And if that wasn’t shocking enough, tt went on to predict that bitcoin has the potential to cross the US$100,000 mark in the coming years.
By the way, this is about 2.5 times the current price of one Bitcoin.
No wonder that after a two-year hiatus from dealing with cryptocurrencies, Goldman has reopened its cryptocurrency office in 2021.
Since then, he has been closely monitoring the blockchain and its ability to use crypto as inflation protection.
Goldman Sachs said…
Bitcoin may have applications beyond a simple “store of value”.
What does it mean?
A store of value means that an asset can hold or has the potential to hold its value, regardless of time or the duration of the market.
Gold is a prime example of a store of value.
Goldman Sach analysts believe that the proportion of bitcoin in a portfolio will only increase over time.
If Bitcoin is able to claim a 50% share of the “store of value” allocation, the price would roughly exceed $100,000.
Why would Goldman Sachs dip its toes into this debate at all…
The total market capitalization of Bitcoin is just over $700 billion. Gold is around $2.6 billion.
This suggests that Bitcoin already represents more than 25% of the total “store of value” market. Of course, we assume these are the only two options, and…both are a store of value.
But let’s get back to basics.
Does Bitcoin have the potential to replace gold?
In 2021, the price of Bitcoin jumped 60%.
Gold, on the other hand, fell 3.6%. This is the worst performance since 2015.
It’s quite a divergent performance.
That said, gold and Bitcoin share two traits.
#1 Both pay no interest or dividend if you hold them in their base form.
#2 Since they are not infinitely reproducible, like paper money, they protect against this abuse.
We could have added a number 3…both are a “store of value”, but that is up for debate.
Now let’s move on to the differences between the two. Here are two that come to mind:
#1 Gold has been around for thousands of years and is a proven store of value. Bitcoin, comparatively, is a new kid on the block and has no history to back it up.
#2 Gold can be found in a natural physical state. Bitcoin is, well, just code.
If you push us to equalize the scale… we could add a #3. It is impossible for a layman to understand how Bitcoin works. Gold on the other hand is a much easier conquest?
Is Bitcoin a currency?
A few, like Nouriel Roubini, a professor of economics at New York University’s Stern School of Business, have said that calling cryptocurrencies a currency is a misnomer.
On Bitcoin, Professor Roubini said,
Currencies must have four qualities: they must be a unit of account, a means of payment, a stable store of value and act as a unique numéraire. Bitcoin and most other cryptocurrencies have none of these features. It is not a unit of account; nothing is charged in bitcoin.
Referring to blockchains, Professor Roubini also mentions that just because something is rare does not mean it has fundamental value.
Now you know which way he leans, when you read what he said in 2018…
Bitcoin is the “mother of all scams”.
One wonders if his look has changed since then.
The Relevance of Bitcoin Today
Goldman Sachs analysts say bitcoin should be considered a macro asset.
This is because he has “matured enough”. This means that its behavior now resembles that of other macros.
They also believe that bitcoin is going through a unique phase of social adoption. One that could make or break in terms of returns.
Security and legal issues
Most security and legal challenges with cryptocurrencies are based on the fact that blockchains are decentralized and largely anonymous.
This is why “modern bank robbers” who hack a cryptocurrency exchange are able to steal millions in cryptocurrency.
The most recent example occurred on crypto-trading platform Bitmart in December 2021. The exchange experienced a large-scale security breach where hackers took away over $150 million in assets.
Anonymity doesn’t help either.
Last year, two South African brothers who founded a cryptocurrency investment platform called Africrpyt, disappeared with $2.2 billion worth of bitcoins.
Keeping these factors in mind, the central bank of China has declared that all cryptocurrency transactions are illegal and seriously endanger the safety of people’s assets.
Many of these concerns are not associated with gold. An asset he could supposedly replace.
Value and network
We know that bitcoin has absolutely no value outside of its “blockchain”. It is basically isolated and inaccessible in the physical sense.
However, gold does not require a network. The trade, possession and acquisition of gold is a centuries-old custom.
If cryptocurrencies are to replace an asset like gold, their plans for the near future must include its physical manifestation in some way to prove that it serves as a “store of value”.
Undeniably, those on various blockchains have the ability to create applications and other products on the network to increase their value.
But again, the more they meddle with private data, like contacts, medical history, etc., the more privacy threat they turn out to be.
Gold does not have these problems.
Wealthy investment classes alongside institutions have begun to recognize that digital assets are here to stay.
Since they are still in their infancy, many more advancements in this area are yet to come.
But through all the ups and downs, dear reader, what do you think?
Is Bitcoin the new gold?
Equitymaster’s take on cryptos:
We don’t get cryptos. Honest.
It’s something that has captured our imaginations, but we just can’t find a way to assess it. Basically speaking.
Chartists like our own Brijesh, study prices and suggest different levels. It makes sense to us.
That said, our “fundamental” take on cryptos is simple…
It’s in line with the approach everyone should have when it comes to splashing around in a space you don’t understand.
Only invest what you can afford to lose. Nothing more.
Disclaimer: This article is provided for informational purposes only. This is not a stock recommendation and should not be treated as such.
(This article is syndicated from equitymaster.com)
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