Will Bitcoin (BTC) Flip Gold? It's a Lot More Likely Than It Sounds

Bitcoin (BTC 0.96%) boosters sometimes refer to the cryptocurrency as digital gold because of its scarcity and limited supply. But could it be worth more than all of the actual gold that's in circulation someday?

Bitcoin (BTC 0.96%) boosters sometimes refer to the cryptocurrency as digital gold because of its scarcity and limited supply. But could it be worth more than all of the actual gold that's in circulation someday?

It's a lot more likely than it sounds. It might even be inevitable. Here's what would need to occur for it to actually happen.

The math is the least important part of this equation

For Bitcoin to flip gold, it would need to become much more valuable, but that's not as meaningful as it may seem.

Today, Bitcoin's market cap is approaching $1.7 trillion. The total market cap of gold is close to $20.1 trillion based on recent prices. Therefore Bitcoin's price would need to rise by a bit more than 12.2 times where it is right now to have the same total value as gold. In other words, the price for each coin would need to be higher than $1 million to confirm that a flipping had occurred (Bitcoin now is valued at about $84,000 per coin).

Bitcoin's value rose by about 1,460% during the past five years. Therefore the asset, at least in recent history, is more than capable of growing by the necessary amount to be worth more than gold. But the more important thing to recognize is that the drivers for that immense growth are still in place, which is why the flipping is actually a real possibility.

People buy and hold gold because it's expected to retain its value over time, even in harsh economic conditions, and even if phenomena like inflation erode the value of the fiat currencies that it can be sold for. That works because gold is scarce, as it requires significant investment of effort to mine and refine. Another factor is that it's tradeable on deeply liquid global markets, so there is a very high probability of sellers finding a buyer even during economic turmoil. Another reason gold holds value is because gold is a necessary material for real-world applications like manufacturing cellphones.

So it serves as a store of value, a medium of exchange, and as something with utility as well. But it isn't necessarily the easiest asset to hold or use from an investor's perspective.

Physical gold needs to be securely stored, and it's fairly awkward to liquidate when needed compared to a stock or cryptocurrency. Exchange-traded funds (ETFs) that grant investors exposure to gold charge annual fees. Claims to gold held in a bank's vault may not be easily tradeable, and they require a lot of trust in a third party.

Bitcoin doesn't suffer from those problems. Sure, it has other problems, like its much higher volatility and its relatively limited utility value. But the main sources of its value, the difficulty of mining it and its inherent scarcity, clearly resonate with the world's investors, given the asset's meteoric rise since its launch in 2009.

And it's only going to become produced at lower and lower volumes over time.

Will this actually happen?

For Bitcoin to flip gold's value, it'll need to continue being adopted and held by the world's financial institutions, governments, and investors.

That means more governments will need to initiate and actually adopt policies like the planned U.S. Strategic Bitcoin Reserve, which is itself not yet implemented. Bitcoin will also need to continue deepening its links with the traditional financial sector via ongoing approvals of new ETFs holding it, as well as ETFs that hold it in addition to other cryptocurrencies. In practice, banks and other financial players will be the ones driving that shift.

Today, an estimated106 million people hold the coin, so there's plenty of adults in the world it could attract during the coming years, meaning that there's a lot of additional capital that could flow in. As buying Bitcoin becomes even more accessible to investors than it has been, more and more will want to get a little bit of exposure to it. And, if the price continues rising over time, as it has throughout its life so far, that will be powerful advertising that entices more people to buy and hold it forever.

So could Bitcoin become a bigger asset than gold someday? Yes, it could, but there's not much point in putting a timeline on it. The best move is to slowly build up a position and retain it, and then you will get the benefit of its growth over the long term even if it takes years to flip gold.