The debate over the value of cryptocurrencies, and in particular bitcoins, continues in the financial markets as leading institutional investors debate their role in portfolios.
One strategist optimistic about the value of bitcoin is Dhawal Joshi, Chief Product Strategist for Counterpoint at BCA Research. He shared and answered questions from one of his skeptical clients.
Joshi’s main argument is that Bitcoin BTCUSD,
will grow as it becomes more of what it calls the $ 15 trillion anti-fiat market now dominated by GC00 gold.
“As long as we have a paper money system, there will be a demand for ‘anti-fiat’ assets that will serve as insurance against the devaluation of the paper money system,” he says. He added that moves by central banks to introduce their own digital currencies did not address concerns about fiat money.
Bitcoin currently accounts for 10% of this anti-fiat market. “Since this share doubles or triples, it arithmetically requires doubling or tripling the price of cryptocurrency,” he says.
While gold has an intrinsic value that Bitcoin does not – it can be smelted and used in jewelry, for example – much of its value is due to its status as the dominant anti-fiat asset. Gold price for silver SI00,
is around 70, while the inverse ratio of mined gold to silver in 2019 was 7.5. Silver and platinum PL00,
trade more closely according to their production ratio.
Joshi acknowledges that Bitcoin is more volatile than gold and says that to account for the risk of large drawdowns, investors should hold $ 1 of crypto for every $ 3 of gold. He also says that cryptocurrencies will receive a share from each other, so it is important to own a diversified basket linked to others like Ethereum ETHUSD.
This ratio of $ 1 of cryptocurrency to $ 3 of gold means that cryptocurrency should make up 25% of the market. Specifically, this will boost Bitcoin to $ 120,000. Bitcoin traded at $ 56,720 on Thursday.
The growth of cryptocurrencies will also affect inflation. “With cryptocurrencies as a competing trust system, the only way for governments and central banks to maintain our trust in fiat money is not to devalue its value. In other words, cryptocurrencies are new vigilantes to stave off runaway inflation, ”he says. He also recommends underestimating gold miners as anti-fiat gold premiums collapse.
Read also: Fidelity’s Tom Jessop: “We Have Reached a Tipping Point” in Bitcoin Acceptance.
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