4 Questions That Investors Must Ask When Assessing Gold Prices and Bitcoin
There’s one question being asked everywhere you look. Could Bitcoin prices continue to go higher? In the midst of all this, gold prices are being ignored. Big mistake.
Investors paying attention to Bitcoin prices makes sense. Just look at the chart below and you will see why it’s so interesting. In the last two years, Bitcoin prices have soared close to 2,000%. This is a remarkable performance. If there’s something that history teaches us about investor sentiment, it’s that investors love to run toward assets that are increasing in value.
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Why are gold prices being ignored? The yellow precious metal has gone up just 10% in the same period. This is not exciting at all.
Chart courtesy of StockCharts.com
Every time I hear in the news about soaring Bitcoin prices, I ask four questions:
- Is Bitcoin really money?
- Is the current move sustainable?
- Could it overtake gold?
- Will it be around for the next 100 years?
Gold Has History, Bitcoin Has Volatility
As it stands, no government or central banks have fully adopted Bitcoin as money. They may be working with the technology that backs Bitcoin, but that’s all. So, it’s not money.
While we’re at it, here’s some food for thought. Bitcoin is deemed an alternative currency that is not controlled by anyone. The idea sounds good on paper, but will central banks and governments really be willing to give up control over printing their own currencies? Remember, Bitcoin has a limited supply, whereas fiat currency could be unlimited.
Central banks own gold. They trust in it and have been buying a lot of it. Gold has more of the characteristics of money than Bitcoin does for now.
As far as the current move in Bitcoin is concerned, you have to have a strong heart to own Bitcoin. Since the beginning of 2017, the cryptocurrency has dropped over 20% more than four times—from highs to low.
Gold prices have been relatively stable when compared to those swings in Bitcoin.
Also, an almost 2,000% move on the back of no real fundamentals is worth questioning. Could the currency continue at its current pace? With the Bitcoin price at around $6,000, for it to gain another 2,000%, it would have to increase to $126,000.
As for longevity, gold has an extensive history. Bitcoin is a fairly new phenomenon. If anything, the currency is in a price discovery phase and nothing more.
Gold Prices Outlook: Why the Yellow Precious Metal Could Be Worth It
I will be worried the day when a central bank comes out and says, “We are selling our gold and buying Bitcoin.”
Dear reader, there’s one thing I have learned over years: At times, markets tend to move beyond fundamentals. Investors sometimes take asset valuations to extreme levels and then eventually realize the mistakes they have made.
The U.S. housing market from 2004 to 2006 was a great example of this. We were told that home values can only go up. No one could even fathom the idea of home prices going down. These days, Bitcoin is regarded as something that could secure wealth and hold value.
To me, Bitcoin prices soaring is certainly exciting. I will not be shocked if Bitcoin soars even higher. But the gold prices not moving higher is even more intriguing to me. The yellow precious metal has solid fundamentals and remains severely undervalued, as I see it. I consider gold as something that could provide investors with solid gains and relative stability.
