Bitcoin could top $1.3 million after sanctions on Russia, VanEck says

    07 Apr 2022

    An analytic report from American investment firm VanEck says Bitcoin appears to have a much higher upside potential than gold. If each of the assets becomes the only reserve asset globally, Bitcoin could top $1.3 million, while gold may reach a price of $31,000 per ounce, respectively. However, these extreme cases have a more likely contender in the Chinese yuan, analysts at VanEck think.

    As the US and some other Western countries sanctioned Russia by freezing its central bank’s reserves, which include the euro, US dollars, gold, and China’s yuan among others, it should “reduce demand for hard currencies as reserve assets, while increasing demand for currencies that can perform the original functions of these former reserve currencies,” analysts at investment manager Van Eck Associates Corp. wrote in a report this week.

    “We believe Central banks will act, as will private individual actors,” wrote Eric Fine, head of active emerging market debt, and Natalia Gurushina, chief economist on emerging markets fixed income strategy at Van Eck.

    The analysts wrote that Gold and Bitcoin are the likely choices, while other assets such as real estate could be alternatives too.

    If gold becomes the only reserve asset, the metal’s implied price, calculated through dividing global money (M0) by global gold reserves, is $31,000 per ounce on average for countries with the largest gold holdings. If calculated using M2, gold’s implied price could reach $105,000 per ounce.

    M0 and M2 are both classifications of monetary supply, where M0 includes the narrowest forms of the money supply, such as all paper and coin currency in circulation, plus reserves held by the central bank. M2 is a broader version.

    Bitcoin has a limited maximum supply of 21 million – while 19 million of them already have been mined – it is much closer to gold than other cryptocurrencies. Therefore, the crypto could reach a price of $1.3 million calculated using M0 and may top $4.8 million using M2, the analysts suggested.

    Last week, gold for June delivery fell $5.1, or 0.26%, to $1,922.4 an ounce. Meantime, Bitcoin (BTC) is trading at around $45,066 at the time of writing and down 1.55% over the past 24 hours.

    The VanEck report said that Bitcoin appears to have a much higher upside than gold, though the latter is “the more straightforward initial response by central banks in particular.”

    However, these scenarios are extreme and the projected prices “obviously need to be adjusted downward,” the study noted. “Investors should, at least, determine a subjective probability for the outcome. Or they should choose an extent for the outcome: are gold or Bitcoin going to be the sole reserve assets, or will that status be shared with other assets?”

    “For example, an investor who sees a 10% chance of gold becoming the reserve asset might say that our ‘extreme scenario’ price of $31,000 per ounce represents a practical price target of $3,100 per ounce. They may see that as an attractive upside relative to current prices, or not,” read in the report.

    The analysts urged readers to bear in mind that the predictions are merely starting points for investors to formulate a framework for how to value gold and BTC in the extreme instance either becomes a global currency. It noted that there are alternatives such as finite real estate, infinite equities and even emerging market currencies that could serve the function of gold or BTC.

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