Gold investors and miners had a decent time in 2017; the price of a troy ounce of their favorite metal increased from $1,145.90 on 2 January 2017, to $1,333.35 on 15 January 2018.
Nice growth, but hardly exciting when compared with the roller coaster ride cryptocurrencies have been on. Coin Prices indicate that average investors are voting with their money and choosing altcoins over gold.
“In truth, the gold standard is already a barbarous relic,” John Maynard Keynes 1924. It seems as if cryptocurrency investors are good Keynesians who are putting their cash where their philosophy is.
Are Cryptocurrencies now More Popular than Gold?
Bitcoin’s (BTC) Coin Price went from $926.01 on 22 January 2017, to $10,590.00 on 22 January 2018. Coinbase calculated that the price of a Bitcoin increased by 1,043% or $9,668.99 during that period.
Nor was it just Bitcoin, the coin price for Bitcoin Cash (BCH) went from $439.27 on 30 July 2017 to $1,571.29 on 21 January 2018. If Coin Base’s estimate was correct Bitcoin Cash’s Coin Price grew by 257.45% or $1,130.89 in roughly a six month period.
The Coin Price of two popular cryptocurrencies now exceeds the price of an ounce of gold. A third popular cryptocurrency, Ethereum (ETH) is now within striking range of the price of gold.
Ethereum achieved a Coin Price of $976.81 on 22 January 2018. Ether’s Coin Price grew by an astronomical 8,919.48% or $965.98 in just a year. Ethereum coins were trading at $10.84 on January 21, 2017, according to Coin Base.
Gold is Still far More Valuable than Cryptocurrencies
Gold bugs might say cryptocurrency investors are fools and think their metal is underpriced. They would take the opportunity to buy gold figuring the price will shoot up when the altcoin bubble bursts.
Cryptocurrency investors will point to their technology’s growth and dismiss the gold bugs as a pack of ignorant Luddites. Strangely enough, the gold bugs might have a point, the Market Capitalization (Market Cap) of their shiny plaything exceeds that of cryptocurrency.
The total value of all the gold in the world was estimated at $8.2 trillion by How Much. The value of all cryptocurrencies reached $370 billion or an all-time high in December 2017, CNBC reported. This was impressive but less than the capitalizations of some popular stocks.
That was less far less than the Market Cap of Apple (NASDAQ: AAPL) stock which was $907.84 billion on 19 2018 and under the Market Capitalization of Berkshire Hathaway (NYSE: BRK.A) which was $526.73 billion on 20 January 2018.
Cryptocurrency has a long way to go before it catches up with gold or even the value of the big stocks. From a straight value perspective gold seems like a better investment because it still has far more value.
Bitcoin had a Market Cap of $217.850 billion on January 20, 2018, Coin Market Cap reported. Bitcoin Cash had a Market Cap of $35.113 million on the same day. Ethereum achieved a Market Cap of $112.340 billion on 20 January 2018.
Is Gold a Value Investment?
“I will say this about gold. If you took all the gold in the world, it would roughly make a cube 67 feet on a side…Now for that same cube of gold, it would be worth at today’s market prices about $7 trillion – that’s probably about a third of the value of all the stocks in the United States…For $7 trillion…you could have all the farmland in the United States, you could have about seven Exxon Mobils (NYSE: XOM) and you could have a trillion dollars of walking-around money…And if you offered me the choice of looking at some 67-foot cube of gold and looking at it all day, and you know me touching it and fondling it occasionally…Call me crazy, but I’ll take the farmland and the Exxon Mobils.” – Warren Buffett on Gold
Despite the money people pay for it; gold is not a value investment for two reasons that Uncle Warren alludes to above.
- Gold has no intrinsic value or use beyond a few electronic components. You cannot burn gold in an engine, power your house with it, or build anything out of it besides jewelry – which has little use in itself.
- It is almost impossible to spend gold in the real world. You cannot take gold over to Kroger (NYSE: KR) or Aldi and buy food with it. Nor can you use gold to pay the electric bill, pay off your credit card bill, fill your gas tank, repay that $50 your brother loaned you, or cover the mortgage payment.
These two reasons are why cryptocurrencies may increase in value while the gold price stays flat or shrinks. You can build all sorts of cool stuff out of Ethereum ranging from payment systems to cryptocurrencies, to smart contracts, to hedge funds and markets run by artificial intelligence, to platforms that operate robots, to next-generation advertising solutions, and artificial intelligence.
Researchers are working on similar solutions for Bitcoin and many other cryptocurrencies as well. Examples of what might be done with Bitcoin someday include superfast payment systems like the Lightning Network. The potential uses for cryptocurrency are almost unlimited.
All you can do with gold its to store it in a vault, make overpriced jewelry, make a few electronic circuits, and mint overpriced coins. The future value of gold is extremely limited and the supply and potential market for gold will not grow. More importantly, the cryptocurrency supply grows as more is mined, and so will the uses for it.
There are also numerous efforts to make cryptocurrency spendable in the real world. Several companies including Centra, TenX, Uquid, and ShakePay to name a few are planning cryptocurrency debit cards. These companies have run into a few problems lately, but if they succeed you will be able to take a crypto debit card down to Walmart and buy food with it or over to Loaf N’ Jug and fill your gas tank. You cannot do that with gold.
Cryptocurrency’s Growth Potential Greatly exceeds that of Gold
Cryptocurrency’s potential is why it is going to grow; altcoins have a vast amount of potential value that greatly exceeds gold. More importantly, we are only scratching the surface of cryptocurrency and blockchain technology. Many new uses for altcoins will be coming in the near future.
There is little or no new growth potential for gold because it is nothing but a store of value. Cryptocurrency is a new class of technology with almost unlimited potential.
So how much potential value can cryptocurrency accrue? Far more than you think because the total value of all money in the world was $83.6 trillion according to How Much. Since cryptocurrency is money it can theoretically absorb a lot of that value, gold simply cannot.
My prediction, gold prices will stay about the same while cryptocurrency values will explode in 2018. Events like the government shutdown in the US will drive many people to move cash into altcoins out of fear and harm gold prices. Those looking for growth investments should seriously consider cryptocurrency, but remember it will be risky.
Expect cryptocurrency to grow while gold simply sits still. If you want your money to sit still buy gold; if you want it to grow purchase equities or cryptocurrency.
Revelation: your friendly neighborhood blogger and author of this piece currently holds a small amount of Ethereum (ETC).
Disclaimer: This commentary is intended as food for thought, not as financial or investment advice!! Please, folks, do your own research and thinking and make up your own minds.