Pausing for a moment to take a break from a relatively sleepy volatility market, I thought it'd be fun to take a look at the Bitcoin market. Check out this chart of Bitcoin priced in US dollars, going back 3 weeks (from BitcoinWisdom):
Yes, that is nearly a 400% gain in 3 weeks moving from $192 to $750.
So is this nothing but a speculative bubble? I like to look at it like a stock or commodity.
- Outstanding Bitcoins as of today is ~11.9 Million (with 20M of total 21Million scheduled to be available in the year 2028)
- Share price is ~$750
- Resulting market cap valuation: $8.9Billion
Now let's look at gold:
- Outstanding Gold mined: ~175,000 tonnes (5.626 Billion Troy Ounces)
- Price per troy ounce: $1473
- Resulting market cap valuation: $8.3Trillion ($8,300 Billion)
So with Bitcoin trading at 0.1% the value of the competing "safe haven" currency that is gold, it certainly seems like there is quite a lot of room to gain in market share and this idea seems to be taking hold.
It also helps that Bitcoins have recently become much more easy to acquire and it seems the masses are hungry for them. If you are interested in learning more check out Coinbase.com. You can use this referral link to get a Bitcoin bonus if you decide to jump in and make your first purchase.
As Stuart Weiner commented on Bitcoin's big move today, "We see that kind of volatility in speculative assets, not confidence-backed "currencies." Adding, "We've seen scores of currency crises over the years, of course, typically caused by poor economic policies."
So the question comes down to whether you think the current "confidence-based" currencies such as the USD, JPY, and EUR will be able to maintain confidence based on the economic policies of their respective nations. If it is all based on confidence, what is to prevent people from losing confidence in one currency or gaining confidence in another?
Updated 4:15pm PT, 11-18-2013