2017 isn’t over yet but one could say, without a doubt, it has been a good year for Bitcoin – from 1,000 dollars at the start of January to more than 7,000 dollars in November! All records have been broken and there is still a lot of room for it to progress, given the many innovations allowed by this crypto-currency. We’re at the beginning of a true paradigm change.
2017 will also be the year of Bitcoin’s public success since more and more people want to participate in this adventure and profit from such rapid gains. Coinbase, the main Bitcoin trading platform in the United States, where one can exchange Bitcoins for dollars, announced on November 2nd they had opened more than 100,000 accounts in 24 hours. And there are comparable movements in Europe, China, Japan and South Korea.
This movement toward Bitcoin has a very sound element in regard to how people view money – people are catching on to the fact that Bitcoin is totally independent from the banking system and that the quantity of Bitcoins has been set right from the outset at 21 million units maximum, without any way of modifying said quantity. We are right at the opposite of traditional fiat currencies circulating throughout the banking system that can be printed at will by the central banks with their QEs.
We are getting back to a very sound concept of money, very close to gold, also independent from the banking system and available in limited quantities. The stockpile of gold increases a little each year – due to mining – but in a limited and predictable manner. The new proponents of crypto-currencies are becoming, whether they know it or not, new proponents of gold, and this represents an historical change.
Investors will progressively get this and understand, when they cash in on the whole or a part of their profits, that it is quite more logical to go from Bitcoin to gold, instead of going back to paper money. The fiat currencies – manipulated by central banks and held in extremely leveraged banks – are so risky that they might annihilate all of those profits. There are already legal frameworks in place (BRRD, Sapin Law 2) that threaten bank accounts... there is no use making money with Bitcoin if one is exposed to confiscation in case of a banking crisis.
Intrinsically, Bitcoin is “digital gold”. It thus must be conceived as complementary to gold – physical gold, that is, because with ETFs, one is still at the mercy of banks. A gold/Bitcoin portfolio constitutes an excellent way to have both safety and returns, diversification and performance, by balancing gold’s stability with Bitcoin’s volatility.
The world gold stockpile is estimated at 160,000 tonnes or, 5.7 trillion euro (with one bar worth 35,000 euro), compared with Bitcoin’s 100 Billion euro (16.7 million euro in circulation at 6,000 euro each). Gold goes back all the way to the Ancient times, whereas Bitcoin was born in 2009. The price of the former changes slowly whereas that of the latter fluctuates a lot. All these elements should make one consider both in a wealth preservation strategy, with gold allowing one to safeguard and protect one’s wealth over the long term.
Moreover, if “digital gold” is rising as much, one can imagine that traditional gold, given its volume and inertia, will follow suit soon... With Bitcoin, more and more people are questioning what real money is and, slowly, the whole world will jump in, and gold will benefit from it. And that is good news.
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Philippe Herlin Finance Researcher / Doctor in Economics
Philippe Herlin is a researcher in finance and a doctor in economics of the Conservatoire National des Arts et Métiers in Paris. A proponent of extreme-risk thinkers like Benoît Mandelbrot and Nassim Taleb, and of the Austrian School of Economics, he will be bringing his own views on the actual crisis, the Eurozone, the public debts and the banking system. Having written a book on gold that has become a reference (L’or, un placement d’avenir, Eyrolles 2012), he wishes to see gold play a growing role in our economies, all the way to its full re-monetization.