The MSCI All Country World Index jumped above 456 points. Thus, the capitalization of the global stock market has grown to $50 trillion. This index includes shares of 23 countries in the developed world and 23 countries in the developing world.

Capitalization of the global stock market (trillion dollars)

Source: Twitter David Ingles

Of the $50 trillion, about $20 trillion comes from the American stock market, equivalent to 40%. At the same time, the nominal volume of US GDP at the end of 2016 amounted to 18.9 trillion dollars or 26% of the world economy. That is, the United States still remains the financial capital of the world and neither Great Britain nor China have yet come close to them.

Warren Buffett's famous indicator indicates that the value of all American companies is about 125% of GDP, which is 4 percentage points lower than it was in the first quarter of 2015. It turns out that, despite the fact that American indices are churning out record after record, they still have room to grow.

Warren Buffett indicator

Source: Federal Reserve Bank of St. Louis

Summary from Invrstbrothers

Let us recall that during the era of the .com bubble, the value of all US companies was one and a half times greater than the volume of the American economy, after which it collapsed to 70%. Since the beginning of the 2000s, the Buffett Indicator has been at a level of 100% of GDP, which is clearly less than today’s indicators, therefore, in our opinion, investing your money in American indices is quite risky; it is better to find interesting corporate ideas that are still present on the market.

If you sum up the stock prices of all the companies in the world, you technically get the market capitalization of planet Earth. So, in just a few months, the capitalization of the world stock market soared to $80 trillion, and continues its systematic movement towards the $100 trillion mark*.

The main points are:

• The capitalization of the global stock market exceeded $80 trillion;
• Such a long “bullish” trend – almost 9 years – took place even before the “Great Depression”;
• Goldman Sachs is convinced that the overall dominance of the bull market is nearing its end;
• According to Goldman Sachs, in the medium term the market securities We can expect both a protracted crisis and a sharp collapse.

World market capitalization

What's troubling about this rapid progress is that the growth line has been steadily rising throughout 2017. Up to this point, global market capitalization had been like any other stock index: a series of gradual price increases over time, with a pronounced collapse during the 2008 financial crisis and subsequent economic recovery.

In 2017, the graph looked like a straight line moving upward without deviations.

In the medium term, either a protracted crisis or a sharp collapse is expected

International analyst Christian Müller-Glissmann and his colleagues at Goldman Sachs believe that the overall dominance of the bull market will soon end: “Average quantile valuations of stocks, bonds and loans are the highest since 1900,” they write, and this will lead to two most likely scenarios: protracted crisis or sudden collapse stock market, which leads to the arrival of a bear market.

They base their analysis on a 60/40 investment portfolio, meaning 60% of the investment is in the S&P 500 index and the remaining 40% in government bonds—a typical mix found in private pension funds, mutual funds, and also for a 401(k) retirement plan. In other words, these are the type of investments you're likely to rely on in retirement. Government bonds are commonly used as a security hedge because when stock prices fall, the bonds often retain their value.

“The current quantile estimate most closely matches the indicator of the late 20s, which ended with the Great Depression.”

This long rise since 2009—nearly 9 years—follows the same pattern that occurred just before the Great Depression of the early 20th century, and the Goldman Sachs team says:

“The favorable macroeconomic backdrop has boosted asset returns, leading to a broad-based bull market, both due to and despite inflation real economy was insignificant. As a result, relative to previous years, the value of all types of assets has increased, which leads to a decrease in the potential for profit and diversification, in addition, inflated values ​​increase the risk of drawdowns simply because the buffer that absorbs market shocks is reduced. The average quantile valuation for stocks, bonds and loans in the United States is 90%, an all-time high. While stocks and debt were more expensive in the tech bubble, bonds were comparatively attractive. The current quantile estimate most closely matches the indicator of the late 20s, which ended with the Great Depression.

