Crypto, Blockchain, DLT

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>>> How to Value Bitcoin as a Substitute for Gold


Fundstrat's Thomas Lee says bitcoin could be worth $12,000-to-$55,000 per unit by 2022.



By Crystal Kim

July 7, 2017



http://www.barrons.com/articles/how-to-value-bitcoin-as-a-substitute-for-gold-1499444159?mod=yahoobarrons&ru=yahoo&yptr=yahoo



Blockchain, the technology behind bitcoin, is expected to change the banking and asset management industry as we know it. As important as that technology is, investors also have to come to terms with the rise of cryptocurrencies like bitcoin and ethereum.

Bitcoin has risen 162% to around $2,537, according to Coindesk. Ethereum has climbed 3,265% to just above $250. Meanwhile gold is up only about 8% year-to-date to around $1,240. "We believe one of the drivers is cryptocurrencies are cannibalizing demand for gold," wrote Thomas Lee, Fundstrat's U.S. portfolio strategist, in a client note published today. So the firm created a framework for valuing bitcoin as a substitute for gold. The three drivers behind valuation are:

•Growth of U.S. MO (money supply, 6.5% annually since 1921

•Value of alternatives vs MO (554% since 1921, but 400% based on Fundstrat's model)

•Bitcoin share of alternatives (5% in Fundstrat's model, vs 0.7% today)

Based on that model, bitcoin could rise to an estimated $20,300 per unit by 2022. A sensitivity analysis suggests a range of value from $12,000-t0-$55,000. Lee said: "In other words, substantial upside exists in owning cryptocurrencies here." No kidding.

Now imagine what might happen if central banks starting buying crypto-currencies. Lee pointed out that central banks own about 18% of gold stock, a figure that has been rising gradually over the past decade. "We believe central banks would consider owning crypto-currencies if the aggregate value exceeded ~$500 billion (bitcoin is $42 billion currently)," said Lee. "In our view, this is a game changer, enhancing the legitimacy of the currency and likely accelerating the substitution for gold (by investors)."

Investors can buy bitcoin directly, mine it themselves, or buy over-the-counter shares of the Bitcoin Investment Trust (GBTC). However, be aware that GBTC trades at a substantial premium to its net asset value.

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