VanEck analysts suggest a “framework” to quantify the value of bitcoin and gold as potential reserve assets.

The US/Eurozone/Japan have gone “nuclear” in their economic war against Russia for its Ukraine aggression. Concerted and global sanctions on the Russian central bank have essentially wiped Russia’s dollar, euro, and yen reserves, and that’s the new money paradigm, according to an analysis by VanEck.

“Central banks are likely to change their reserve mix to the detriment of dollars (and euros and yen) and the enhancement of something else, to one extent or another,” write VanEck executives Eric Fine and Natalia Gurushina.

And that “something else” are potentially bitcoin and gold – because reduced demand for hard currencies as reserve assets would lead to new demand for alternatives “that can perform the original functions of these former reserve currencies.”

According to VanEck, if one agrees that a potentially new paradigm is afoot, there has to be at least an attempt at quantification of the potential values of the new reserve incumbents.

The key asset-price implication of the big change is significant upside in gold and bitcoin, as determined by a “framework” developed by VanEck for the purpose.

The framework uses global money supply as the basis for evaluation.

VanEck: Bitcoin could top $4.8 million

Using global M0 or the liquid flows in global money, the model throws up a value of $1.3 million for bitcoin.

However, that figures balloons to $4.8 million if the calculation is based on the combined total of M0 and M2 money.

“We only calculate a price for BTC, as opposed to a price for all cryptocurrencies, because there is a limit to the number of bitcoins that can be created (21 million), whereas the potential amount of “cryptocurrency” is infinite,” the analysts explain.

Gold could go as high as $31,000

Using the same model, the global price for gold using M0 is an average $31,000.

However, if M2 is used, gold could touch $105,000.

The authors of the study are careful to qualify that they are not recommending gold standards, however.

Qualification

The analysis admittedly reflects extreme values, according to the VanEck analysts. And these valuations have to be tempered by one’s own assessment of the likelihood of these events coming to pass.

“We need to remind investors to adjust the “extreme” scenario price downward according to their assumptions on the probability of that “extreme” scenario occurring.”

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