In his 2015 book, The Untold Story of Bitcoin, New York Times journalist Nathaniel Popper, described the cryptocurrency as “digital gold” – perhaps because it prompted a gold “rush” of investors looking for somewhere more stable than the dollar to hide their cash; perhaps just because it’s a new but valuable asset.
The title of Popper’s book ended up sounding a little more prophetic than he might have expected, however, when the price of Bitcoin shot past every other asset, future, and index in late December and reached parity with gold at the beginning of 2017. That latter point is significant; no currency has ever approached bullion as far as value is concerned.
Satoshi Nakamoto’s cryptocurrency broke $1000 per coin for the first time since 2013 on January 2nd, for an all-time high value of $1,197 on January 4th. On the same day, the price of gold stood at $1,166 as a two-month collapse finally began to reverse itself (gold had fallen from a year-high of $1,366 in July).
In any case, at the beginning of 2017, Bitcoin became the first currency in history to topple gold as the most valuable commodity on earth. But why is something that has its roots in an email mailing list from 2008 suddenly the darling of the finance world – and what does Bitcoin’s newfound fame mean for the currency’s advocates?
Pizza
The obvious point is that anybody who bought Bitcoin several years ago and forgot about it is going to have a very happy new year indeed. The 10,000BTC spent on the first real life Bitcoin transaction back in 2010 (for two pizzas) is worth almost $9m today, for example, compared to a fraction of nothing at all back then.
There’s also the benefit of increased trust in Bitcoin as a currency. People don’t like to experiment with their money – but if the world’s finance moguls, people like Bill Gross of Janus Capital, think that it’s a safer bet than fiat currencies as far as investing and saving is concerned, then Bitcoin has at least the potential to become a household name in the future.
SoberLook: Chart: Bitcoin breaks through $1,000.
Happy New Year! pic.twitter.com/mftVTN4WCu
— Value’s Vector (@pulpmarkets) 1 January 2017
There are sectors that already have absolute trust in Nakamoto’s cryptocurrency though, with bitcoin casinos one of the most notable. Vegas Casino, for example, a brand that accepts Bitcoin exclusively, frames its entire business model around the currency, offering quick access to exchanges and even a 1000mBTC welcome bonus for new customers. This model enables the brand to treat its customers fairly regardless of locale, as they don’t have to factor in currency conversion rates.
It’s not just a gimmick; Bitcoin has a number of benefits over fiat currencies, including immediate, irreversible transactions, relative anonymity, and low transaction fees. Casinos operating in Bitcoin can also implant their random number generators into the technology behind Bitcoin (“blockchain”, another Nakamoto invention) in order to provide provably fair odds.
Brexit
Returning to Bitcoin’s surge in value, there’s evidence to suggest that significant growth in the price of the currency is a reaction to seismic political changes. For example, the price of Bitcoin grew 4.6% in the wake of Donald Trump’s election win because investors, worried that the dollar would pay the price of a Republican win, re-invested in Bitcoin.
The same happened after Brexit, when Bitcoin gained $100 overnight (the pound, in comparison, fell 10% against the dollar, its lowest value in three decades), and during an October 2016 low in the price of the Chinese yuan. China, where 80% of all Bitcoin transactions are made, according to Goldman Sachs, is arguably the biggest contributor to the currency’s overall value.
Finally, to answer the question in the title, Bitcoin beat gold partly because the latter’s value was spiralling but mostly because the cryptocurrency is viewed as a safe bet in uncertain times. The value of Bitcoin has dipped a little since the beginning of the year but the most optimistic outlets are predicting three times its current value under President Trump.
Brave investors could do a lot worse than invest in Bitcoin’s future.
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