This Ain’t No Bubble

Chances are you’ve heard of Bitcoin by now.

This time last year, the cryptocurrency traded for US$572 (AU$723.16). Even then, cryptos were still very much a fringe investment idea. Something only the tech-savvy and early adopters were into.

As 2017 began, bitcoin was a buck or two shy of cracking the US$1,000 (AU$1,264.67) mark. Eight months later, bitcoin is worth US$4,638 (AU$5,865).

For the gold bugs out there, bitcoin is currently 3.5-times the spot price of gold per ounce.

This year will mark the year this digital monetary experiment goes mainstream.

Bitcoin and other cryptocurrencies are rapidly taking up print space in the financial news. Even the Huffington Post Australia (a service that normally focuses on ‘lifestyle’ news) started asking readers if it was too late to buy bitcoin.

Well, it’s not too late to buy bitcoin. Here’s why…

First, let’s look at why the mainstream media is on the bitcoin bandwagon.

Below is the yearly chart for bitcoin.

Bitcoin Price 31-08-17

Source: Coindesk
[Click to enlarge]

I’ve marked on the page the price at the start of the year and, as you can see, bitcoin has — for lack of a better expression — taken off like a rocket. That is what a 365% gain in less than eight months looks like.

Now, if we look back a little further to where bitcoin began, in 2010, the chart looks like this:

Bitcoin Price 31-08-17

Source: Coindesk
[Click to enlarge]

Back in August 2010, one bitcoin was worth 0.06 US cents. From that point to today, bitcoin has made a 7,729,900% gain.

Bitcoin has flown under the radar for the better part of seven years, and now these sorts of gains have caught mainstream attention.

This incredible price increase has many people asking if bitcoin is in a bubble. Bespoke Investment Group (BIG) took a stab at trying to decipher if bitcoin was a just a hyped-up new tech idea.

Because of its insane price gains, they compared the bitcoin price-rise to the tech bubble in the late 1990s. Measuring the price increases in percentage form, BIG start measuring the gains from what they believe was the start of a bubble.

To put this in perspective, tech stocks rose over 1,000% over the whole bubble period. Using late 2015 as the marker of the start of what they believe is the bitcoin bubble, the cryptocurrency has already achieved double the gains of tech sector during the 1990s bubble — in one third of the time.

Take a look:

Bitcoin vs Major Bubbles 31-08-17

Source: Bloomberg
[Click to enlarge]

Does this mean bitcoin is in a bubble? Hardly.

The latest price movement is the influx of people moving into the cryptocurrency. That’s all.

The problem is, while it’s surrounded by hype, very few people actually own or use bitcoin.

Coindesk recently said they have 14 million digital wallets. It’s important to point out that Coindesk said these wallets include ones that have been abandoned.

Also, it would be safe to assume that many of those accounts are likely to be duplicates. It’s easy to forget that you’ve set up a wallet if you haven’t bought any digital currency.

Which means, when you allow for duplicates and dormant wallets, chances are the number of bitcoin owners is much less then we believe. Given that there are roughly seven billion people on the planet, the number of active bitcoin wallets is almost statistically irrelevant.

In addition to this, a survey conducted by found that only 3% of bitcoin owners have more than 25 bitcoins in their digital wallet. The majority — 70% — have less than one bitcoin.

Monetary Evolution

It might feel like bitcoin is everywhere, and that everyone is jumping on board. But the reality is very different. Based on the limited statistics available, it’s barely being used.

The reason people are flocking to bitcoin shouldn’t be because it looks like an easy way to make money. Yes, the price is climbing, and it seems like a simple investment, but that’s not the reason anyone should buy any cryptocurrency.

Bitcoin is at the forefront of a monetary evolution.

Much like gold and silver physical bullion, bitcoin and other cryptocurrencies are a way to completely remove some of your wealth from the financial system. We now have a third chance to wrestle our money away from government control in bitcoin and cryptocurrencies like it.

Global monetary policy slowly devalues wealth and erodes your purchasing power. Making strategic and well-researched decisions on what cryptocurrencies can do to counter this could help you grow your wealth.

Daily use of bitcoin may be awkward for now, but don’t look to use it as cash just yet.

Think of bitcoin as a long-term disruptor. It’s here to shake up the financial system and rattle those with power over fiat money.

Nothing goes up in a straight line. In fact, I wouldn’t be surprised to see bitcoin sell off from its current price.

But bitcoin ain’t no bubble.

It’s a genuine alternative to gold and silver if you want to keep your money out of the financial system. But before you buy any cryptocurrency, you need to do your homework. This is a high-risk sector, where you could lose most or all of the money you invest.

But, if you know how to navigate this still-emerging market, the potential gains on offer are potentially astronomical. Details here.

Kind regards,

Shae Russell,
Editor, Markets & Money

Shae Russell started out in financial markets more than a decade ago. Working with a derivative brokering firm, she helped clients understand derivative markets, as well as teaching them the basics of technical analysis. Since joining Port Phillip Publishing eight years ago, Shae has worked across a number of publications. She holds the record for the highest-returning stock recommendation, in which a microcap stock returned over 1,200% in six months. Ask her about it, and she won’t stop yapping on. For the past two years, Shae has worked alongside Jim Rickards as his Australian analyst, translating global macro trends for Aussie investors, and how they can take advantage of these trends. Drawing on her extensive experience, Shae is the lead editor of Markets & Money. Each day, Shae looks at broad macro trends developing around the world, combining them with her distaste for central banks and irrational love of all things bullion.

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