Digital Dough — Bananas for Bitcoin!
One bitcoin is worth twice as much as an ounce of gold. That’s fuckin’ cray.
Crypto-currencies keep on soaring. But for how long?
Cheerleaders of bitcoin, a crypto-currency, have long labeled it digital gold. Those wacky Winklevoss twins (Cameron and Tyler) have even tried to underwrite an ETF that tracks the digital dosh. Continuing its exponential rise, and adding more than 30% to its value in just a week, one bitcoin is worth about $2,600, over twice as much as an ounce of gold. As VIVISXN’s finance desk was writing this all bitcoins in circulation were worth over $43 billion — that’s bigger than the entire market cap of GLD, a phat stack index that tracks the yellow metal. A sum of $1,000 invested in bitcoins seven years ago would now yield nearly $36 million. Other crypto-currencies are also on the ascent: collectively they soared above $87 billion. But if the history of gold (that “barbarous relic“, as Keynes called it) is any guide, what goes up will inevitably crash — and then gap up again. Welcome to the worlds of virtual vertigo and speculative hysteria — the same kind we saw during the tulip-mania, the dotcom boom and periodic ‘gold manias.’
Bitcoin is on a breathtaking tear. The crypto-coin’s price surged exponentially this week, hitting a fresh high of nearly $2,800.00; one weightless bitcoin is now dearer than two ounces of gold. Competitor currencies such as Ethereum, Ether, Zcash, Litecoin and Ripple have gone parabolic too. WTF? Theories abound. An influx of Japanese and Korea investors may be partly responsible, after Japan’s recent backing of virtual FX as legal tender. In 2016 more than 80% of bitcoin trades were in Chinese RMB, but about half are now denominated in yen. Another factor is the rise of “initial coin offerings” in which startups raise capital by minting new kinds of crypto-currency and selling them for existing ones. That has driven demand for existing coins (Ether’s price has rallied 100% this week alone) and encouraged more speculative trading in the irrationally exuberant crypto complex.
Fundamentally, there is the general perception that government-backed fiat currencies will have to be greatly diluted in the future so that systemic debts (think China) can be serviced and repaid. That means savers will migrate to money forms with capped floats, like gold, bitcoin and other fixed forex. Institutions like JPMorgan and Fidelity have made announcements this week about their adoption of crypto-currencies, while 86 systemically important firms including securities clearinghouse DTCC joined the Ethereum Enterprise Alliance (rumors were also swirling that banks are seeking to hoard the crypto-currency in case hackers demand ransom payments). Note: access to bitcoin takes only internet connectivity, it is free to store, and there is no need to hide it traveling across borders. Bitcoin, itself or as a proxy for all crypto-currencies, is quickly becoming a more reliable and accessible store of value for 5+ billion people across the world residing in economies without major currencies, strong central banks or stable pegs. Finally, this could just be an old-fashion bubble, as the surge brings in more buyers, driving the price further skyward. Like the cryptographic algos that underpin the digital currencies, it’s a brain-bending (mathematical) puzzle.
At VIVISXN, we are forecasting more upside volatility in the short-run (bitcoin will top $2,800 soon), and then experience a precipitous plunge in mid-June. If you’re interested in trading/investing in crypto-currencies, open an account at COINBASE. Also, wise up and watch this doc on blockchain technology, the protocol, code and settlement mechanisms behind digital FX and distributed ledgers.
VIVISXN – Finance + Tech + Culture