Do Bitcoins Stack Up Against Gold?

April 11, 2013 | By | Reply More

If you are among the increasing many that are losing faith in fiat currencies such as the US dollar, the Euro or the GB Pound and have some cash stashed in a bank, you have to be thinking of the alternative ways of preserving your wealth.

Once safe assets like investing in property were and may still be worth consideration, especially as prices appear to have stabilised or even increased a little. The downside to that is if things turn rough, back to 2008 or worse, you will be unable to realise your investment unless you are prepared to take a loss. Of course there is always the rental income but that has its own built in dangers. Most investors in this situation will eventually think of gold or silver once they have bailed out of bonds, which of course will plummet with the currencies supporting them.

But today there is a new player on the block, bitcoins! So how do bitcoins stack up against gold?

Gold still in its Long Term Uptrend

So how do bitcoins stack up against gold ? Right now gold is in the doldrums, stuck in a twilight zone between $1560 – $1580 an ounce. Daily the analysts from banks in the western countries are lowering their price projections for the yellow metal, quite a number declaring that golds’ bubble is bursting on the presumption that its high of $1800 an oz was achieved less than a year ago.

This point of view is encouraged by their central banks as gold is perceived as the enemy to the Keynesian economic theories embraced by the politicians and their paymasters, the banksters. No banks, central or otherwise, from the so called developing nations, the BRICs or oil rich middle eastern nations are likely to contradict this point of view as they are busy stocking up on gold while the going is good, and all the while getting rid of their dodgy dollars. Yet gold still has has not broken down out of its long term uptrend !

Bitcoins Are Out of Reach of Governments

Bitcoins on the other hand, are going up hand over fist. The digital currency has a lot going for it. It allows for the instant transfer of money for free and transactions are untraceable and irreversible. Like cash but unlike credit cards, they are not identifiable to the individual. As such it is ideal for laundering black money. Bitcoins are becoming recognised as a safe haven for those who wish to get their money out of banks where it may be grabbed Cyprus style and out of reach of any government agency which helps to explain its dramatic rise since the turn of the year.

It is also possible that some gold investors, whether in bullion or ETFs, who may be feeling vulnerable to financial regulators, will have switched into bitcoins. This could partially explain the outflows from SPDR Gold Trust ( GLD ) the  worlds largest ETF backed by the physical metal.

Bitcoins Possible Future Problems

So what is the downside to the digital currency. Bitcoin is the creation of an anonymous computer geek, why he is reluctant to reveal his identity raises some questions and does put some doubt in  our minds. The supply of bitcoins worldwide is supposedly fixed but media interest has created demand which explains the price boom which at the moment shows no sign of flagging.

To compound the bubble effect, many holders of bitcoins are now looking at the digital currency as an investment rather that a trading currency. Already some bitcoin providers have suffered cyber attacks which in the most part have been successfully fought off, but for how long. Again how long before governments introduce measures to penalise their citizens from purchasing or trading bitcoins, in other words is the set up totally defensible against government interference, in even the shorter term. Make no mistake, once they see bitcoin as a significant reason for loss of revenue, they will bring every resource to either close it down or severely reduce its appeal.

Then, of course, somebody at the top or in the know, maybe Mr Anonymous may well decide, at any time, to cash in on the party, issue more bitcoins and unload the lot at an unimaginably vast profit – wow, what a scam!

Are Bitcoins a Short Term Speculative Opportunity?

In the meantime for those who like a gamble, bitcoin does look a reasonable bet in the shorter term for a profitable play. The bubble is yet in its infancy and until euphoria takes over there could be a very substantial capital gain. It will need constant watching and, most importantly, we know of no mechanism for placing stops to limit losses, because if it does crash our guess is it will be devastatingly fast.

Gold Still Looking Good In The Long Term

For those of us with a longer term perspective we still see gold as eventually confirming our faith in it as a preserver of wealth, a hedge against inflation and ultimately a very profitable investment. The balance sheets of Western banks are looking iffy, with a big bust just around the corner according to some independent analysts. Statistics over the years have shown that in every instance of enlarging the money supply it has created significant inflation. Economic tensions in Europe are increasing, the US debt gives every appearance of being out of control, so much so that they have now resorted to yet a further measure of falsifying the cost of living figures (chain CPI), and Japan, the third largest world economy has announced a staggering and unprecedented increase in money printing.

Gold Safe From Governments, Bitcoins a Tempting Gamble

Our spare cash will continue to be invested in bullion via Bullion Vaults where we have the option of storing our gold or silver in either Zurich or Singapore where hopefully it will be safe from any government lien or grab. Meanwhile we will watch carefully the progress of bitcoin and hopefully learn more about the dynamics of the virtual currency with a view to a profitable punt in the short term. Of course it is possible that we may be persuaded that bitcoin is totally reliable and that it is a dependable way of avoiding unwelcome government attempts to part us from our hard won earnings and savings even though we will have paid all our due taxes except those imposed as a result of sheer political and banking greed and incompetency.


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