It’s happened before, but this time it could be permanent: Bitcoin may be on the way to becoming more valuable than gold.
The cryptocurrency has been on an absolute tear since last April, climbing from $400 to its current price of approximately $1,1,50.
The reasons for this performance are complex, but come down to three main factors, experts say: U.S. inflation expectations and Chinese trading, and global political uncertainty.
In a December report, for example, Saxo Bank laid out a scenario whereby increased spending from the U.S. government, in the form of President Donald Trump’s professed desire to spend more on infrastructure, could cause the value of the U.S. dollar to fall and inflation to increase.
“If the banking system as well as sovereigns such as Russia and China move to accept Bitcoin as a partial alternative to the USD and the traditional banking and payment system,” they write, “then we could see Bitcoin easily triple over the next year going from the current $700 level to +$2,100.”
Most Bitcoin trading occurs on China-based exchanges or among Chinese investors. In a recent interview with Business Insider, Bobby Lee, the cofounder of one of China’s biggest bitcoin exchanges, BTCC, explained why the Chinese love the cryptocurrency.
“Chinese people lack a lot of opportunities to invest,” Lee told Business Insider. “Bitcoin is a high-growing, volatile asset class. In some ways, it’s a very ripe opportunity for day trading to make money.”
And there have been no signs the Chinese government plans to curb this activity in a substantial way. Officials recently reviewed Bitcoin activity in the country and decided to merely issue a warning about speculation.
Finally, political uncertainty is also causing the price of Bitcoin to soar. This has mainly come in the form of doubts about the future of the European Union and the viability of the Euro, especially in the wake of the Brexit vote. And if Euroskeptic Marine LePen wins France’s presidential election this spring, many believe she could bring about the end of the Euro project.
As a result of the event, Global Advisors Bitcoin Investment Fund (GABI) owner Russell Newton wrote in an email to investors that it is time for them to begin preparing for the “ultimate death” of the euro currency.
“If – or when – we see the break up of the zone and the currency, I believe bitcoin will fill some of the vacuum,” Russell Newton, a former JP Morgan trader who now owns the Global Advisors Bitcoin Investment Fund (GABI), wrote last summer according to Coindesk. “Bitcoin’s inverse correlation to weakness in fiat currency regimes around the world has been seen many times and very markedly in the run up to the Brexit.”
The price of gold, meanwhile, has been essentially flat for the past year.
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Gold trading remains a more traditional process, and in some ways more cumbersome one, given that it revolves around a physical commodity. Bitcoin, on the other hand, is entirely digital, making it easier to transact. It is also a currency that can be used to buy things, something not true of gold, and therefore inherently more valuable.
Of course, gold also trades on the same market forces as Bitcoin, like inflation speculation and geopolitical concerns. So even if Bitcoin does surpass gold, it may not be by much. And Bitcoin prices also remain subject to more extreme moments of volatility — the last time Bitcoin surpassed gold, it subsequently experienced a months-long price collapse. Most mainstream investment advisers still do not yet advocate heavily investing in it, let alone investing in it at all.
But we may soon be able to say that Bitcoin and gold are now permanently in the same league.