Bitcoin can take away from gold’s market share as a byproduct of going mainstream added to the potential of scaling solutions specific to the flagship crypto according to Zach Pandl, Goldman Sachs’ co-head of foreign exchange strategy. In a research note to clients, he wrote, cited by CoinDesk:
Hypothetically, if Bitcoin’s share of the ‘store of value’ market were to rise to 50% over the next five years (with no growth in overall demand for stores of value) its price would increase to just over $100,000, for a compound annualized return of 17-18% (accounting for growth in Bitcoin supply over time).
Bitcoin holds a fifth of the ‘value store’ market
According to estimates of Goldman Sachs, people are holding about $2.6 trillion of gold for investment purposes, while Bitcoin’s market cap is just under $700 billion at the moment. This shows that Bitcoin holds around 20% of the value store market (gold and Bitcoin).
Next development for crypto: more liquid options markets
Last month, Goldman Sachs said the next major development for crypto would be more liquid options markets. This is because more and more conventional financial companies are entering the rapidly growing asset class.
Andrei Kazantsev, Goldman’s global head of crypto trading, said at a panel discussion:
We are seeing a lot of demand for more derivative-type hedging. The next big step that we are envisioning is the development of options markets.
In his opinion, cryptocurrency derivatives are still in their infancy compared to forex, equities, and other more traditional markets.
However, the Bitcoin options market is developing very dynamically. At the beginning of December 2021, the total value of outstanding Bitcoin options contracts was around $12 billion according to data from Skew, a Coinbase affiliate tracking data on crypto derivatives.
Options used to hedge risk
Investors use crypto options to gain additional market exposure or hedge against existing risk. They get value from the price of another asset, the underlying cryptocurrency in this case. Kazantsev added:
There might be equity funds that have an exposure to a stock that has underlying Bitcoin holdings. In order to hedge that exposure, they might trade futures against that. For them, rather than rebalancing the portfolio dynamically, what they really want to do is hedge for the longer term, and to know the downside on the hedge that they can have. That’s where options become really important.
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