Gold now moves at its highest price since almost seven years ago, while global equities slid among recent political tension involving Iran and the US. The price of Gold shot up as much as 2.3% this week to $1,580 a troy ounce, its highest level since April 2013.
This subsequently boosted shares for manufacturing firms, as Newmont Goldcorp scaled 1.1% and Polyus International advanced 2.3%.
Natasha Kaneva, commodities analyst at JPMorgan, said: “Markets tend to overreact to geopolitics when trading is thin, as it has been during the post-holiday period, but investors are right to fret about what is happening in the Middle East.”
Aditya Pethe, director of Waman Hari Pethe, also remarked however that: “Demand could slow down because of the sudden jump in price, but once it stabilises, people will resume buying.”
Goldman analysts currently believe that Gold may in fact be a better bet than oil at the moment, but it all depends on what happens next in regard to the political situation between Iran and the US.
Why Invest in Gold?
There are several reasons to buy gold, all of which can differ from person to person dependant on their current position and experience in trading. While some tend to consider gold for a long-term investment, others might turn to the commodity as a way to make money before cashing in their investment. Regardless, political uncertainty can affect the success of any trading intention drastically. However, an investment in gold can actually work out in three different scenarios:
As a Hedge
Hedges are essentially a form of investment made to offset potential losses in another class of asset. In other words, an investor may buy gold to hedge against the potential decline or volatility of a currency or stock. Gold can act as a defence against inflation for this reason, but often requires fast movement to truly reap the benefits. For example, if a stock market began to crash, an investor could sell their stocks and buy gold. From here, as the stock market began to recover, they could sell the gold and move back to the stock market with their profits.
Safe Haven
Those who are investing in risky ventures can benefit from having a safe haven and gold acts as precisely that. An investor would buy gold, even as the prices continued to skyrocket, and could go on to sell this when needed. Alternatively, it acted as a way to either make a profit, or hold onto potential profit in the future if things began to recover. Essentially, buying gold as a safe haven gives you a financial buffer, even when stock markets are volatile or crashing.
Direct Investment
While buying gold as a direct investment isn’t as common, those wanting to buy gold for jewellery, technology or just as a finite valuable substance, as well as those who are investing solely for the future increase in the price of gold, direct investors often have their reasons for doing so. Of course, gold is held by governments and some individuals as a show of wealth.
When Does the Price Increase?
Gold’s position as a hedge or safe haven means that when political uncertainty comes around, the price of gold shoots up. More and more people will invest in gold as an immediate reaction to political turmoil, leading to increased demand and, of course, increased price. One example of this is the Eurozone crisis that has affected Europe since 2009. This debt crisis has wreaked havoc on the continent, but it was in 2011 when gold hit an all time high, at $1,895 per ounce. The sudden drop in value of the Euro devastated countless countries, plummeting them into debt. Investing in gold allows for bigger profits in the long run, due to its considerable stability when compared to other forms of asset.
How about a decrease?
If the price of gold is decreasing, this typically means that the stock and commodity markets are performing relatively well. With the economy in a good financial state, those thinking of long-term investments or a hedge or safe haven for the future could consider purchasing gold while the price is at its lowest. Currently, gold sits at around £33.70 per gram, offering investors the perfect opportunity to purchase gold at a lower price as a safeguard for the future, or a potential long-term investment opportunity.
While gold may not be right for every investor, those looking for a profitable investment for the long-term future could benefit from purchasing this particular commodity while it’s at a relatively low price. Direct investments with not only gold, but oil, mining and other hard assets can build up a strong portfolio for any investor.
The analysis from the CEO of the deVere Group comes as investors piled into the Bitcoin and other cryptocurrencies this week amid growing trade tensions between the US and China.
The Chinese renminbi fell to under 7 to the US dollar on Monday – the lowest in more than a decade – igniting drops in stocks and emerging market currencies and driving a rally in government bonds.
Nigel Green, chief executive and founder of deVere Group, notes: “The world’s largest cryptocurrency, Bitcoin, jumped 10% as global stocks were rocked by the devaluation of China’s yuan as the trade war with the US intensifies.
