Is It Time To Dump Your Gold And Buy Bitcoins?
Friday November 29, 2013 16:25
Have you thought about buying bitcoins this week? If so, you probably aren't the only one. After all, the surging price of bitcoins has been making headlines. The virtual currency skyrocketed to a new all-time high Friday at $1,242—after climbing above the $1,000 mark for the first time ever earlier in the week. Can anyone say panicked buying?
By one count, the value surged 24% on an intraweek basis, though values can vary from exchange to exchange. A few of the exchanges out there include the Toyko-based Mt. Gox, the Slovenia-based Bitstamp and The CoinDesk index is another source for pricing.
Bitcoins are now four years old and the increasing headline news, Congressional inquiries and rising prices begs the question—are bitcoins forming a bubble? And, for gold investors, a more important question lies at hand—have bitcoins replaced gold?
Is it time to dump your gold and buy bitcoins? Probably not. When it comes to the virtual currency there are several reasons to listen to the sage advice: Caveat Emptor, or "buyer beware."
Markets tend to "peak out" or post "blow-off" tops not long after the man on the street starts rushing to join the party. Remember the dot.com bubble implosion and subsequent U.S. stock market collapse in 2000-2002? The old joke is once your taxi driver starts giving you stock tips—look out a top is in the works. Why is that?
Markets accelerate in phases, fueled by different groups of investors. Generally the "smart money" gets involved in trends early. And, it is the "public" that rushes in at the end of a market-run fueling a late trend surge, which can form a "blow-off" top.
At tops the general public comes in because they are attracted to rising prices and good news. The general principles that underlie the markets don't change and continue to drive price cycles over and over again.
Beyond the issue of a speculative run-up, which could lead to a blow-off top and subsequent hefty downside correction in the value of bitcoins, there are other "issues" to consider.
Physical gold offers investors a tangible investment—a physical bar or coin to put in your safe deposit box, bury in your backyard. Bitcoins have no physical form.
Can anyone say hard drive crash!? Beyond that, this is a computerized technical system with who knows what vulnerabilities yet to be discovered.
Regulation ahead? Governments are sniffing around and getting interested in this virtual currency. The main attraction of no tracking, no taxation, or even government's inability to freeze someone's bitcoin assets could change.
Bitcoins may be here to stay, or just a passing fad. Only time will tell.
Gold investors have the backing of thousands of years of global history of using the metal as a currency, store of value and an investment—and that likely isn't going away anytime soon. |
