With investors becoming more amenable to digital assets, Goldman Sachs Group predicts that the cryptocurrency bitcoin will continue to eat into gold’s market share. The likelihood of bitcoin’s value breaking beyond the $100,000 barrier has increased as a result of this prediction.
According to Goldman Sachs, bitcoin’s float-adjusted market capitalization is currently slightly around $700 billion, accounting for about 20% of the “store of value” market, which includes both bitcoin and gold’s value.
According to Goldman Sachs, the total value of all gold assets accessible for investment is over $2.6 trillion.
According to Zach Pandl, co-head of global FX and EM strategy, if bitcoin’s store of value market rises above 50% in the next five years, the price of the digital currency could rise slightly beyond $100,00, giving investors a return of 17 percent or 18 percent on a compound yearly basis.
Bitcoin’s trading value in New York was at $46,000 on Tuesday, after the virtual currency had risen by nearly 60% in 2021 alone. Bitcoin, the most valuable cryptocurrency by market capitalization, reached a new high of $69,000 in November of last year.
To put bitcoin’s meteoric ascent in perspective, its value has increased by over 4,700 percent since 2016.
The paper from Goldman said that, while the network’s consumption of actual resources is slowing institutional adoption of bitcoin, it would not stop demand for the digital asset from expanding.
Bitcoin has long been seen as a form of digital gold. The same situational imperatives that apply to gold apply to bitcoin as well. Bitcoin, like gold, does not pay interest or dividends to investors, and neither asset follows the performance trajectory of more traditional assets.
According to proponents of digital currency, investors should view bitcoin as a hedging instrument against the systemic abuse of fiat currencies, similar to gold.
More liquid options markets, according to Goldman Sachs, will be the next significant step for cryptocurrencies in general, as a rising number of traditional financial organisations show interest in the quickly increasing asset class.
“We are seeing a lot of demand for more derivative-type hedging,” Andrei Kazantsev, Goldman’s global head of crypto trading, said Thursday during a CoinDesk-hosted panel discussion. “The next big step that we are envisioning is the development of options markets.”
In comparison to more traditional markets like equities or foreign exchange, digital asset derivatives are still in their “infancy of product scope,” according to Kazantsev. He pointed out that the bitcoin options market has seen rapid expansion in recent years.
Open interest in bitcoin options, or the total amount of outstanding contracts, was around $12 billion, according to statistics from Skew, a Coinbase subsidiary that collects data on cryptocurrency derivatives markets. As recently as the first half of 2020, the market rarely exceeded $2 billion.
(Adapted from Fortune.com)