory framework for the sector remains a hindrance for many investors. According to the Deutsche Bank Analyst, the latest technological developments will be a “game-changer” this year. And, she expects to have a strong framework in place in 2022 with most G20 countries imposing regulations.
The term Bitcoin is “digital gold” has been around for a while as it gained legitimacy as a store of value. In the past, MicroStrategy CEO Michael Saylor had said that hedge funds will soon start dumping their gold for Bitcoin. He predicted that only central banks will end up holding gold in the future. In contrast, CEO of Verde Capital Advisors Leo Kelly advised people against investment in Bitcoin and asked them to stick to gold. He saw the yellow metal as “a better place to store value.”
Another argument raised by Evolution Mining chief Jake Klein recently was that bitcoin is yet to exhibit the “longevity and security” of gold. He said that gold has showcased its performance over the past decades, while Bitcoin has a “long way to go.”
Nonetheless, many investors use Bitcoin for additional diversification. While Bitcoin was born after the 2008 subprime crisis, it delivered stellar returns over 2020-21, despite the pandemic. Experts have noted that gold has given steady returns over the years but it is moving sideways in 2021. Therefore, Bitcoin has been the king in short term. However, both commodities seem to have a liquid market at this point.
According to an analysis, the gold market is valued at around $11 trillion. For Bitcoin to reach a market of that scale with a limited supply of 21 million tokens, each token would have to be valued at about $500,000.