Believing in bitcoin but questioning valuation?
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Believing in bitcoin but questioning valuation?

Believing in bitcoin but questioning valuation?

A question of valuation

I’ve been in the “mainstream” finance industry for over a decade and have held bitcoin since 2017. I believe in bitcoin, but it is a matter of valuation.

Please tell me where I’m wrong:

  1. Total gold above ground stock is 6.1bn oz. Of that, 2.9bn oz is jewellery, 1.3bn oz is private investment (i.e. individuals/institutions holding gold as store of value), 1.0bn oz is official sector (i.e. central banks holding gold as reserve) and 0.8bn oz is other (maybe in industrial components). (Source: https://www.gold.org/about-gold/market-structure-and-flows)
  2. Of the above, we can perhaps assume that bitcoin might replace gold with regard to private investment only in the near future; it is unlikely to replace jewellery or central bank reserves or industrial uses. At $1,800 per oz, 1.3bn oz of gold in private investment implies a market cap of $2.5 trillion.
  3. Assuming all of gold private investment moves to bitcoin (highly unlikely), a bitcoin price of $115,000 is implied (i.e. $2.5 trillion divided by 21 million bitcoins).
  4. In a more realistic scenario in the near future where bitcoin is 10% rather than 100% the market cap of gold private investment, a bitcoin price of $11,500 is implied (i.e. the figure above multiplied by 10%)
  5. Hence bitcoin is overpriced at current levels of $23,000? How do we even get a valuation of $500,000 or $1 million? Yet these price forecasts (allegedly based on fundamentals) are being suggested by very smart, very credible people, so I genuinely would like to know what I am missing. Of course, I understand that there may be bubbles driving prices (irrationally) high and maybe they will stay high for a long time, but I am interested in “fundamental” valuations.

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