At $41k, Bitcoin is still massively undervalued against gold and Silver

Bitcoin is digital gold. And it isn’t just the memes of Twitter cartoon characters that acknowledge this fact: we’re talking about the actions and statements of experienced investors like Paul Tudor Jones and institutions such as JP Morgan.

Some say that the price of bitcoins is way too high and we find ourselves in a new bubble which resembles the ones from 2013 and 2017. But this perspective tends to overlook how Bitcoin was massively misunderstood at the time – early advocates tried to turn it into a tool for “instant” payments, when in reality it clearly wasn’t ready for this use case and is historically more useful as a store of value anyway.

We need to put this in the right perspective: as digital gold, Bitcoin’s market cap is worth only 6.4% of gold’s market cap and 54.2% of silver’s.

And yes, these percentages are calculated for a bitcoin price of approximately $41k. If we compare Bitcoin and gold, we find different pros and cons: Bitcoin is easier to store, transfer, and verify thanks to its immaterial nature, while gold benefits from a long history and tradition of being used as money, is more fungible (you can melt it in different shapes to completely remove all traces of previous ownership), and gets traded on a greater number of markets.

There is still a lot of upside for Bitcoin, in terms of both adoption and use. Even if we only consider the base layer (which is objectively the most secure), the limited block space hasn’t proven to be very problematic this time around – not only that people understood how the mempool works and adjusted their time preference accordingly, but more scaling solutions have been developed to supplement the Bitcoin network’s limitations.

Today Bitcoin is very decentralized in every possible metric and more secure than ever. It can move the value equivalent of a ton of gold from one side of the world at a very low cost, it keeps everything transparent, and also retains some privacy thanks to its pseudonymity.

If you use the Lightning Network (Bitcoin’s second layer, which is built on the philosophy of exchanging bearer assets for better scalability and speed), you get a Tor network type of privacy, with random routing and increased fungibility. Visa-level throughput and Tor-level privacy might sound like a pipe dream, but the network has been up and running for 3 years and keeps on growing.

So on the base layer, Bitcoin works very well as a store of value and effortlessly fulfils this function. But on sidechains and second layers, it’s ready for commerce, smart contracts, tokenization, decentralized applications, and all the applications that you find in some altcoins.

In a nutshell, this is how Lightning Network routing works. Source: BitcoinLightning

Yes, Bitcoin did go up in USD price in a very short amount of time. The market price of one coin greatly exceeds the cost of mining it. And the Bitcoin network has yet to receive many improvements. But if you think about the use cases, it’s still undervalued: if institutions and companies can use Bitcoin to avoid inflation, taxation, and also take tax-free loans against their coins, then they will not be afraid of short-term dips and they’ll play the long game.

Every company and institution dumping cash reserves to buy bitcoins at $41k understands the risks very well, but is aware that the US dollar may be irreversibly doomed and a 12 year-old network of computers is better at securing private property than the sum of corruptible elected officials who swore into office.

And now that Bitcoin’s status as digital gold is clearer than ever, we should keep an eye on the market cap ratio between them. How much should bitcoins be worth? 10% of gold? 25%? 50%? Are we going to have 1 to 1 parity or even see Bitcoin surpass the market cap of gold? Even in the most bearish scenario, there is still a lot of upside for Bitcoin. So we shouldn’t be surprised if the price hits $50k, $75k, or even $100k during this cycle.

If you’re going to trade Bitcoin, only use hard money like gold an silver

As Voltaire predicted in his time, all paper money returns to its initial value of zero. But gold and silver are here to stay, as they’ll have utility in both financial markets and industry for a very long time. Bitcoin turns out to also compliment their use cases quite well.

So if you believe in the future of Bitcoin but want to get into trading, it’s better to use hard money than to expose yourself to the risks of fiat. And if you’re going to do this, then I recommend Vaultoro – a trading platform that’s been around since 2015, sells gold and silver, and also offers BTC trading pairs. All precious metals are stored in Swiss facilities, are insured and verified, and can also get delivered to you on request.

Bitcoin will most likely keep on rising against both gold and silver, but if you ever think that we have reached the top it’s definitely better to use precious metals than fiat. Historically speaking, gold and silver are more stable stores of value.

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Just keep in mind that trading involves risks, none of this is financial advice and should not be interpreted as such, and you are responsible for your own decisions.

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Vlad Costea

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