Gold Is A Worthy Role Model For BTC, Says BNY Mellon In A ‘Bitcoin Valuations’ Report
The bank says it is important to consider the value of an alternative currency, Bitcoin, in the current environment where “the intrinsic value of fiat currencies is increasingly being questioned.”
American investment banking giant BNY Mellon has released a report on Bitcoin regarding its valuation.
Just last month, the oldest American bank with $2 trillion assets under management (AUM) announced that it will now hold and transfer Bitcoin and soon cover stablecoins, CBDCs, and other digital assets as well.
Earlier this month, they invested in crypto custody startup Fireblocks amidst “very significant demand for digital assets.”
Titled “Blending Art & Science: Bitcoin Valuations,” this report talks about how to place value on an underlying unit of measure. “In today’s environment, where the intrinsic value of fiat currencies is increasingly being questioned, it is important to consider the value of alternative currencies such as Bitcoin,” notes the report.
Several senior research analysts then say that the bank believes “there is demand for Bitcoin/crypto currency.”
Because there are a few commercial transactions done with Bitcoin and no central banks have bought cryptos as reserves, conventional currency models can’t be used to evaluate it. As such, the bank’s analysts take the gold route, with which Bitcoin has “many similarities.”
“Indeed… gold is a worthy role model for Bitcoin,” states the report. And it is the “rarity value of gold that creates demand.”
Amidst numerous attempts to derive a valuation for Bitcoin, one is the net cost model; however, analysts argue cost does not set the price for Bitcoin.
Another method mentioned by the bank is the stock-to-flow ratio (S2F). Analysts called it “one of the more interesting valuation concepts…despite its flaws.”
The model gives an S2F ratio which is the current stock of a commodity divided by the flow of new production, which pegs a relative “scarcity” measure to something already well-received as an alternative currency and store of value. But the analysts also agree with the model critics that says supply doesn’t define the price.
While the “S2F model is elegant (and potentially flawed) in its simplicity,” another possible valuation model is the stock-to-flow cross-asset model (S2FX). In this model, the role of Bitcoin evolves from a proof of concept in the late 2000s to Bitcoin’s current role as a counter-fiat/uncorrelated asset.
“Valuation is more art than science” and “ultimately, Bitcoin valuation will likely be a combination of several models and be constantly evolving, especially as it gains mainstream acceptance,” concludes the report.