According to ACG Analytics US macro strategy head Larry McDonald, investors have begun to sell gold to invest in bitcoin through the newly launched bitcoin futures exchange of the Chicago Board Options Exchange (CBOE).
Bitcoin is Penetrating into the Gold Market
Since September, the value of gold miners ETF (GDX), the largest gold exchange-traded fund (ETF) in the market, has fallen by nearly 15 percent. In the past, McDonald noted that the value of gold ETFs were correlated to the price trend of bond yields. But, this week, McDonald explained that the decline in the price of gold ETFs was triggered by the rapid increase in demand for bitcoin.
On CNBC’s Power Lunch, McDonald explained, “Over the last two years, every time rates have come down, and this week rates have moved lower, you had gold go up. Almost every time, there has been an 82 percent correlation between gold and bonds. This week, for the first time, that correlation broke down, and I do think it has something to do with bitcoin.”
Earlier this month, JPMorgan global markets strategist Nikolaos Panigirtzoglou stated that the listing of bitcoin futures by CBOE and CME, two of the world’s largest options exchanges in the global finance market, will provide the cryptocurrency with sufficient liquidity and robust infrastructure to become a major asset class.
Given bitcoin’s decentralized nature, transportability, fixed supply, and divisibility, Panigirtzoglou emphasized that in the long-term, bitcoin will be able to compete with traditional stores of value such as gold.
McDonald offered a similar viewpoint as Panigirtzoglou, as he stated that bitcoin and cryptocurrencies in the market are already eating into the multi trillion dollar gold market. He said:
“If you add up all the cryptocurrencies and the liquid gold that’s in the market right now, the cryptocurrencies in market cap are now 23 percent of the liquid tradeable gold. That’s up from 2 or 3 percent a year ago, so cryptocurrencies are definitely eating into the gold play.”
Currently, the price of bitcoin is $16,600, with a market cap of over $279 billion. The market valuation of bitcoin accounts for less than 5 percent of that of the global gold market. But, according to McDonald, bitcoin will likely sustain its exponential growth rate in the long-term, while gold continues to decline in value against bitcoin.
Long-Term Price Trend
At the current phase, in which institutional investors and large-scale hedge funds are rushing to invest in bitcoin even with high premiums, it is highly unlikely that the price of bitcoin will be negatively impacted by bitcoin futures. In fact, over the past 24 hours, the price of bitcoin increased by more than 20 percent, after the launch of CBOE’s bitcoin futures exchange.
As analysts including BitMEX business development head Grey Dwyer noted, the market cap of bitcoin could reach a trillion dollars by the end of 2018, as tens of billions of dollars in institutional money flow into the bitcoin market in the upcoming months.