A rotation toward silver from gold appears to be undertaken by investors just as both reach fresh peaks, in a trend that mirrors previous altcoin cycles.
The same dynamic that drove investors toward NFTs and smaller coins during the pandemic-era crypto boom is currently playing out with gold and silver, according to Bitwise CIO Matt Hougan.
As the precious metals scale new heights, Bitwise CIO Matt Hougan told that investors appear to be rotating profits from one asset to the other in a way that parallels previous spillovers in crypto, where profitable positions were trimmed in search of greater gains.
“What you’re seeing in these other metals like silver is just a classic altcoin cycle in metals,” Hougan said. “They made money in gold, now they’re going out the curve.”
Gold and Silver Rally Create Massive Wealth Effect
With an estimated market cap of $34 trillion, the price of gold has surged 80% over the past year, creating massive amounts of wealth on its way toward $5,000 per ounce, while a 228% increase was recorded in the price of silver as it passed $100 per ounce for the first time on Friday.
A heightened propensity to spend is suggested by behavioral economics when investors feel wealthier—a phenomenon known as the “wealth effect.” The same principle is applied to markets, particularly regarding the tendency of investors to tap digital assets smaller than Bitcoin and gold, according to Hougan.
“In any bullish market, when you have that much wealth created, of course it’s going to spill over,” he said. “If you have a $15 trillion wealth event spill over into a $2 trillion market, the price goes parabolic, and then it spills over to what’s next.”
While silver’s market cap was situated below $2 trillion not long ago, the precious metal was worth an estimated $5.6 trillion on Friday, according to Companies Market Cap. Cobalt and Palladium are among other precious metals that have doubled in value over the past year.
A collective valuation of $453 billion is held by Ethereum, Solana, and XRP. These digital assets remain more susceptible to price swings than their $1.8 trillion counterpart, Bitcoin, which currently accounts for 58% of the market according to CoinGecko.
“In a bullish market, you make money on the main asset, and then you have this wealth effect that cascades,” Hougan said. “Eventually, they’d be buying EtherRocks, or really crazy NFTs.”
Four years ago, a payment of $843,000 worth of Ethereum was indeed made for a JPEG of a rock, according to OpenSea. Although the collectible is scarce, with only 100 ever created, it unabashedly lacks the utility compared to other digital assets, let alone precious metals.
Since the crypto market bottomed out in 2022 following the collapse of prominent exchange FTX, Bitcoin’s share of the crypto market has risen steadily from 36%. That period has been marked by the debut of exchange-traded funds tracking the spot price of Bitcoin and other digital assets, allowing financial institutions to gain exposure where it couldn’t be gained before.
While Bitcoin’s market share has long been utilized as a gauge for future altcoin seasons, the landscape has shifted significantly in recent years, as investors allocated to spot Bitcoin ETFs cannot always reach for an alternative on-chain.
In August, Ethereum reached a peak of $4,950, followed by a decline in Bitcoin’s dominance to 54% in October. Still, only three EtherRocks have changed hands within the past year, with the latest NFT from the collection being sold for $189,000 worth of ETH, according to OpenSea.
