Cryptocurrency is gaining popularity among people from all walks of life. Some love the idea of anonymous transactions, while others enjoy the thrill of investing in something untouchable by central banks. Investors don’t agree about Bitcoin’s long-term investment potential, but it’s worth noting that banks are now getting involved in several ways. If Bitcoin is a bubble, it’s not your usual bubble:
How Banks Are Getting Involved With Bitcoin
Europe may be well ahead of the U.S. when it comes to embracing Bitcoin’s powerful potential. Denmark’s Saxo Bank has made two exchange traded notes (ETNs) available to investors. The first is Bitcoin Tracker One, it is traded in Swedish krona. The second is called Bitcoin Tracker EURO and is traded in euro. These ETNs track Bitcoin’s movement against the U.S. dollar, and are traded on Nasdaq OMX.
Earlier this year, trading expert Tarik Husseini discussed the potential for a Bitcoin ETN to hit the US. "Almost all commodity-based futures ETFs have capital invested in futures contracts. So it would make sense that if the Bitcoin ETF, coming up for approval on March 11, is approved, a futures contract may not be far behind."
While we’re still waiting for SEC approval, experts speculate the launch of the Futures-based ETF by the end of the year.
Husseini also comments that along with the accelerated growth of Bitcoin, gold has been experiencing its own concurrent rally. In February of 2017, both Bitcoin and gold rallied up together. However, Bitcoin is still in its infancy and this doesn’t indicate a long-term correlation.
All Bitcoin controversy aside, some people are wondering if Bitcoin will replace or alter the price of gold. The answer, while still speculative, involves multiple components.
Blockchain Technology Won’t Replace Gold
First, Bitcoin and gold aren’t two competing investments. Gold is a tangible asset that has been held in high esteem for centuries due to its widespread industrial value. Bitcoin isn’t a tangible asset and has no intrinsic value beyond a medium of exchange for blockchain transactions.
Blockchain, put simply, is a digital and decentralized ledger that records transactions in a way that makes secretly altering data impossible. It’s not that it can’t be altered. It just can’t be altered without everyone knowing. That’s where Bitcoin’s value ends, but that doesn’t mean its value in US dollars can’t soar.
The problem with Bitcoin is it’s being valued based on speculation, not its practical use. This means the value can change at any time.
Bitcoin Has the Potential to Influence the Price of Gold
Although Bitcoin and gold are two completely separate investments, the popularity of Bitcoin has the potential to influence the price of gold. People have been investing in gold, silver, copper, palladium, and other precious metals for years. Gold has been proven to do well even in times of inflation and uncertainty.
Experts advise that consumers invest in gold because it has tangible value. Unlike paper currencies, gold has maintained inherent value throughout the ages.
According to Investopedia, "Gold has historically been an excellent hedge against inflation, because its price tends to rise when the cost of living increases. Over the last 50 years investors have seen gold prices soar and the stock market plunge during high-inflation years."
In other words, investing in gold can be a worthwhile investment if you’re sideswiped by inflation. Investing in gold can also prove to be worthwhile if Bitcoin turns out to be a bubble.
With that said, the volatile nature of Bitcoin has the potential to drive non-believers to more heavily invest in gold. While others are dumping their life savings into digital currency, they’ll be buying up tangible assets like gold and silver.
Bitcoin Is Creating a Divide of Uncertainty
In this sense, the volatility of Bitcoin has the potential to increase the demand for gold, even if it’s only temporary. It’s weird to think that cryptocurrency, which has no tangible existence or inherent value, can influence the value of precious metals.
While nobody is certain of Bitcoin’s future and its effects as a financial investment, it’s worth keeping a close eye on. Until then, if you’re already planning to invest in gold and silver, you may not want to wait until everyone else comes to the same conclusion.
Larry Alton is a professional blogger, writer, and researcher. A graduate of Iowa State University, he's now a full-time freelance writer and business consultant. Currently, Larry writes for Entrepreneur.com, Inc.com, and Forbes.com, among others. In addition to journalism, technical writing and in-depth research, he’s also active in his community and spends weekends volunteering with a local non-profit literacy organization and rock climbing. Follow him on Twitter (@LarryAlton3), at LinkedIn.com/in/larryalton, and on his website, LarryAlton.com. To read more of his reports — Click Here Now.
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