Bitcoin is on a tear-away rally. Its performance over the last year has been outstanding and it has outperformed most asset classes by a wide margin. It is probably the only asset class that beats both gold and silver in 2016. Why is it soaring?
People look at alternate asset classes when their confidence in traditional assets fades. Since the beginning of the year, both the stock and the commodity markets have been on a roller coaster ride, catching both bulls and bears on the wrong foot.
The world's macroeconomic situation does not give confidence to the astute investor, as evidenced by the return of legendary investor George Soros, who has come out of retirement to short overblown markets. Similarly, other hedge-fund managers are stocking up on gold, which supports our view that a ‘financial crisis’ is right around the corner.
The Brexit results have also opened up a possibility of another round of easing by central banks around the world. The Bank of England will most likely resort to an easing schedule during the next meeting, which will be followed by the European Central Bank and the Fed. Japanese Prime Minister Shinzo Abe is likely to push the Bank of Japan to announce another round of easing.
Since the last financial crisis, the combined central banks have pumped massive amounts of money into the system and they continue to do so at a rapid pace.
The Fed’s money-printing policy had led the commodity Guru Jim Rogers to remark: “The FED will continue to print money until there are no trees left in America.”
Bitcoin is doing the opposite of central banks:
Compare this with the cryptocurrency bitcoin. Unlike the traditional currencies, bitcoin has an upper limit of 21 million coins, after which no more bitcoins can be mined.
Every subsequent mining will become difficult and will reduce the reward associated with mining each block. Satoshi Nakamoto programmed that post-mining of 210,000 blocks, the rewards will be halved.
Initially, the reward was 50 bitcoins for every block, which was halved by the end of2012, at which time the reward was reduced to 25 bitcoins per block.
The next round of halving took place, last week, when the rewards were reduced to 12.5 bitcoins per block.
While the central banks have been on a printing spree, the bitcoin is on a tightening route, which boosts its price, as is visible in its sharp rise, this year.
A few miners will find it difficult to continue mining at the halved rewards, which is likely to slow down new mining as halving will continue, in the future.
"The block halving will dramatically decrease the bitcoin being added as we approach 75 percent of all bitcoin issued. People understand that in this world of ever expanding assets and printing of money, we have something that's fixed and limited in issuance. It gives a decent alternative for people who want to hold assets that can have sustained purchasing power," stated Bobby Lee, Chief Executive of BTCC which is one of the largest’ bitcoin’ exchanges, in the world, based in China reports CNBC.
I recently watched a fantastic TEDX talk on bitcoin and digital currencies and how they are changing the world, financial systems, and lives in huge way, and this is only the tip of the iceberg. This TEDX Talk makes so much logical sense why bitcoin and other currencies are so important for us as individual’s – Watch Video
However, bitcoins’ volatility has dropped dramatically over the past few years with the lowest linear level of volatility seen since is this asset class started. It has become easier to use for trading, purchasing and using for purchases. I am presently only highlighting that readers will do well to keep an eye on ‘Bitcoins’ and other crypto/digital currencies, along with gold and silver.
In fact, I have been researching the digital wallet solution where I can purchase many up and coming digital currencies within one location as a NEW ASSET class for my portfolio. Why? Because I firmly believe the masses will slowly migrate their money into various digital currencies a safe haven store of wealth and for ease of use. Payments can be made with your mobile phone to anyone, anywhere in the world and for any amount with ZERO fees/costs, and in many cases it cannot be traced.
Sir John Templeton, the legendary mutual-fund manager and founder of Templeton Group, said:
Invest in many different places – there is safety in numbers.