As of March 2nd, 2017, one bitcoin is now worth more than one ounce of gold. The price of bitcoin recently made a new all-time high at $1,295, having doubled in just over 4 months!
We had anticipated that one bitcoin would be worth more than one ounce of gold at some point in 2017. However, the point of crossing parity occurred much earlier in the year than expected. Gold dipped below $1,240 yesterday while bitcoin spiked above $1,250. The gold price has continued to slip to the current price of $1,235, while the bitcoin price has risen to $1,290.
I remain very bullish on gold, silver and mining stocks. They make up the largest portion of my overall portfolio allocation and I expect spectacular gains from this sector over the next few years. I like junior mining stocks in particular as they can generate amazing returns if you buy quality companies before the market takes notice.
That being said, bitcoin has undeniably been the better performer. Gold is up 7% year to date in 2017, while bitcoin is up 32%. Over the past year, gold is down 3% and bitcoin is up 225%. Over the past five years, gold is down 30%, while Bitcoin is up over 25,000%. That is not a misprint – the price of bitcoin has soared from $4.92 to $1,280 over the past five years. This equates to a gain of more than 26X!
5-Year Price Charts for Gold and Bitcoin
Below are the 5-year charts for gold and bitcoin for comparison purposes. Gold went through a 4-year correction and appears to have bottomed during December of 2015, right around the time of the FED’s first rate hike in years. It corrected in the back half of 2016, but importantly it was able to establish a higher low on the chart. This was a bullish sign for gold and preceded another major rally to start 2017. Again, gold began its rally shortly after the FED raised interest rates by another 25 basis points. The 2017 gold rally is currently taking a breather and will likely continue to consolidate and correct in the near term. But we project much higher prices by year end and heading into 2018.
The bitcoin price chart shows an exponential move during late 2013 and early 2014, when the price rocketed from single digits to over $1,000. It went too far, too fast, and this move was followed by a sharp correction and consolidation that lasted roughly two years. As with gold, it is important to note that bitcoin established a higher low during 2015 and has since rallied to a new all-time high in 2017. Higher lows and higher highs on the technical charts are a bullish sign. Bitcoin is very volatile and we can’t rule out another major correction in the short term. But I believe that prior resistance around $1,000 will turn into support and that the price will head much higher over the next few years.
Winklevoss Bitcoin ETF Likely to Be Approved by March 11th
Do you remember these guys? The twin brothers are olympic rowers known for co-founding HarvardConnection (later renamed ConnectU). In 2004, the Winklevoss brothers sued Facebook founder Mark Zuckerberg, claiming he stole their ConnectU idea to create Facebook, and ultimately received $65 million. They were featured in the movie “The Social Network.”
The twins are now venture capitalists and huge investors of Bitcoin, claiming to own around 1% of all the bitcoin in existence. They are launching a Bitcoin ETF that may potentially be approved by the SEC next week, with a decision due by March 11th, 2017.
Traders appear to be positioning themselves ahead of the decision in expectation of approval. If approved, the ETF will open up bitcoin to a whole new class of investors. The flow of funds into the relatively tight market could send the price soaring and this is a major reason why so many buyers have entered the market lately. Of course, if the SEC rejects the ETF, a correction in the bitcoin price is all but guaranteed. I am a long-term holder that will buy any dip on this news and have bought nearly every dip over the past several years. I believe the price of bitcoin could eclipse $5,000 over the next few years.
Gold vs Bitcoin: A False Argument
I constantly see “gold vs bitcoin” article and arguments, which always pits the two forms of money as competitors. Like a football game, analysts then choose and a side and defend their position to the death. While I’m always game for some good competition, I submit to you that gold and bitcoin are complimentary investments that work well together in any portfolio allocation. Investors should consider owning both, with bitcoin at roughly half of your precious metals allocation.
Owning both allows you to better diversify your investments. Bitcoin gives you exposure to the incredible gains of bitcoin and allows you to easily transfer funds around the world for free. Gold provides a hedge against economic uncertainty, a safe haven that has been trusted money for thousands of years and gives you physical wealth in your hand with no counter-party risk.
Together, gold and bitcoin provide investors a way to move their wealth outside of the corrupt banking system, and government control. They provide a hedge against rampant inflation of fiat currencies, largely anonymous ownership and spectacular returns at a time when stocks, bonds and real estate all look very overvalued.
