Veteran trader Peter Brandt has an oddly specific bitcoin price target – $67,193.
Brandt, who boats of 40-plus years’ experience in commodity trading, arrived at this figure by taking the combined value of the 33,000 tonnes of central bank-owned gold and dividing it by bitcoin‘s fully-diluted currency supply of ~21 million coins.
— Peter Brandt (@PeterLBrandt) February 23, 2019
For Brand’s analysis to come to fruition, one must assume an inverse relationship between how central banks view gold and how they view bitcoin. There is, of course, a third scenario in which central banks would prefer to keep both assets in its portfolio. At the same time, a bank could short other assets to increase its bitcoin and gold reserves.
On that note, let’s talk about the US dollar.
Why the Dollar – Not Gold – Will Exit Central Bank Portfolios First
There are many reasons why the greenback could eventually lose its status of the world’s reserve currency.
The EU and China are already making efforts to reduce their dependency on the dollar. In 2018, overall foreign holdings of US Treasury debt fell to its lowest in 15 years, to 41 percent. The dollar’s global share of central bank reserves also fell to 62.2 percent in Q2 2018 – a five year low.
About that same time, China started swapping oil futures in renminbi as an alternative to dollar-pegged petrodollars. Russia and other countries also suggested circumventing the dollar to trade with sanctions-hit Iran.
And then, there are risks brewing right inside the US itself. The country’s national debt just raced past $22 trillion. The Federal Reserve is shrinking its dollar liquidity. Atop that, trade conflicts are prompting other countries to reduce their dependency on the dollar.
Former congressman and presidential candidate Ron Paul has long maintained that the US dollar stands in a precarious position.
He stated in July 2017:
“There are several major efforts being made to replace the fiat dollar with gold or cryptocurrencies, while other countries are making plans to challenge the dollar as the world’s reserve currency.”
It’s a long shot. But, central banks are more likely to dump the US dollar before gold, even if they do eventually begin loading up on bitcoin.
And by the time that happens, bitcoin may already have surged past the $67,193 price target suggested by Brandt.
Pitting Gold against Bitcoin
Bitcoin bulls frequently compare the cryptocurrency favorably to gold, arguing that younger generations will embrace it as their elders did the yellow metal.
In recent months, geopolitical tensions provided an object lesson. Venezuela, a hyperinflation-hit economy, attempted to repatriate 14 tonnes of gold stored with the Bank of England. Pressured by the US government, the bank refused Venezuela’s request.
The case served as a reminder that you don’t really own something if it’s in someone else’s custody. It led crypto enthusiasts to project bitcoin as an alternative.
Venezuela just tried to withdraw $1.2 billion of their own gold out of the Bank of England.
They were denied this request by the bank.
If you don’t think uncensorable, unseizable money is going to become the standard, you’re absolutely nuts.
Long Bitcoin, Short the Bankers!
— Pomp 🌪 (@APompliano) January 25, 2019
Legendary cryptographer Nick Szabo further raised the issue of potential lack of trust between foreign central banks and other governments. Speaking at the Israel Bitcoin Summit held in January, Szabo said that central banks would likely resort to cryptocurrency reserves as a mean to strengthen their portfolios.
“There’s going to be some situations where a central bank can’t trust a foreign central bank or government with their bonds for example. […] One solution that’s been developed is to have the Swiss government hold it for you – that’s not a trust minimized solution. The Swiss government itself is subject to political pressures and so a more trust minimized solution is cryptocurrency.”
The Demons of Bitcoin
Nevertheless, bitcoin has its own demons to face before it positions itself as gold’s grim reaper.
The cryptocurrency, regardless of its decentralized status, remains a massively volatile and relatively unregulated asset. Why would a central bank treat bitcoin like a reserve asset when its value goes haywire every other day?
Big Four firm KPMG addressed that volatility in its November 2018 report, “Institutionalization of Crypto Assets.” The firm wrote that institutional adoption was the key to bringing more trust and scalability to bitcoin.
“More participation from the broader financial services ecosystem will help drive trust and scale for the tokenized economy and help the crypto market grow and mature,” declared KPMG chief economist Constance Hunter.
Thankfully, that adoption at least appears to be coming, slowly though it may be. Consequently, Brandt’s bullish $67,193 price target remains achievable despite all the hurdles.
Just don’t expect central banks to dump all their bitcoin for gold.
At least not yet.
Disclaimer: The views expressed in the article are solely those of the author and do not represent those of, nor should they be attributed to, CCN.