On Thursday, the investment firm Vaneck published a blog post that calculates how much gold or bitcoin would be worth if the two assets became global reserve assets. Vaneck’s report explained that the investment team “attempted to quantify the emergence of new gold or bitcoin-backed currency regimes.” The study’s calculations estimate that gold could reach […]
On Thursday, the investment firm Vaneck published a blog post that calculates how much gold or bitcoin would be worth if the two assets became global reserve assets. Vaneck’s report explained that the investment team “attempted to quantify the emergence of new gold or bitcoin-backed currency regimes.” The study’s calculations estimate that gold could reach $31,000 per ounce and bitcoin could potentially hit $1.3 million per coin. If the assets became M2 monetary supplies, then the values of bitcoin and gold could be much higher.
Vaneck’s Investment Team Calculates ‘Extreme’ Scenarios Where Gold or Bitcoin Obtain Global Reserve Status
Executives from Vaneck’s emerging markets (EM) bond investment team, Eric Fine and Natalia Gurushina, published a report on March 30, 2022, that touches on “extreme scenarios” where gold or bitcoin theoretically become M0 or M2 money supplies. While a monetary base (M0 or narrow money) equates to all the physical currency and coins, M2 measures both cash and checking deposits and broad money as well.
Vaneck’s Insights blog post says “money has changed,” and highlights the recent sanctions against Russia which froze the country’s USD, EUR, and JPY fiat reserves. Fine and Gurushina write that Vaneck’s EM bond investment team thinks the world’s central banks “will act, as will private individual actors.” The team attempts to quantify the emergence of gold and bitcoin-backed regimes and after the calculations, both estimates are quite substantial in terms of price value.
“We built a simple framework to value gold and bitcoin. For gold, we divide global money supply (M0 and M2) by global gold reserves,” the Vaneck EM bond investment team blog post explains. “The money liability is divided by the reserve asset. We used current reserve holdings in troy ounces for gold, and we used the current exchange rate to convert the monetary base liability into U.S. dollars.”
The EM bond investment team explains that the implied global price for gold using M0 “divided by global gold reserves, for countries with the largest gold holdings is $31,000 per ounce (average) and $21,000 per ounce (median).” Additionally, the implied global price for gold using M2 data divided by global gold reserves is “around $105,000 per ounce,” Vaneck’s report notes.
Implied Price of Bitcoin Using Global M2 Is $4.8 Million per Coin
Vaneck’s team did the same calculations for bitcoin (BTC), in contrast to cryptocurrencies, because the potential supply of crypto is infinite while BTC has a 21 million coin supply cap. The report notes that the upside would be higher with bitcoin (33x) than gold (16x). “The implied price of bitcoin using the same aggregate M0 that we used for gold is around $1,300,000 per coin,” the authors noted in the report. Vaneck’s “extreme” scenario calculations further estimate:
The implied price of bitcoin using global M2 is $4,800,000 per coin.
The report’s authors stress that the circumstances required for this to happen would be an unusual event and “assumptions [are based] on the probability of that ‘extreme’ scenario occurring, or on the portion bitcoin will be fulfilling in any new reserve status,” Vaneck’s report states. At the end of Vaneck’s Insights blog post, the authors say that something big has happened, and they are attempting to quantify the impact.
“‘Stories’ about the future of money are interesting, but if one agrees that this is a potentially new paradigm, an attempt at quantification is needed,” Vaneck’s report concludes. “That was our intent with this exercise – to be as specific as possible about a nebulous and complicated issue. The key asset-price implication of the big change is significant upside in gold and bitcoin.”
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