“This is not a coincidence. It reveals that consensus is growing that Bitcoin is becoming a flight-to-safety asset during times of market uncertainty.
“Bitcoin is currently realising its reputation as a form of digital gold. Up to now, gold has been known as the ultimate safe-haven asset, but Bitcoin - which shares its key characteristics of being a store of value and scarcity – could potentially dethrone gold in the future as the world becomes increasingly digitalised.”
He continues: “With the Trump administration now officially labelling China a currency manipulator, escalating the tensions between the world’s two largest currencies economies, investors are set to continue to pile in to decentralized, non-sovereign, secure currencies, such as Bitcoin to protect them from the turmoil taking place in traditional markets.
“The legitimate risks posed by the continuing trade dispute, China’s currency devaluation and other geopolitical issues, such as Brexit and its far-reaching associated challenges, will lead an increasing number of institutional and retail investors to diversify their portfolios and hedge against those risks by investing in crypto assets.
“This will drive the price of Bitcoin and other cryptocurrencies higher. Under the current circumstances, I believe the Bitcoin price could hit $15,000 within weeks.”
The deVere CEO concludes: “Cryptocurrencies are now almost universally regarded as the future of money – but what has become clear this week is that they are increasingly regarded a safe haven in the present.”
The tumultuous backdrop of volatile financial markets has seen commodities such as precious metals steal the limelight recently – particularly gold. According to a recent report by the World Gold Council, Central bank demand for gold was 651.5t in 2018, up 74% compared with 374.8t in 2017[1], hitting a recording-breaking half-century high of gold bought by central banks, the largest increase since the US’s decision to end the dollar’s peg to bullion in 1971.
This renewed interest in gold is due to the perfect storm of political tensions, trade wars, global debt and economic downturn, fuelling the need for institutions to diversify their investment portfolios. Countries across the world are turning their backs on the US Dollar as a reliable means of reserve, exemplified by the Russian central bank which sold almost all of its US Dollars to buy 274.3 tons of gold in 2018[2].
Following its annual report, the Director of Investment Research at the World Gold Council has announced central banks’ appetite for gold is here to stay. These official purchases are expected to provide a stable base for the gold market long-term, but how can the full commercial potential of the booming gold industry be unlocked? The answer is simple – blockchain technology.
Digitising gold on the blockchain could hold the answer – providing a stable currency through a safe haven asset.
Christine Lagarde, the head of the IMF, declared late last year that all central banks should consider issuing their own digital currencies, cementing blockchain as a financial services mainstay[3]. However, two IMF economists recently explored how this digital currency could be used by central banks to stimulate economic growth and counter a possible recession by implementing as negative an interest rate as necessary. So, the question arises whether blockchain-based currencies can truly serve consumers.
Digitising gold on the blockchain could hold the answer – providing a stable currency through a safe haven asset. This evolutionary system would need to be backed by real assets of gold and silver, providing a 1:1 allocation to physical bullion. The gold industry must adapt to join the fast-paced digital world to stay relevant today. A digital currency pegged to gold is the most suitable way to usher in a new era of stability to financial markets.
Although previous digital gold currencies have failed in the past, the latest innovations in blockchain technology provide a trustworthy way to record transactions and ownership of gold, whilst permitting fast international transactions at low rates. This platform will allow the seamless everyday spending, management, and retrieval of these gold and silver-based currencies by using a physical debit card leveraging the global networks such as Visa. The transaction fees accumulated whenever the currencies are sent, spent or traded are proportionately redistributed as a velocity-based yield, incentivising use. Renewed interest in gold, distrust in the banking system, combined with the shift to convenient, agile online-only banking has set the perfect scene for digital gold to flourish.
This platform will allow the seamless everyday spending, management, and retrieval of these gold and silver-based currencies by using a physical debit card leveraging the global networks such as Visa.
