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Gold 2.0 (Bitcoin) Price Now Higher Than Gold 1.0 (Gold)

Posted by hkarner - 4. März 2017

Date: 03-03-2017
Source: The Wall Street Journal

Gold 2.0 is now pricier than gold 1.0.

Bitcoin CCThe price of bitcoin surged on Thursday to a fresh record, trading as high as $1,252. That is above the previous all-time high of $1,242 that the currency set back on Nov. 29, 2013, on the Mt. Gox exchange before that exchange’s collapse (because that price was recorded only on Mt. Gox, it generally was not regard as the currency’s “real” record high, though it was a real price paid).

More notably, the new high is symbolically important for this reason: It’s above the price of gold. The price on the most active gold futures contract on Thursday was down 0.7% at $1,241. That means that, at least for the time being, gold 2.0 has reached parity with gold 1.0.

While it’s debatable whether or not one bitcoin is the equivalent of one ounce of gold, if the prices hold, it would mark bitcoin’s first-ever “close” above gold, according to data from WSJ’s Market Data Group. That’s notable for bitcoin, and the groups that are promoting it as a 21st-century version of gold, a modern, digital, store of value.
bitcoin-vs-goldThe current gains come on top of a surge that’s been building since January. The immediate driver is anticipation that at least one of three current proposals for a bitcoin exchange traded fund could be approved by the Securities and Exchange Commission. The review period on two of them have deadlines this month: The Winklevoss Bitcoin Trust (March 11) and SolidX Bitcoin Trust (March 30). A third, the Bitcoin Investment Trust from Grayscale, is already quasi-public, trading on the over-the-counter market, and has about $200 million in assets under management. Grayscale applied with the SEC in January for approval to list its ETF on the New York Stock Exchange.

If approved, the Winklevoss trust would trade on Bats Capital Markets, which this week closed its acquisition with CBOE Holdings. SolidX would trade on the NYSE, if approved.

Grayscale’s ETF on Thursday was up 2.1% at $119.50. That is closer to its net asset value, which was $113 as of yesterday. That premium was much wider when the odds of an SEC approval seemed lower. As anticipation of a “yes” from the SEC have risen – despite the fact that the SEC has not commented publicly – the premium of the price to the NAV has been steadily declining.

Gold and bitcoin don’t exactly trade in lock-step, and while they do have obvious differences (one’s made of metal one’s made of digits), there are also some similarities. One of gold’s biggest investment cases is as a hedge against inflation, which is usually caused by monetary policy. Bitcoin in the past couple of years has seen its biggest surges come during times of stress in the fiat world, for instance, during the Cyprus crisis of 2013. Both, therefore, are seen as hedges against government policies.

Gold’s price dropped from just over $1,300 before the U.S. election to about $1,130 in late December. It has been generally rising since then, trading as high as $1,258 on Feb. 27. Bitcoin was trading around $700 before the election, rose as high as $1,130 in early January – coming close to gold’s price – then plunged more than 20% in two days. It has been rising since.

Having a bitcoin ETF trading on a traditional, fully regulated capital market would open up the bitcoin industry to Wall Street’s deep investor pools. While there’s nothing preventing any investor from buying bitcoin directly, it is a process that takes a fair amount of technical knowledge, especially to mitigate the risks of loss or theft. The idea behind an ETF is that it would give investors and avenue for investing in the digital currency, while shielding them from some of the direct risks of investment.

Whether the SEC feels these ETFs are structurally sound and provide investors with fair protections will be known soon enough. How many members of Wall Street’s investor class want to get into the cryptocurrency space will be known after that.


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