Gyokko is what you’d call a plot device. His role was to develop Muichiro’s character and show the importance of the demon slayer mark. His role was played out perfectly, but because of that, he seems incredibly weak. So, I’m going to break down his abilities and see if he deserves the Upper Moon 5 position.
To start, his base abilities include poison needles, the water vase, teleporting between pots and weird walking fish. Ignoring the walking fish because I don’t remember what they did, hundred, if not thousands of poison needles are being shot at a person, and even if their dose is lower than Gyutaro’s blood sickles, it would not be fun being stabbed by one. The water vase, which, mind you, had Muichiro, is pretty indestructible. The pots just make it annoying to kill him, like Nakime’s BDA.
Next is his true form. His main ability is that his fists turns what he touches into little fish. This might not look deadly, but imagine getting punched in the head. I did think he had Muichiro, but it turned out only his shirt got fished. Disappointing, but the plot demands him in the Infinity Castle. Other things include heightened speed and strength, and a body covered in scales as hard as diamonds. (You know what's stupid? He didn't think to add these scales to his neck. He could have made chain mail with them.)
So, should he be Upper Moon 5? The thing is, Gyokko vs Muichiro was never going to be a drawn-out fight. We were never going to get an epic, flashy battle. We were also never going to see him at full power because he was not taking that fight seriously. Similar to how Douma was not serious in either of his fights, Gyokko’s overconfidence and arrogance made it so he did not take Muichiro seriously. If he actually tried and made the battle draw out, we’d see more from him. However, getting defeated by a 14-year-old is never a good look.
And if we take the argument that marked Muichiro would not be able to kill Gyutaro alone (meaning that he should be Upper 5) because of the double beheading, doesn’t that also mean Hantengu should be Upper Moon 3 since he is infinitely harder to kill than Akaza? (Akaza might be skilled, but Hantengu is tiny and has clones, each with their own BDA. There are more chances for a Hashira who is alone and marked to kill Akaza than Hantengu.) Shouldn’t Nakime be Upper Moon 2, since when you’re fighting her, you’d be in her domain, where she has control over everything? It was shown it was impossible to kill her. As Obanai stated with Nakime, “her blood demon art isn't deadly, but it is annoying.” (Chapter 164) Nakime isn't shown to be a physically strong demon unlike Kaigaku, who is Upper Moon 6, and is by far physically stronger than Nakime. Yet she is two ranks higher due to her BDA. Because of this we can infer that the Upper Moon rankings are based on strength (hence Akaza being Upper 3 and Kaigaku being Upper 6) and blood demon art (hence Nakime and Hantengu being Upper 4), and not necessarily based on how hard they are to kill. Otherwise, Gyutaro, Daki and Hantengu should be way higher.
Gyokko has a more deadly BDA, and that's why he is above Gyutaro, because the water vase is by far more dangerous than the blood sickles and the obi sashes. Had Kotetsu not been there, Muichiro would have suffocated. The pots make it very annoying to behead him. Gyokko’s true form with his Midas touch is also more threatening than Gyutaro and Daki because with Gyutaro and Daki, I can block and defend, but if Gyokko touches my sword and turns it into fish, I am screwed.
To conclude, even if Gyokko is not physically more powerful than Gyutaro and Daki combined, his blood demon art makes up for it. From how deadly it can get to the sheer annoyance of trying to catch him, he deserves his spot at Upper Moon 5.