As part of a "bonus question" asked in Goldman's listing of the bank's five top FX questions for 2022 (available to pro subscribers in the usual place), Goldman FX strategist Zach Pandl speculates on the fate of bitcoin – yes, according to the most important bank in the world, bitcoin is a currency – and predicts that the token frequently cited as digital gold will continue to take market share from gold as part of broader adoption of digital assets, suggesting that the often touted price prediction of $100,000 a distinct possibility.
In response to a rhetorical question whether "Bitcoin take additional market share from gold" (one which JPM answered affirmatively back in October when it found that "Institutions Are Rotating Out Of Gold Into Bitcoin As A Better Inflation Hedge"), Goldman's Pandl takes a hint from the iconic analysis penned by Paul Tudor Jones back in May 2020 which quickly became a bible to crypto advocates, and which looked at the absolute value of various hard assets…
… and writes that according to the World Gold Council estimates, the private sector owns 44,000 metric tonnes of gold for investment purposes (i.e. privately-held bars and ETFs, excluding jewelry, official sector holdings, and industrial uses).
So, at the current market price of $1,800 per troy ounce, this implies that the public owns about $2.6 trillion of gold for investment purposes. By comparison, Bitcoin’s float-adjusted market capitalization is currently just under $700BN. Therefore, Pandl writes, "Bitcoin currently commands a roughly 20% share of the “store of value” (gold plus Bitcoin) market"
Looking ahead, the Goldman strategist thinks that Bitcoin’s market share will most likely rise over time as a byproduct of broader adoption of digital assets, and possibly due to Bitcoin-specific scaling solutions although, as he admits, "the network’s consumption of real resources may remain an important obstacle to institutional adoption.
In any case, in a hypothetical scenario, the Goldman strategist notes that if Bitcoin’s share of the “store of value” market were to rise to 50% over the next five years – with no growth in overall demand for stores of value – "its price would increase to just over $100,000, for a compound annualized return of 17-18% (accounting for growth in Bitcoin supply over time)."
Of course, bitcoin may eventually have applications beyond simply a “store of value”—and digital asset markets are much bigger than Bitcoin — but Goldman thinks that comparing its market capitalization to gold can help put parameters on plausible outcomes for Bitcoin returns.
Finally, this is great news for
web3 fans holders of Ethereum: as a reminder, Goldman has traditionally been skeptical about the long-term prospects of bitcoin while praising ethereum if for no other reason than its actual practical uses (see ""The Amazon Of Information": Goldman Initiates On Crypto, Sees Ethereum Overtaking Bitcoin"). In fact, Goldman not too long ago said that the odds of a flipenning (the market cap of ETH surpassing that of BTC) are rising. Which means that if Bitcoin is set to double from here, then Ethereum may be looking at a $20,000 price in the not too distant future.