21metrics weekly: Can Bitcoin Reach Gold Parity?

Facing the 2021 Cycle Resistance

The cryptocurrency market has seen escalating volatility within the past seven days, causing bitcoin to oscillate between 61 000 and 71 000 US dollar levels. Investors are now anticipating bitcoin's upcoming halving, scheduled to occur in 24 days.

Halvings literally halve the block reward paid to miners, which decreased from 12,5 bitcoin units to 6,25 in 2020. Similarly, the halving event of 2024 will halve the block reward again, reducing it to 3,125.

The halving can be seen as one of the factors guiding bitcoin's spot price. Between the most recent halving event of 2020 and the following year's all time high, bitcoin moved into a parabolic 654 percent growth trajectory.

Sources: Timo Oinonen, CryptoQuant

From a purely technical standpoint, bitcoin has been uplifted by a strong price discovery cycle, but is now being restrained by the 2021 cycle resistance zone. Once bitcoin clears the previous resistance, the way towards $100K valuation seems certain.

Can Bitcoin Reach Gold Parity?

"Gold is analog bitcoin, too weak to replace digital fiat. Bitcoin is exponential gold, sound money for the modern world." - Tuur Demeester

The "digital gold" bitcoin and physical gold have often been placed in a same category, as they share many common features. Both assets are particularly scarce, their supply being heavily limited.

Bitcoin is theoretically limited to 21 million units, while the circulating supply is currently at 19,66 million. However, Due to "lost coins", the actual supply in circulation will never reach 21 million.

While gold is not limited by any maximum supply per se, its supply is scarce due to scarcity of gold deposits and the cost of mining and refining. While gold has a finite supply on earth, there have been plans to mine it from asteroids in future, shifting its supply dynamics.

Bitcoin is highly portable as it exists digitally and can be transferred globally within minutes. Gold, while valuable, is less portable due to its physical nature and weight. Gold requires physical storage, which may incur costs and security concerns. Bitcoin can be stored in digital wallets, but there are security risks associated with hacking and loss of access to wallets.

Sources: 21metrics, Coin Metrics

Bitcoin's current market capitalization (MCAP) is around 1,38 trillion US dollars, while gold's is at $14,73T, meaning that gold's MCAP is more than tenfold compared to bitcoin's. With the current bitcoin spot price of $70K, a market capitalization parity with gold would bring bitcoin's to $700K per unit, representing a sound long-term price target.

Source: PlanB

According to the stock-to-flow model (S2F), Bitcoin’s scarcity will surpass that of gold by the year 2025, making the latter an extremely scarce asset class.

Grayscale's Barry Will Eventually Run out of Coins

Grayscale Bitcoin Trust's (GBTC) massive outflows of last week finally seem to be waning, as Tuesday (25.3) only saw a $212,3 million outflow from the fund. GBTC's "market dump" reached $642,5M during Monday 18.3, representing largest outflow since late January.

GBTC's balance sheet has seen a massive drop this year, decreasing from January's 619 600 to current 342 610 bitcoin units. In year-to-date terms, the sell-off represents a -44,5% decrease, and at the current rate GBTC and its founder Barry Silbert will eventually run out of coins. Grayscale recently submitted an application for "Bitcoin Mini Trust", including lower fees. The current 1,5 percent management fee structure of GBTC is sixfold compared to BlackRock's IBIT.

In a surprising turn of events, Fidelity's Wise Origin Bitcoin Trust (FBTC) climbed to $261,6 million worth of inflows this Monday, eclipsing BlackRock's iShares Bitcoin Trust (IBIT) that only reached $35,5M. Despite the recent overtake, IBIT still leads the spot ETF segment (excluding GBTC) with its 245 951 bitcoin balance sheet. Fidelity's FBTC currently holds 139 726 units.

The competition among the fresh repertoire of eleven new spot bitcoin ETFs is about to accelerate, while multiple funds have published management fee discounts. VanEck will drop its management fee to zero until 31.3.2025, unless the exchange-traded fund reaches $1,5 billion in assets under management (AUM) before that date.

Source: 21metrics

The spot bitcoin ETFs own 4,18 percent of bitcoin's current supply, while the projected supply absorption is 1,63%. The funds, including GBTC, own a total of 822 000 bitcoins, equaling to $57,4 billion.

Source: 21metrics

How to Trade the Upcoming Halving?

The entire value proposition of the Bitcoin network is based on the principle of scarcity, and the halving event increases the scarcity of the cryptocurrency by gradually reducing its supply.

The simplest way to approach the halving would be to consider it as part of a buy-and-hold strategy when the spot price of bitcoin is relatively affordable. The end of Bitcoin's distribution cycle at the end of 2022 represented a multi-year price bottom and the beginning of a new accumulation cycle. The intersection of these cycles provides a good area for accumulating bitcoin while keeping an eye on the 2024 halving.

Source: 21metrics

Another approach is the trading rule recommended by PlanB, the creator of the Stock-to-Flow (S2F) model. PlanB advises investors to engage in position trading, where bitcoin purchases are made six months before the halving event. Simultaneously, PlanB suggests selling the position 18 months after the halving. According to PlanB, this strategy offers an optimal risk-reward ratio.

According to Anthony Pompliano, Bitcoin is an asymmetric investment with upside potential that greatly outweighs its risks. Bitcoin still is an exceptionally attractive asset for investors with a long-term perspective.

Ethereum Foundation Investigated by a "State Authority"

Ethereum's possible spot ETF launch has been one of the most anticipated events of the 2024, and Fidelity recently filed a related registration statement. Cboe, the exchange planned for this ETF, submitted a form 19b-4 to the SEC on Fidelity’s behalf in November 2023.

Source: CoinDesk

Now these ETF plans are facing potential headwinds as Ethereum Foundation is reportedly being investigated by an undisclosed "state authority". The current state of affairs hints towards Ethereum's classification as a security, which has been a hot topic recently. A possible security classification would make the asset less desirable to investors and likely lead to exchange delistings.

In our last article we explored the expansion of Ethereum's main DeFi rival Solana. Due to its fast transaction speed and cheap operational costs, Solana has become the preferred launch platform for new tokens, including "memecoins".