The crypto currency Bitcoin has once again exploded to the upside, and is trading above $6,000. Bitcoin now has a market capitalization in excess of 100 billion dollars. This means that Bitcoin has a greater market valuation than American Express, United Technologies, Goldman Sachs and Morgan Stanley. This is an astonishing 500 percent rise year to date. This is particularly surprising since Bitcoin was invented only 8 years ago.
There are two extreme camps on the future of Bitcoin. Famously, JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said he would fire any employee trading bitcoin for being “stupid.” He went on to say, “It’s a fraud” and “worse than tulip bulbs.” In the other camp you have sophisticated and respected Silicon Valley billionaire Tim Draper of Draper Fisher Jurvetson (Hotmail, Skype, and SpaceX) who thinks bitcoin is “transforming finance”. Clearly the supporters are in charge today.
One of the characteristics that make Bitcoin attractive to some, is the same reason there is worry that governments will step in and regulate or stop the use of Bitcoin. Bitcoin can be bought, sold and owned anonymously. China which until last month had the largest activity in Bitcoin, closed all exchanges that traded Bitcoin. It did this since citizens were buying Bitcoin on an exchange with Yuan and then selling it, literally minutes later, to an individual or exchange in another country and getting different currencies. Hence, avoiding the regulations with respect to currency control.One would of thought, when the largest bitcoin market was shut down by the Chinese government, the price of Bitcoin would suffer. Instead within 48 hours it returned to its uptrend. The reason was Japan, which recognizes Bitcoin as legal tender, quickly after China’s decision, officially recognized 11 companies as cryptocurrency exchange operators. Today Japan is the epicenter of Bitcoin.
Bitcoin when used to acquire something may be considered a currency. Others view it as a store of value, such as gold. Bitcoin has been called digital gold. In fact, this week there will be a new digital currency called just that, Bitcoin gold. The distinction between Bitcoin and Bitcoin Gold are technical but the idea is that Bitcoin is a store of value like gold.
Gold is considered a store of value since its price in dollars is not extremely volatile and an ounce of gold buys the same amount of goods as it did a decade ago. It’s price in effect adjusts with inflation.
Bitcoin is a better store of value than gold. Bitcoin has certainly been a remarkable store of value in the sense that since 2011 it has only had one down year and is up in excess of 5000%. When you buy gold you need a certificate to confirm that it is real and you have to trust the party that issued the certificate. With bitcoin when you receive the coin the electronic network confirms the validity of the transaction and no individual or firm need be trusted. Gold can be counterfeited, Bitcoin cannot. To transfer gold one needs to literally move a heavy asset, obviously with bitcoin that is not necessary. The supply of gold is variably. Bitcoin’s supply is certain. Gold cannot be divided without a major industrial process. Bitcoin can be divided by typing on a keyboard. Gold has a cost to store. Bitcoin does not.
How valuable is an asset that can not be counterfeited, transferred almost instantly without the use of banks (third parties), has a predictable supply, can be divided into .00000001 units (unlike gold or any currency),costs nothing to store, and is only 9 years old ? The future is unknowable, and trees do not grow to the sky, but it is not exaggeration to say that Bitcoin is changing the financial landscape.