Bitcoin’s blistering rally needs to be viewed with some perspective, writes
Yes, its market cap of about $180bn is the same as Coca-Cola’s. And yes, it’s more than 16-fold increase has become near legendary — with values hovering in and around $17,000.
But in the broader scheme of the financial market, it’s a gnat — equivalent to less than 2% of any major class and 400 stocks have bigger gains this year.
Here’s what Bitcoin would roughly equal as a percentage of the total value of the following sectors. The market sizes were taken from the Money Project.
- 2.4% of the $7.6tn coins and bank notes
- 2.3% of the $7.7tn gold market
- 0.25% of the $73tn global stocks market
- 0.19% of the $90.4tn of broad money supply
- 0.033% of the $544tn derivatives market
Maybe a more fair comparison would be to compare the total cryptocurrency market against these asset classes, but that wouldn’t move the needle much as Bitcoin makes up half of it.
These comparisons could be used by critics to dismiss Bitcoin as a fad, and some may question all the fuss over such an insignificant asset — if it can even be called that.
Claims that it can replace fiat money seem overblown, if it’s less than 3% of money in circulation.
European Central Bank president Vitor Constancio dismissed that Bitcoin posed a threat to monetary policy and compared it to the tulip bubble of the 17th century.
Even Bitcoin’s more than 1,000% gain this year doesn’t look that impressive when comparing against global equities, as there have been 400 stocks with gains of at least the same amount.
Bloomberg’s Cameron Crise warns that Bitcoin’s still small size can also be fodder for the bulls, who say it still has room to gain since the cryptocurrency is increasingly viewed as a store of value.
Goldman Sachs’ global head of commodities research Jeff Currie said Bitcoin is “not much different than gold” because it doesn’t have liability attached to it by definition, like a security.
Billionaire Mike Novogratz said Bitcoin is like digital gold in that “gold has value solely because people say it has value; Bitcoin is built on an amazing technology, there’s a limited supply of it”.
While Bitcoin’s limited supply, or small size is an asset for some, it’s a reason to be dismissed for others like Constancio, who will say it has as much substance as a financial instrument as a flower.