This is what the historical perspective looks like:

Critics of cryptocurrencies argue that this market is built on sand and does not have a solid foundation to support incredibly inflated prices. But the tokenization of gold led to the emergence of gold-backed cryptocurrencies. The emergence of real value in digital coins cuts the ground from under the feet of critics.

The cryptocurrency market is experiencing rapid growth. The price of Bitcoin has already broken through the $7,000 mark, andcosts more than $300 with a capitalization of about $30 billion. You can also remember Ripple and other cryptocurrencies that have emerged in different parts of the world.

Considering the latest advances in blockchain technology, it is safe to say that this market has a bright future ahead of it. Individuals, corporations and even governments of some countries are showing keen interest in the opportunities offered by the cryptocurrency market. Indeed, cryptocurrencies have literally burst into financial markets, and many experts see them as the future of payment systems.

Lack of material value of cryptocurrencies

But critics of cryptocurrencies argue that there is no real basis to support such inflated prices. The market capitalization of Ethereum is around 30 billion, and Bitcoin is over 100 billion US dollars. This is more than the market capitalization of such powerful global corporations as BHP Billiton, Morgan Stanley and Goldman Sachs.

Most opponents of cryptocurrencies becoming the main means of payment in the future base their arguments on the fact that this market there is no single regulator. Others believe that this market will soon collapse as cryptocurrencies have no material value.

In the case of traditional currencies, central banks hold gold bullion reserves, economies, and other valuable assets that are designed to support the value of the respective country's currency. All this gives paper currency material value. Bitcoin does not have this, and critics believe that the price is dictated solely by supply and demand.

However, the technology on which cryptocurrencies rely has made it possible for other digital assets to emerge. One of the most interesting examples of recent years can serve as marking of gold bars. Traders are now able to trade gold tokens just like any other cryptocurrency.

But the most interesting thing about this is that this marking of gold contributed to the development of the cryptocurrency market. Gold has long been an important instrument financial market, and investors have the option of trading it through gold-linked exchange-traded funds.

Now the cryptocurrency market, usingand the structure characteristic of “gold” ETFs, can offer investors new trading instruments called gold-backed cryptocurrencies.

It is quite natural that the popularity of the latter is steadily growing, and even many critics of cryptocurrencies have paid attention to them. Those who argue that the rapid growth of quotations in this market is not backed by material value are missing their main argument, since gold-backed cryptocurrencies such as GoldMint, ZenGold and OneGram do have such value.

For example, in the case of OneGram, each token is backed by one gram of gold, which is stored in a vault located in the duty-free area of ​​Dubai Airport. The same scheme is used in ZenGold, and GoldMint, based on a private blockchain, issues tokens backed by physical gold or exchange-traded funds at the current market value this metal.

The emergence of gold-backed cryptocurrencies means that these trading instruments are gaining material value. And this fact can push even critics to.

Conclusion

Theoretically, the price of gold and all digital currencies depends on the value of various national currencies. But in practice, the main basis for valuation is the US dollar. The price of gold and cryptocurrencies, expressed in a particular fiat currency, depends on the strength (value) of that currency. Therefore, many experts consider gold and cryptocurrencies as two parallel instruments in which they can either invest or trade.

However, now, with the advent of gold-backed cryptocurrencies, the situation is changing. Both possibilities are combined into one unique tool that is suitable for both gold and cryptocurrency supporters.

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The total market capitalization of the cryptocurrency market recently exceeded $300 billion. This figure is both inspiring and frightening.

The world of digital currencies, which emerged less than a decade ago, has grown astronomically in a short period of time. The rapid growth of new cryptocurrencies in the wake of the ICO boom has interested investors all over the world. Thus, in 2017 alone, Bitcoin soared from $800 to almost $10,000. There is a month left until the end of the year, and Bitcoin has a chance to outpace the most daring forecasts of analysts and set a new record .

So it turns out that Bitcoin is the most impressive asset that is preparing to take over the world? You can look at the cryptocurrency market with fear, but you can approach it soberly and understand that Bitcoin is only at the very beginning of its development. For now, Bitcoin is a small fish.

