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 Gain Global Reserve Status
The leaders of Vaneck’s Emerging Markets (EM) bond investment team, Eric Fine and Natalia Gurushina, released a report on March 30, 2022, which addresses “extreme scenarios” where gold or bitcoin theoretically becomes money masses M0 or M2. While a monetary base (M0 or money in the narrow sense) is equivalent to all physical money and coins, M2 measures both cash deposits and checks as well as broad money.
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’ve built a simple framework to value gold and bitcoin. For gold, we divide the global money supply (M0 and M2) by the global gold reserves,” the team’s blog explains. bond investment Vaneck EM “Monetary liabilities are divided by reserve assets. We used current reserve assets in troy ounces for gold, and we used the current exchange rate to convert base liabilities currency in US 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.
The implied price of Bitcoin using Global M2 is $4.8 million per coin
Vaneck’s team did the same calculations for bitcoin (BTC), unlike cryptocurrencies, because the potential supply of crypto is infinite while BTC has a supply cap of 21 million coins. The report notes that the upside would be higher with bitcoin (33x) than with gold (16x). “The implied price for bitcoin using the same M0 aggregate 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 authors of the report point out that the circumstances required for this to happen would be an unusual event and “assumptions [are based] on the likelihood of this “extreme” scenario occurring, or how much bitcoin will fill in any new reserve status,” Vaneck’s report states. At the end of Vaneck’s Insights blog post, the authors say something big happened and they try to quantify its 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.”
