People on the outside of Bitcoin, looking in, tend to have a distorted view of Bitcoin’s merit and value as an investment. Earlier this year, some complained that Bitcoin’s price had become too stagnant, probably after being conditioned to think of it as some form of monetary nitroglycerin.
Mt. Gox’s collapse and corresponding market correction ended almost two years ago. Mike Hearn’s effect on the market hasn’t been felt in several months. It is time to let all of that anomaly go.
Furthermore, it is time to look at a new champion that no one saw coming in 2016. Digital currencies are changing the rules of the investment game forever.
We’ll have a new Champion
No one saw the newbie, Ethereum, taking the digital currency world by storm to start 2016. A world of promise and great ideas, it wasn’t exactly the cat’s pajamas back on New Year’s Day, trading for less than one dollar at the time ($0.96 to be exact, according to Coinmarket).
Yet, at the end of January, it was already building momentum, and greatly doubling in price. By winter’s end it was almost at $15 and was approaching $20 by the start of the summer. With the implosion of the DAO concept, the red-hot Ethereum love affair has cooled significantly, but has still remained well over $10, currently at $11.50. That’s a 1195% value increase so far in 2016.
As you’ll see, it is safe to assume no other fiat or digital currency, with a minimum market cap of $100 mln, will match or exceed it in 2016 for top-performer.
Now that the fork has taken place, and the invested funds are returning to their original owners, things have leveled off for young Ethereum, with many lessons learned. Kind of like Iggy Azalea’s social media trials after her first mega-single “Fancy,” some mistakes were made, and it’s time to rebuild the brand and move forward.
The fact that values have remained stable is encouraging, but Ethereum is not designed to be a mainstream investment option like Bitcoin. Ethereum has plenty of skills besides trade value, and at its current price, there is plenty of room for future growth. It’s market capitalization value is currently just under $1 bln.
Bitcoin is back to doing what it is supposed to do, and that appreciates over time, due to a finite supply supported by increasing demand over time. Last month, we covered Bitcoin’s yearly performance in regards to inflation rate, but now, we focus on Bitcoin’s market price/value. Bitcoin is having another banner year, following up on being the world’s best-performing currency in 2015.
At the close of 2014, Bitcoin was selling for $315.19 and was still in the throws of bottoming-out after the collapse of Mt. Gox. On January 14th, 2015, it dropped below $200, but it has been gaining pretty much ever since, ending the year at $427.23, a net gain of 35.55% for the year.
It's safe to say that Bitcoin will not match Ethereum’s growth this year, but it is easily beating last year’s market value performance. Bitcoin started the year with a price of $427.23. With over two percent increase yesterday, Bitcoin is currently trading north of $670 ($673.15 as of this writing, according to Bitcoinaverage.) That represents a 57.56% increase in 2016 alone. Bitcoin’s current market cap value is approx. $10.7 bln.
Granted there are still two months left in the year, and in the world of Bitcoin, anything can happen. China is virtually in control of the entire Bitcoin market, but that is the reason one should be confident that Bitcoin’s value will not backtrack. Unless the entire Chinese economy has a recovery in the next sixty days, their speculators will continue moving out of Yuan/Renminbi and into Bitcoin, as their currency devaluation continues.
The low point for 2016 was the departure from the community of Mike Hearn in
January, marking the second year in a row where January was the best time to sell, or buy your Bitcoins. Let us look at the rest of the economic landscape and see what the other currencies are doing in 2016, in comparison.
According to Bloomberg, comparing the Russian Ruble to the USD, its exchange rate index has dropped from 72.52 to 62.11 this year. The Chinese Renminbi has risen slightly, from 6.49 to 6.78, thanks to its new reserve currency status. The U.S. Dollar was very strong last year, up about 9%, but this year it has been rocking and rolling all year, yet ending up in the same place. USD index started this year at 98.63 and is currently at 98.66, with many peaks and valleys in between. It has been down most of the year and has just made it back to even in the month of October.
It appears that the best performing fiat currency is the Argentinian Peso, which is up over 50% since the middle of December, 2015, but since the first of this year is up 17.7%.
This is a normal behavior for your average fiat currency. Fiat currencies are designed to lose value, year after year, due to inflation and other factors. It is a anomaly for a paper currency to increase in value for any length of time. According to The Economist, last year the only currency that was in the black, besides Bitcoin, was the Isreali Shekel, at less than 1%. I much prefer Bitcoin’s investment value model.
How about Gold and Silver, you might ask? Unlike the last four years or so, 2016 has been a very good year for the two precious metals, according to goldprice.org. Gold started the year at $1060 and now trades for $1266, a rise of almost 20%. Silver has done even better, rising from $13.85 to $17.49, an increase of 26.3%, or about half of what Bitcoin has provided owners in 2016. Also, factor in that Silver was selling at $35-40 in 2011, while Gold was closer to $1800. They have a lot of lost value to make up for, not that they aren’t sound investments going forward.
Ethereum and Bitcoin have a very special advantage over the world of fiat currency. It is not subject to the whims of central bankers, governments that use it to fund the latest war, or an economic mindset built around kicking the debt down the road to future generations.
Bitcoin is deflationary in nature, debt is not an ingredient in Bitcoin’s success. Neither is mass adoption, but would you rather be the tortoise or the hare when it comes to what currency’s value is in your (digital) wallet? I think we know who the winner was in the long run. Ethereum is creating in such volume one shouldn’t expect annual returns like this, over the long run, but it’s been great for early adopters, if they were speculating, and didn’t go down the DAO rabbit hole.
Time will reveal if the bears come out of hibernation next January, days after the mainstream gives Bitcoin its props for another great year of investment value. What should be gleaned from this is that Bitcoin is a buy-and-hold investment commodity. If you just see it as that and forget all the other amazing things it can do, you’re way ahead of the game.
Hopefully, you have been wise enough to enjoy the upward volatility yourself this year. And last year.