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JOHANNESBURG — Bitcoin mania has got out of control in 2017 with everybody from your grandmother to your mates at a braai buying into the craze. With price surges of over 1000% this year alone, it increasingly looks like a bubble waiting to burst. However, interestingly, Bitcoin is still a dwarf when compared to major asset classes. One thing that may change this is the launch of Bitcoin on the CME’s future markets come December 18. Experts say that the futures debut could be subsequently followed by ETF launches for Bitcoin as well. In the meantime, pundits will be watching the price carefully as fears of a correction grow. – Gareth van Zyl
Yes, its market cap of about $180 billion is the same as Coca-Cola’s. And yes, it’s 10-fold increase has become near legendary. But in the broader scheme of the financial market, it’s a gnat — equivalent to less than 2 percent of any major class and 400 (!) stocks have bigger gains this year.
Here’s what bitcoin would roughly equal as a percentage of the total value of the following sectors. The market sizes were taken from the Money Project.
- 2.4 percent of the $7.6 trillion coins and bank notes
- 2.3 percent of the $7.7 trillion gold market
- 0.25 percent of the $73 trillion global stocks market
- 0.19 percent of the $90.4 trillion of broad money supply
- 0.083 percent of the $217 trillion real estate market
- 0.033 percent of the $544 trillion derivatives market
Maybe a more fair comparison would be to compare the total cryptocurrency market against these asset classes, but that wouldn’t move the needle much as bitcoin makes up half of it.
These comparisons could be used by critics to dismiss bitcoin as a fad, and some may question all the fuss over such an insignificant asset — if it can even be called that. Claims that it can replace fiat money seem overblown, if it’s less than 3 percent of money in circulation. European Central Bank President Vitor Constancio dismissed that bitcoin posed a threat to monetary policy and compared it to the tulip bubble of the 17th century.
Even bitcoin’s more than 1,000 percent gain this year doesn’t look that impressive when comparing against global equities, as there have been 400 stocks with gains of at least the same amount, Bloomberg’s Cameron Crise writes.
Bitcoin’s still small size can also be fodder for the bulls, who say it still has room to gain since the cryptocurrency is increasingly viewed as a store of value. Goldman Sachs’s global head of commodities research Jeff Currie said bitcoin is “ not much different than gold” because it doesn’t have liability attached to it by definition, like a security. Billionaire Mike Novogratz said bitcoin is like digital gold in that “gold has value solely because people say it has value; bitcoin is built on an amazing technology, there’s a limited supply of it.”
While bitcoin’s limited supply, or small size is an asset for some, it’s a reason to be dismissed for others like Constancio, who will say it has as much substance as a financial instrument as a flower.
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