The idea of bitcoin as a reserve asset for nations around the world has been floating for years now. While some feel that this is the inevitable end game for bitcoin, it is still left to know what impact this will have on the value of the digital asset if this were to be the case. Global investment manager Van Eck recently took a crack at this and has presented what it believes would be the price of bitcoin if it were to be adopted as a global reserve currency.
Bitcoin To $4 Million?
In a recently published report, Van Eck lays out a framework that analyzes where the value of bitcoin would end up if it were to be adopted as the world’s reserve currency. This framework was also used to value gold which is currently the world’s reserve asset, making it the asset to beat for bitcoin. Van Eck describes this framework as something that helps get “concrete” presumably referring to where the asset may be going forward.
For gold, the framework puts the implied value of the physical asset at around $21,000 to $31,000 per ounce depending on their gold holdings using the M0. However, when looking at the implied “global” price of gold when it is used as global money, the value of the digital asset ends up on a much higher end of the scale which happens to be $105,000 using the M2 – this is because a large number of central banks simply do not hold any gold.
Moving on to bitcoin, the framework presented even more interesting findings. Using basically the same metrics, the framework was used to determine what the implied price of the digital asset would be if it were ever adopted to be a world reserve asset.
Using the aggregate M0 as was used for gold, it came out to $1.3 million as the implied value for the digital asset. Now, this value is much higher than the wildest predictions in the space. However, taking into account the fact that global adoption would imply more use, this may not be far off.
The M2 revealed an even higher implied price for the digital asset. This time around, the value of the cryptocurrency came out to $4.8 million using the global M2.
The upside of both of these assets is clearly delineated in the report. While bitcoin’s upside was around 33x, gold’s upside only came out to about 16x. Although the report notes that gold still remains the more straightforward initial response by central banks. Nonetheless, there remain individual actors which may act faster.
“As with gold, we need to remind investors to adjust the “extreme” scenario price downward according to their assumptions on the probability of that “extreme” scenario occurring, or on the portion Bitcoin will be fulfilling in any new reserve status,” the report reads.
