Think Bitcoin (BTC 0.83%) is too expensive after the latest run? Think again. There's one simple metric that proves BTC can still be a buy.
Always track Bitcoin's valuation versus physical gold
In the early days of crypto, Bitcoin was often dubbed "digital gold." This nickname allowed investors new to the crypto space to understand what kind of asset Bitcoin represented. While Bitcoin has developed greater utility over time, arguably its biggest source of value remains its status as digital gold. That is, there is only so much gold or Bitcoin that can ever be mined, and society has agreed that it is a scarce asset that generates value simply by being itself.
Image source: Getty Images.
Few assets are ever worthy of becoming a type of digital gold. That's because most digital content can be copied and replicated easily by anyone, undermining its status as a scarce, finite asset. Bitcoin, however, was cleverly designed so that no centralized entity controls its output, yet no individual can create more Bitcoins in an unauthorized way. This challenge was known as the Byzantine Generals Problem, and Bitcoin's novelty is that it solved this paradox through unique programming rules.
Right now, gold's market cap is around $25 trillion. Even after its latest run, however, Bitcoin's market cap remains well under $3 trillion. There's around 1,000% in potential upside to go based on Bitcoin's relative valuation to gold alone. That assigns no value to Bitcoin's ability to operate as a means of payment or a platform for decentralized finance applications.
For long-term holders, Bitcoin is far from reaching its ultimate potential.
