What if Bitcoin Replaced Gold as an Inflation Hedge? Mitchell Dong, Pythagoras

Photo by Aleksi Räisä on Unsplash

With the US Congress discussing ideas of another stimulus package of $900 billion and pundits watching the government money printing press continue to buzz, there will be a weakening of the US Dollar and thus, future inflation. Savvy investors are fleeing to gold, bitcoin and other assets with fixed supplies as inflation hedges.

Famous investors like Paul Tudor Jones and Stanley Druckenmiller have said that bitcoin is a better inflation hedge than gold. Both experts have a fixed supply of bitcoin, but the bitcoin market is much thinner and more volatile than the gold market, making it more price sensitive to inflation. JP Morgan analysts believe that investors are moving money out of gold and into bitcoin, such as British asset manager Ruffer.

What if bitcoin were to replace gold? What would the price of bitcoin be if it attained the market cap of gold?

Gold has a market cap of $10 trillion. If that entire $10 trillion were to be invested in the 21 million bitcoin ever to be produced, that would be a price of $476,000 per bitcoin.

Current market cap of bitcoin is $500 billion as of this writing. Gold market cap is 20x that of bitcoin, i.e. if bitcoin price rises 20x, then it would reach gold parity.

It’s unlikely that 100% of gold bugs would convert to bitcoin. However, if only 10% to 20% converted from gold to bitcoin, its price would increase to $48,000 or $96,000 respectively, compared to its current price of $32,000 (as of this writing).

This is very interesting math.

Which do you prefer, holding gold or bitcoin?




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