After sinking to a year-to-date low price below $6,000 in late June 2018, bitcoin price has jumped back to above $7,000 and as of July 20, 2018, trades at $7,482. This has fuelled hopes that the race is back on. Some would go as far as to say it might become digital gold, with its market cap more than tripling with the help of physical gold.
Gabor Gurbacs (Source: CNBC)
Gabor Gurbacs, director of digital asset strategies at VanEck/MVIS, believes investors might turn away from physical gold and switch to “digital gold” that bitcoin could become.
“Gold today has around $7 trillion outstanding. If you take, say, 5 to 10 percent — I’ll let everyone do the math — bitcoin has upside.”
Given bitcoin’s current market cap of $128 billion, Gurbacs believes if 10 percent of the gold trade shifted into bitcoin, it would more than triple its market cap.
He said bitcoin is nowadays used as digital gold, a de-risk asset, and if one wanted to outlay systematic risk, then they would go to access gold or digital gold (bitcoin).
Before bitcoin can fulfill these optimistic expectations, the crypto market must first address several issues troubling institutional investors, such as marketwide pricing and valuation, and customer protection and compliance.
Speaking of marketwide pricing, it is a difficult issue to address because there are 120 different exchanges worldwide.
The price of a cryptocurrency can differ from one exchange platform to another. Such dramatic price differences hinder price charting, a key part in asset trading. Price charting is necessary for carrying out investment analysis and developing trading strategies.
Gurbacs’ company, VanEck/MVIS, is trying to address this issue using independent pricing benchmarks.
Gurbacs believes the crypto market is capable of maturing to resemble more traditional markets.
He is certain that there is enough liquidity and that pricing benchmarks exist.
“We believe there is a way to integrate bitcoin into the financial ecosystem that we are used to for ETFs (exchange-traded funds), stocks, bonds and commodities.”
In addition to excessive volatility, the crypto market is facing other issues, such as lack of regulation, opening the way for various ICO schemes and coin speculation. For instance, many tokens become part of the market via ICOs when investors buy tokens in exchange for fiat currency. During the initial coin offering, the people behind the token speculate heavily on it, artificially driving the prices up and attracting investors. After they had done this, they cash out, leaving the investors with worthless coins. This is what crypto experts call a pump-and-dump scheme.
Another problem is hacking. The cybercrime is on the rise with millions of dollars stolen in a short time. The problem is so significant, that some platforms had to shut down after they became targets for cybercriminals. Moreover, the price of some virtual currencies has plunged because of these activities.
If the crypto market solves these issues, only sky’s the limit.