Cryptocurrencies vs gold

If you compare the $300 billion capitalization of the cryptocurrency market with the commodity asset market, it immediately becomes clear that digital currency is still splashing in shallow waters.

Gold, which Bitcoin is supposed to compete with, has a market capitalization of $6 trillion. In addition, we must take into account that only a fifth of gold is traded on the market as investment product, the rest is in the form of jewelry, and is also in government storage facilities or still underground.

Thus, capitalization investment gold– about $1.2 trillion. Considering that the value of all gold is just over $7 trillion, about $1.6 trillion is used for private investment, which is more than 5 times the total capitalization of cryptocurrencies.

Let's take a closer look at the investment markets. Stocks, another investment asset, have a market capitalization of $55 trillion; another $94 trillion in mortgage securities (securitization) and $162 trillion in residential real estate.

Bitcoin is not overpriced

Of course, the price of Bitcoin is breaking records in speed, but the capitalization size is low compared to the global market. Looking at the capitalization of various investment-related areas, it is difficult to call Bitcoin a bubble. The cryptocurrency market is only 0.3% compared to the total market for real estate, securitized debt, equities, commercial real estate, farmland and gold.

Based on the above indicators, Bitcoin and other cryptocurrencies can hardly be called a huge bubble.

When it comes to bubbles and overvaluation, investor and ardent Bitcoin supporter states:

“There is now $200 trillion in the world - in cash, stocks, bonds and gold. These four assets are overvalued in my opinion. If 0.5% of that $200 trillion is in Bitcoin, you will have a capitalization of $1 trillion, which will be higher than Apple Computers, the most valuable company in the world.”

To compare Bitcoin with all the money in the world, let's turn to the infographic prepared by the site.

Since 2009, Bitcoin has come a long way and overcome many obstacles. Bitcoin's price has skyrocketed, and its market capitalization at the time of this writing is estimated at $41 billion, equal to Google co-founder Larry Page's net worth.

Bill Gates, the richest man on Earth, has money like Larry Page along with Bitcoin.

Bitcoin equals Morocco

“Bitcoin is the Uber of cryptocurrency - the biggest, coolest and most famous, but not the only one. Add Litecoin, Monero and everyone else to it and you get the total volume virtual money, wandering on the Internet, where neither governments nor banks can reach them. This is no less than 100 billion dollars. This is the same as the GDP of Morocco, the 60th largest economy in the world,” notes Raoul Amoros.

Today, information technology companies dominate the market like never before. Giants such as Amazon ($402 billion) and Apple ($730 billion) equaled the GDP much more large countries, for example, Nigeria and the Netherlands respectively. Apple's monetary valuation is 18 times Bitcoin's market capitalization.

“Let's zoom in. The amount of money in dollar bills and coins circulating in the world is $1.5 trillion. This number is 36 times the market capitalization of Bitcoin.”

Unlike money that is not backed by metal reserves, gold plays an important role due to its scarcity. Gold was the basis of money from the beginning of history until the 1960s. According to the latest estimates, there are 171,300 tons of gold in the world, which is valued at $8.2 trillion. This is the market capitalization of Bitcoin taken 200 times.

Let's get back to money, namely narrow money, which is valued at $31 trillion. Tight money is all the money in circulation (cash and money in accounts that can be spent). This value exceeds Bitcoin's market capitalization by 750 times.

Broad money is all types of assets that can be used to make payments or as a store of value. They are valued at $83 trillion, which is 2,000 times the market capitalization of Bitcoin and 2.5 times the volume of tight money. It becomes obvious that our financial system will collapse if everyone tries to withdraw money, which in theory should be easily converted into cash.

“If Bitcoin's faltering growth tells us anything, it is that people are losing trust in money and other traditional ways of measuring wealth,” concludes Raul Amoros. “Let's return to this conversation when the market capitalization of cryptocurrencies overtakes the world's gold reserves...”