Bitcoin Volatility and Gold
Many observers have stated that the seemingly non-ending rise in the value of Bitcoin has diverted a significant amount of investment dollars away from gold as a perhaps better form of wealth protection and accumulation.
This is despite gold’s record over thousands of years as an excellent safe haven against currency depredations through war, plague, famine, inflation and economic collapse, to name but a few.
Others have considered the rise of Bitcoin as a total economic illusion and the epitome of an investment bubble – and I put myself in these latter ranks – but I have certainly been proved wrong.
Over the years Bitcoin has been in existence, it has gone through various growth phases and collapses, although so far the latter have proved to be relatively temporary in duration. The price of a single Bitcoin has, over a matter of around five or six years, achieved an enormous growth in value and made huge fortunes for those who have exited and got their buying and selling timing right.
A BTC Bitcoin has risen to over $60,000 at one time, but for an asset that has nothing behind it but computer code, one can easily understand Bitcoin skeptics.
These include some well-known economic brains out there, who consider it a total financial anomaly verging on a scam. It has also, in a somewhat worrying contrast, attracted some proponents who have dubious past financial histories.
In many ways, Bitcoin could be considered a gigantic Ponzi scheme. As long as buyers pour money into it, its price will keep on rising.? Indeed some seemingly astute financial brains, who are not necessarily dishonest in expressing their financial views, have touted an almost infinite price potential for Bitcoin and other cryptocurrencies.
However, I have been brought up to believe in the old, and well-proven, adage that if something seems to be too good to be true, it almost invariably is, and I would place Bitcoin firmly in this category.
Bitcoin can be prone to enormous short-term value swings, as it did recently, when it saw its price almost free falling down to the low $40,000s.
OK, still a huge price for what is effectively a piece of code on a computer, but also around $20,000 short of its peak of less than a month earlier. It has since bounced back, but remains prone to similar meltdowns as we have seen in the past. The latest meltdown is one of several this year.
Bitcoin is often promoted, among other things, as a wealth protector, but in truth it could be considered a gamble on its continuing price rise. There are plenty of ‘pundits’ out there who will tell you it is poised to rise to unimaginable heights.
However, some of these will have vested interests of some kind or another in trying to persuade you to put some, or even all, of your accumulated wealth into cryptocurrencies. But, it is sometimes difficult to separate these from the true honest believers in the crypto universe.
Gold, on the whole though, is less prone to wild fluctuations in value. It may be going through a weakish phase at the moment (perhaps a good buying opportunity?), but even in its worst temporary price collapse has never fallen by near 20% in a single day, or 30% in a month.
Gold, in contrast to Bitcoin and other cryptocurrencies, has stood the test of time. Even in its darkest days gold retains some value. . Bitcoin may not be able to say the same thing in the midst of a global financial collapse.
So, by demonstrating its vulnerability to enormous rapid price collapses, as happened recently, Bitcoin may have generated some doubt among the crypto faithful. Gold may not have the potential to make you super-rich, but it does have the attribute of helping to protect what you already have. In 5,000 years, we will see if Bitcoin can say the same.
by Lawrence Williams
Lawrence (Lawrie) Williams is a highly regarded London-based writer and commentator on financial and political subjects, specializing in precious metals news and commentary. He graduated in mining engineering from The Royal School of Mines, a constituent college of Imperial College, London. He has contributed articles on precious metals to the Financial Times, Sharps Pixley, US Gold Bureau and Seeking Alpha among others.
The opinions expressed in this article are the author's own, do not necessarily reflect the opinions or views of Rosland Capital LLC or its employees, and do not constitute financial or investment advice or recommendations from the author or Rosland Capital or its employees. The author is compensated by Rosland Capital for his articles.
