Bitcoin’s meteoric rise
As the world’s first cryptocurrency, bitcoin (ARKW) (ARKK) has risen more than 1,000% in less than a year. Bitcoin breached $19,000 per coin on December 7 before returning to the $17,000 range. Bitcoin is backed by a network and miners, but it doesn’t enjoy the same guarantees as the US dollar.
While there could be increased interest from investors for bitcoin going forward, many still consider it an instrument of speculation rather than a method of value storage.
Bitcoin versus gold
Gold (IAU) as an asset is considered as a global store of value and can be converted into any currency. The same rule applies to cash, as it can be used as a medium of exchange and a store for value.
Bitcoin has similar properties, as it can be used as a store for value and appears to have a strong level of security. Its availability is scarce, and it should have a limited supply going forward with an expected endpoint of 21 million coins.
This trend suggests that bitcoin could be considered on the same level as gold or cash. Some market participants are concerned about gold’s demand if bitcoin catches the attention of more investors. Internet searches for “buy bitcoin” have overtaken “buy gold” in November, which indicates people’s increasing interest in the digital currency.
Gold versus bitcoin: Investment appeal
One factor that could separate the investment appeal of gold versus bitcoin is the level of volatility. While bitcoin is currently very volatile, gold is considerably less volatile and thus holds its investment appeal for investors looking for less risk in their portfolios.
While it is difficult to ignore the rallying prices of cryptocurrencies such as bitcoin, they belong to a very high-risk segment whose value is not completely understood yet. So, it has a long way to go before it can be accepted as a mainstream currency.
In the meantime, gold prices (GLD) and gold stocks such as Barrick Gold (ABX), Eldorado Gold (EGO), New Gold (NGD), and Yamana Gold (AUY) will be impacted by other factors such as the value of the US dollar and interest rates. We’ll explore these factors going forward.