Bitcoin $100K possible by chipping away at gold’s market share: Goldman Sachs

Bitcoin

Bitcoin has a good chance to topple $100,000 by taking market share from gold as a store of value, Goldman Sachs analysts predicted.

Bitcoin (BTC) failed to close 2021 above the long-expected $100,000 level, but experts believe the psychological horizon is still achievable by taking gold's market share, albeit over a more extended period.

In a note released to investors on Tuesday, Goldman Sachs co-head of global FX and EM strategy Zach Pandl hypothesized that if the largest cryptocurrency could overtake 50% of the store of value market share over the next five years, BTC price would increase to just over $100,000, marking a compound annualized return of 18%.

While the current market cap of BTC is close to $884 billion, Goldman Sachs estimates the float-adjusted market cap of Bitcoin is under $700 billion, accounting for one-fifth of the “store of value” market. The said market is not crowded, though. The only other participant of Goldman’s store of value market is gold, with an available investment at $2.6 trillion.

Despite its ups and downs, Bitcoin still managed to top Goldman Sachs’ 2021 return scorecard with over 60% yearly returns. Gold is placed at the bottom in the same chart with a 4% yearly loss.

*Yearly returns scorecard. Source: Goldman Sachs Global Investment Research*

Goldman Sachs experts believe that the demand for BTC will not be harmed by the hot debate surrounding the Bitcoin network’s energy consumption. While a recent study claims the Bitcoin ecosystem consumes eight times the energy of Google and Facebook combined, New York Digital Investment Group estimates that Bitcoin mining will not represent more than 0.4% of global electricity consumption over the next decade.

As detailed in a Cointelegraph New Year Special, Bitcoin saw a bumpy ride over the last year. Many experts believed that $100,000 was an easy target for the flagship cryptocurrency for 2021. However, BTC closed the year around $47,000 after touching an all-time high around $69,000 in November, falling short of analysts’ ambitious target.

Blockchain

Goldman Sachs reportedly traded digitized treasury bonds for JPM Coin on JPMorgan Chase's Onyx blockchain platform.

After six months of eyeing JPMorgan Chase’s custom blockchain service for repo markets, Goldman Sachs has started trading on the platform.

Mathew McDermott, global head of digital assets for Goldman Sachs’ global markets division, confirmed the first transaction dated June 17 in an interview, Bloomberg reported.

In the trade, Goldman Sachs swapped a tokenized version of a United States Treasury bond for JPM Coin, JPMorgan’s dollar-pegged stablecoin. JPMorgan started its private blockchain service to drive efficiency in repo agreements last year. The platform uses JPM Coin to swap digitized United States Treasury bonds.

Goldman Sachs was one of the first financial institutions to notice the platform. Last year, McDermott mentioned the efficiency of JPMorgan’s blockchain-based repo-market service, saying that “enterprise blockchain can address a real-world problem in the financial system.”

As a trillion-dollar market, repurchase or “repo” agreements are short-term lending arrangements for dealers in government bonds. An overnight repo allows dealers to sell government bonds to investors and repurchase them the next day at a slightly higher price.

Calling the trade a pivotal moment for the digitization of transactional activity, McDermott highlighted that, unlike the traditional repo market, the precise timing of the transaction could be logged thanks to blockchain technology.

Smart contracts on the blockchain enable the collateral and cash to interchange simultaneously and immediately, and this is a big step up for the repo market, according to McDermott:

“We pay interest per the minute. We firmly think this will change the nature of the intraday marketplace.”

JPMorgan Chase first announced the launch of its own stablecoin back in early 2019, with an initial focus on international settlements by major corporations. First trades started in December, and since then, JPM Coin has been embraced by transnational corporations for around-the-clock cross-border payments.

The bank established its version of the Ethereum blockchain, Onyx, which is now processing more than $1 billion worth of transactions daily.

Sachs