Bitcoin Surpassed $4,300 But 99.98% of World’s Capital is On The Sidelines
On August 14, the price of bitcoin surpassed the $4,300 mark, achieving yet another new all-time high. Amidst a strong week-long rally triggered by the rising tension between the US and North Korea, increasing demand from institutional investors and the hotly anticipated activation of Segregated Witness, the bitcoin dominance index recovered to 50 percent, as the market cap of bitcoin surpassed $70 billion.
Yet, Ian Lee, general partner at DAICO and former blockchain lead at Citi, reminded the community that even with the recent surge in the price and market cap of bitcoin, 99.8 percent of the world’s capital remains on the sidelines.
#bitcoin just hit $4,000. And 99.98% of the world’s capital is still on the sidelines.
— Ian Lee (@ianjohnlee) August 13, 2017
To put Lee’s statement into perspective, the market of gold based on its spot price at the time of reporting is around $7.75 trillion, around 110 times higher than the current market cap of bitcoin. The adoption of bitcoin by institutional investors, professional traders and general consumers has only just begun and as Lee and other analysts have explained, investors should not be overly concerned with the short-term performance of bitcoin.
In May of 2016, Digital Currency Group founder and CEO Barry Silbert compared the market cap of bitcoin to that of gold. At the time, the market cap of bitcoin was $8 billion, while the market cap of gold remained at $7 trillion.
Bitcoin market cap ($8 billion) as a percent of gold in circulation ($7 trillion) = 0.114%
— Barry Silbert (@barrysilbert) May 28, 2016
Since then, bitcoin has demonstrated a staggering increase in value. In contrast, gold has failed to meet the expectations of its investors. In 2016, according to the spot price of gold, the precious metal recorded a yearly decline in value amidst market instability and global economic uncertainty. The underwhelming performance of gold triggered arguments from various analysts against the practicality of gold as a safe haven asset.
Many investors in bitcoin, especially early adopters, envision a more idealistic scenario than short-term investors with many believing that bitcoin is capable of one day replacing existing financial systems. However, in order for this to happen, it would require the creation of improved systems to attract for high profile traders and institutional investors. Tyler Winklevoss, the founder and CEO of US-based exchange Gemini recently noted that the development of necessary infrastructure for institutional investors and integrating higher liquidity in bitcoin trading will be key factors that determine the long-term future of bitcoin.
“Gemini’s key concerns in the cryptocurrency ecosystem have always been security, compliance, and regulatory oversight. By working with the team at CBOE, we are helping to make bitcoin and other cryptocurrencies increasingly accessible to both retail and institutional investors,” Winklevoss noted, after securing a partnership with CBOE to integrate bitcoin and provide a bitcoin futures and options trading platform for large-scale investors.
Within 12 months, the cryptocurrency market has grown from a $10 to $140 billion market. Bitcoin has outperformed most predictions outlined by investment banks including JPMorgan and Goldman Sachs in 2017. If the barrier between bitcoin and general consumers can be eliminated and the mainstream adoption of bitcoin increases, it will likely be able to compete with gold and reserve currencies in the future.