Marc Cuniberti: Has Bitcoin removed some of gold’s luster?
January 28, 2018
Gold has many functions, both industrially and monetarily. In industry gold has many unique properties, among them are extreme corrosion resistance, durability, malleability, conductivity and it obvious quality of beauty.
Gold serves as an electronic component, has medicinal qualities, is used in jewelry and some even claim has magical qualities. As a monetary alternative, it has had few equals.
Many paper currencies were backed by gold, based on gold, or tied to gold in some way or another. Even mighty governments including ours stockpile gold for monetary and economic reasons.
Many investors perceive gold as the only real money and it is said a gold coin in your hand is the ultimate in isolation from currency printing governments. Gold is bought in times of fear, both economically and otherwise and it has been considered a viable diversification in many portfolios.
Gold pays no interest in its physical form. It is also no one's promise to pay as is a paper currency.
Gold is recognizable worldwide and can be said the only thing enemies will trade with each other. It can't be printed at will by governments so it is immune from monetary inflation, which is inflation brought on by the over printing of a currency. Think Mexican Peso.
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Gold basically has filled a need for those who distrust governments and monetary authorities who can print up dollars at will and possibly destroy or at least erode the purchasing power of those holding such currencies. Not to say gold doesn't have its risks.
All investments can be said to bear some risks, whether they be from organic supply/demand initiated risks, the risk of government interference, interest rate or general market risks but to name but a few. Gold has had wild swings in price in its history and the U.S. government among others have even made its possession illegal in the past. But golds unique qualities as thought of by some to be the panacea of wealth preservation over the centuries have held the steadfast belief there is no substitute. That was until cryptocurrency arrived.
The arrival of Bitcoin
Since Bitcoin and the other forms of cyber dollars have become a viable alternative, at least in its availability, some have begun to question whether gold will be superseded by the idea of cloud based wealth vehicles.
Indeed the market for "cryptos" as I call them, have challenged gold in sheer size and popularity. More people I know own cyber dollars in one form or another then own gold, or at least in recent months it seems that way. Certainly the interest in cryptos has exploded and one could say into a mania like frenzy.
Indeed the chart for certain cyrptos like Bitcoin have an eerie resemblance to other boom/bust trading patterns in the past.
The idea of the crypto is that no one government can control them. The mathematical algorithms that make up crypto creation (some call it mining as in the mining of precious metals) exists on millions of computers everywhere which means it is virtually indestructible.
That may also mean trading it is virtually unstoppable but governments can and have put a stop to anything that threatens their ability to control economic structures. That is not to say it is a safe store of value, which is a critical quality of any monetary instrument of exchange. One only has to look at a price chart of the various cryptos to see their prices are anything but stable.
But the perception of a cyber dollar floating around that people think can't be "shot down" has proved enough of a catalyst to garner millions of investors to trade in billions of dollars of sovereign currencies for a version of a crypto.
No doubt massive profits have also contributed to their popularity but that in itself has proved fatal to many an investor who bought something because it was skyrocketing in price.
The idea remains however that cryptos may hold similar characteristics to gold in many an investors mind. The government conspiracy groups are an obvious customer of the crypto as well as those techies who finally have an investment that is right up their "alley" sort of speak.
Cryptos indeed could steal some dollars away from gold market and how many dollars buy cyrptos instead of gold remains to be seen. But in its truest form, cryptos do offer an interesting alternative to the reasons people hold gold.
Whether the crypto market behaves itself, acts reasonably and truly offers a store of value in the long run however remains to be seen.
Right now, its wild price swings should at least be cause for concern for those investors thinking this is as safe as it gets. The price charts certainly are likely saying something quite different, at least to this analyst.
This article expresses the opinions of Marc Cuniberti and are opinions only and should not be construed or acted upon as individual investment advice. He is an Investment Advisor Representative through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. He can be contacted at MKB Financial Services 164 Maple St #1, Auburn, 530-823-2792. MKB Financial Services and Cambridge are not affiliated. His website is http://www.moneymanagementradio.com. The indexes detailed may not be invested in directly. Please consult a qualified investment professional before making any investment decisions.