Ethereum Hits New Record High, Outpacing Gains of Bitcoin
While the gains generated from bitcoin are enough to make any investor’s mouth water, they are dwarfed by the emergence of a few other cryptocurrencies. Second in volume behind bitcoin is ethereum, which features faster transaction times and introduces smart contracts embedded within their blockchain technology.
Ethereum is often referred to as bitcoin 2.0. The software platform that enables not only Smart Contracts, but Distributed Applications (ĐApps) to be built and run without any downtime, fraud, control or interference from a third party. Ethereum is not just a platform but also a programming language (Turing complete) running on a blockchain, helping developers to build and publish distributed applications. Microsoft and other tech giants are embracing ethereum, investing millions of dollars and building projects using the ethereum platform.
The price for one ether, the ethereum coin, has moonshot from $7.98 to $19.50 year to date in 2017. That is a gain of 244% in just over two months, vastly outpacing bitcoin’s gain of 32%. Since the start of 2016, ethereum is up 2,150%, compared to bitcoin’s gain of 300%.
Lastly, the top performer amongst the major cryptocurrencies lately has been Dash. It has doubled in the past week alone. The price of dash started the year at $2.87 and is currently trading at $48 for a gain of over 1,600% or 17X in two months. These are perhaps once-in-a-generation wealth-making opportunities. While most investors would be happy with an annual return of 10%, cryptocurrencies are generating returns in the hundreds or thousands of percent.
How to Acquire Bitcoin and Ethereum
I believe the simplest way to buy Bitcoin and Ethereum in the United States is via coinbase.com. They are based in San Francisco, regulated by multiple states, include the New York Stock Exchange and USAA amongst its investors and they allow you to deposit and withdrawal funds to/from your bank via ACH just like any brokerage account. Use this link when opening an account and we both get $10 in free bitcoin!
Coinbase does not have Dash on their platform yet, but you can easily exchange bitcoin or ethereum for dash on other exchanges such as Poloniex or Kraken.
Investors can also get exposure via the Bitcoin Investment Trust (GBTC). It is up over 140% in the past year, but has once again climbed into overbought territory. The premium has been declining in anticipation of the new Winklevoss Bitcoin ETF. This new ETF should provide greater liquidity and lower fees if it is approved, so you may want to wait for the SEC decision.
The Bitcoin ETF will also trade on the major exchanges, whereas GBTC trades on the pink sheets. The bottom line is that approval of the Bitcoin ETF should open the doors to new investors and increase demand, but like the SPDR Gold Trust ETF (GLD) did when it came out in late 2004. The share price of GLD quadrupled in the six years following its launch.
No matter how you decide to get exposure, keep in mind that prices are very volatile. You might want to consider waiting for a dip or buying in tranches over time to ensure that you don’t go “all in” at the wrong moment. I know that digital currencies are not for everyone and long-time gold bugs have a hard time getting onboard with a currency that you can’t touch or feel. But these currencies have real utility, are revolutionizing the financial technology sector and are strictly limited in supply similar to gold. If adoption continues to grow and new supplies slow towards zero, economic fundamentals dictate much higher prices on the horizon.
Consider the Risks
Of course, higher levels of return are almost always accompanied by higher levels of risk. But in this case, I believe the potential returns far outweigh the risks. Digital currencies have suffered setbacks from hackers, but have usually found ways to remedy those issues. There has been fraud on various exchanges and theft from hackers, but you can limit that risk by storing the coins on your computer or better yet in a hardware wallet or cold storage.
There are also horrific stories of people that lost millions of bitcoin stored on their computers when the hard drive crashes, but that risk is simply mitigated via backing up your drive. Lastly, various governments have attempted to control or limit access to cryptocurrencies, including China, Russia and the U.S. But they are always one step behind, as tech-savvy free-market investors find ways around government controls.
I would personally never invest more than I could afford to lose without devastating my financial future. If you double your money, which you could have done in the past few weeks with Dash or the past few months with Bitcoin or Ethereum, you can always take a “free ride.” This means that you sell half of your holdings to recoup your original investment and then allow the remaining 50% to ride risk free.
Gold and Bitcoin Research in One Newsletter
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