Vaneck’s report stated that Vaneck’s investment team attempted to quantify the emergence and support for new currencies. According to the study, gold could be worth $31,000 an ounce while bitcoin could possibly reach $1.3 million per coin. The value of bitcoin and gold might be even higher if the assets were converted to M2 monetary supply.
Vaneck’s Investment Team calculates ‘Extreme Scenarios’ where Bitcoin or Gold can Obtain Global Reserve Status
Eric Fine and Natalia Gurushina from Vaneck’s emerging market bond investment team published a Report on March 30, 2022. It discusses “extreme situations” in which bitcoin or gold could theoretically become M0/M2 money supplies. A monetary basis (M0, or all physical currency) is equivalent to all coins and physical currency. M2 however, measures cash and checks deposits as well.
Vaneck’s Insights blog article says that “money has changed” and highlights recent sanctions against Russia, which have frozen the country’s USD and EUR fiat reserves. Gurushina and Fine write that Vaneck’s EM Bond Investment Team believes the world’s central bank “will act”, and highlight the recent sanctions against Russia which have frozen the country’s USD, EUR, and JPY fiat reserves. After the calculations, both estimates were quite significant in terms of price.
“We created a simple framework for valuing gold and bitcoin. We divide the global money supply (M0, M2) by the global gold reserves for gold,” the Vaneck Em Bond Investment Team blog post explains. The reserve asset is used to divide the money liability. To convert the monetary base liability to U.S. Dollars, we used current reserve holdings in troy-ounces of gold. We also used the current exchange rates.
Vaneck’s report explains that M0 data is used to calculate the implied global value of gold. This is then divided by global reserves for countries with the highest gold holdings.
The Implied Bitcoin Price Using GlobalM2 Is $4.8 million per Coin
Vaneck’s team performed the same calculations for Bitcoin (BTC). This is in contrast to cryptocurrency because the potential supply and limit of crypto are infinite, while Bitcoin (BTC has 21 million coins. According to the report, bitcoin would have a higher upside (33x) than with gold (16x). The report noted that bitcoin’s implied price using the same aggregate M0 as gold would be around $1,300,000. Vaneck’s “extreme scenario” calculations provide further estimates:
Bitcoin’s implied value using global M2 is $4.800,000 per coin.
Vaneck’s report stresses that this would require unusual circumstances. The authors of the report state that “assumptions [are] based on the probability that that ‘extreme scenario occurs, or on what bitcoin will be fulfilling in any newly created reserve status.” The authors state that Vaneck’s Insights blog post has been a success and are trying to quantify its impact.
Vaneck concludes, “Stories” about the future money are fascinating, but if you agree that this is a potential new paradigm, an effort at quantification is required.” This was our intention with this exercise: to be as specific and precise as possible on a complex and nebulous topic. The major asset-price implications of the big shift are significant upside in bitcoin and gold.