Bitcoin's market value will surpass gold

On April 21, the US cryptocurrency community held a highly watched debate on the value of Bitcoin and gold. The advocates of Bitcoin were Michael Saylor and the advocates of gold were Frank Giustra. Since both of them are very successful entrepreneurs and the overall trend of cryptocurrency is currently on the rise, their debate has attracted widespread attention. For investors who are concerned about the relationship between Bitcoin and gold and their respective future trends, this debate is worth watching. This debate makes people think again about a question that is often raised in the market, that is, whether the market value of Bitcoin will exceed that of gold. In my opinion, the market value of Bitcoin will definitely exceed that of gold. And the time to achieve this surpassing will be much longer than the general expectation of the market.

First of all, from the perspective of development momentum, Bitcoin has grown from an application among technology geeks in 2008 to a market value of one trillion US dollars today. Such a development speed far exceeds the time it takes for a currency that appears freely in the market to be generally accepted. The basic properties of Bitcoin include a certain total amount, easy to carry and spread, can be divided into very small granularity, can be preserved forever, fairly obtained, not controlled by any institution or individual, circulated globally, and traded directly between all users. All of these properties make it superior to gold as a value storage and transfer tool.

Another very important point that is often overlooked by the market is that Bitcoin is the first product of its kind. For a long time, it has been operating independently. Therefore, it is far superior to other similar products in terms of market dissemination. Therefore, the value association and various applications of Bitcoin in the market are far superior to other similar products. So today, Bitcoin has a market share of more than 50% among all encrypted digital currencies. Based on such a market share, Bitcoin occupies an absolute leading position, so it is impossible to be shaken. Among other product categories, market development has proved the importance of this market leadership. For example, Amazon in the e-commerce field, Facebook in the social field, YouTube in the long video field, and TikTok in the short video field. So in the field of encrypted digital currencies, even if various imitators of Bitcoin appear later, they will never exceed the market value of Bitcoin.

After 12 years of development, the market value of Bitcoin has grown from zero to one trillion US dollars today. This development process has not stopped, and it still has a lot of room for development in the future. If we look at the development trend of Bitcoin users, such a trend is very obvious. When Bitcoin first appeared, its fans were just a few technical geeks. The communication field of these geeks was some very professional forums on the Internet. And they did not need to invest extra money in addition to hardware equipment to obtain Bitcoin. After further development, Bitcoin enthusiasts began to appear. They were willing to use funds to buy Bitcoin. Bitcoin thus became a collectible and was priced based on legal currency. When these enthusiasts began to increase, a centralized trading platform that provided Bitcoin transactions appeared, and individual speculators began to be attracted to participate in the buying and selling of Bitcoin.

After March 2020, due to the massive issuance of US dollars, institutional users began to buy Bitcoin to hedge the risk of the increase in US dollar issuance in order to keep their assets from depreciating. At this time, Bitcoin has begun to be regarded by institutional users as a type of asset for hedging risks. This development trend has been pushed to a new stage by Michael Saylor and Musk through the purchase of Bitcoin. Now more and more institutions are starting to buy Bitcoin to hedge the risk of the increase in US dollar issuance. Therefore, Bitcoin quickly reached a market value of one trillion US dollars in 2021. 2021 can be said to be the first year that institutional users began to buy Bitcoin. This trend will continue in the next few years. The development process of retail users entering Bitcoin will be repeated in the development process of institutional users entering Bitcoin. Therefore, the next few years will still be a bull market for Bitcoin development.

Among the current types of users who buy Bitcoin, there are hedge funds, family offices, listed companies, pension funds and insurance companies. Among these current institutional types, the collective participation of American insurance companies in particular further demonstrates the long-term value of Bitcoin. Such participation is still not valued enough by the market. This alone can indicate that Bitcoin will have a long-term bull market in the future.

Among all the potential users of Bitcoin, the ultimate institution is of course the central banks of various countries. If some central banks start to buy Bitcoin, it means that the market has finally recognized Bitcoin. But before the central banks start to buy Bitcoin, Bitcoin still needs to go through a long period of development before it can become an asset accepted by the central banks. These developments include Bitcoin's market value, volatility, liquidity, and the standardization of the Bitcoin trading market. Judging from the current market development trend of Bitcoin, these conditions will be gradually met. So I think Bitcoin will develop into an asset recognized and purchased by central banks.

In terms of gold, the market actually has a very contradictory phenomenon in pricing the value of gold. On the one hand, the market price of gold continues to fall. On the other hand, some major central banks have begun to buy and hold gold. As a traditional value-preserving product, gold has always been used as a value-preserving product when the market is turbulent. For example, during the Weimar Republic, gold holders could avoid property losses due to the sharp depreciation of the mark. In the current context of massive over-issuance of the US dollar, buying and holding gold is a traditional value-preserving strategy. However, the market price of gold has not risen. This is a phenomenon that is difficult to explain. If we look at the following data, the upward trend of gold last year was the lowest among these products.

The market is currently pricing Bitcoin and gold. Compared with the two, the market is obviously more optimistic about Bitcoin. The following chart shows the comparison of investment returns of Bitcoin, gold and S&P since Bitcoin halved in 2020.

I think Bitcoin is superior to gold in terms of value transfer and value preservation. Money as a technological product is also constantly evolving, from paper money and coins to electronic accounting. Now the emergence of the Internet and blockchain technology has given currency a new and more superior carrier. And the market is accepting this new carrier form, especially for young people who grew up in the digital age, they are more willing to adopt this safe, convenient and free form of value exchange. So it is only a matter of time before the market value of Bitcoin surpasses that of gold. And I think this time of surpassing is much shorter than the general market expectation.