A precedent in the FinTech scene has been established; providing the stable, trustworthy financial platform consumers are looking for. The use of advanced blockchain technology is bringing accessibility to gold trading and shows how old world investment and new world technology can work together to create a new stable currency. Significant technical developments have already been completed, and this year will see a new monetary system flourish that will change the way people see and use gold. With gold at a 50 year high, there has never been a better time to invest in this bank-free monetary revolution and return to the gold standard.
Website: https://kinesis.money/en/
[1] https://www.gold.org/news-and-events/press-releases/central-bank-buying-drives-growth-in-gold-demand-in-2018
[2] https://www.cnbc.com/2019/01/31/world-gold-council-central-banks-buy-most-gold-since-1967-.html
[3] https://www.theguardian.com/business/2018/nov/14/imf-says-governments-could-set-up-their-own-cryptocurrencies
Gold has long been known as a store of value to help investors weather turbulent financial markets. Below, Shaun Djie, Co-Founder and COO of Digix, explains why digital gold is a forward moving solution for everyone.
In recent years, it has also become far easier for the average individual to buy and sell gold. There are online bullion dealers and high-street shops selling gold, as well as exchange-traded funds for gold, which are effectively investment funds that track the price of gold.
However, while it’s now easier to purchase, the spread between what individuals pay for this asset and what dealers sell it for can be very big. This is especially true for small denominations of gold. Exchange traded funds overcome many of the associated complications of investing in gold but they tend to be more expensive than physical gold because of the inclusion of brokerage and management fees.
But for those interested in investing in gold and getting a better deal for it, the good news is an alternative to owning physical gold and relying on ETFs is emerging – thanks to blockchain technology.
Understanding blockchain’s potential
Blockchains are shared digital ledgers that record every transaction ever made on them. So physical assets like gold can be divided and represented by tokens, and blockchain technology can keep track of the ownership of those tokens.
Gold has become one of the first real-world assets to be tokenised and freely traded on the blockchain. With this comes a level of divisibility that hasn’t been seen before. Emerging gold ownership and trading protocols can ensure that tokens are minted on a proportional basis – so, for example, one token is equivalent to one gram of a physical gold held in a secure vault.
In some systems, the delivered gold is subject to verifications at the point of deposit into the vault, as well as at quarterly reviews by independent auditors. Hence, there should never be more tokens created than the total weight of physical gold bullion backing them.
Simplicity and liquidity
In this way, gold-backed tokens not only bring divisibility but also an easy, reliable and secure way to own and trade gold. Liquidity would increase, which would be good news for current gold investors and any prospective investors who may have been put off by an inability to access small denominations or by the fees that ETFs charge.
For existing investors, more profits from gold can end up in their pocket too. Buying a gram of gold through leading smart asset companies on the Ethereum blockchain costs under US$40, where as the retail price for a 1g bar hovers around the US$77 mark.
That’s because, by removing the physical and administrative costs of creating 1g gold bars, tokenised gold can get as close to the the spot price of gold than any method – regardless of the size of purchase.
Stability that investors can rely on
While these benefits will sound appealing to many investors, some may point to the historical volatility of cryptocurrencies as a sign that they won’t appeal to gold investors’ needs. It’s certainly true that the huge speculative bubble in virtual currencies has led to immense volatility.
However, gold-backed tokens are totally different to existing cryptocurrencies because of the bridge they have to the real world asset. To build confidence in crypto markets, gold-backed tokens are needed. They can also diversify portfolios and be used as collateral for lending and other financial products.
For existing investors, gold forming a central part of the crypto economy would be beneficial, pushing up the demand for the metal even further. These investors have always been able to see the value of their investment in this asset. However, through the tokenisation of physical gold, they can benefit from the liquidity, divisibility and security of these digital assets just as much as entirely new investors can.
Precious metals miner Sibanye-Stillwater has entered into an agreement with Regulus Resources, and its subsidiary Aldebaran Resources, to acquire a stake in the Altar copper/gold project, in San Juan, Argentina. Peregrine owns the Altar project.
Under the terms of the agreement, Sibanye’s wholly-owned subsidiary Stillwater Canada and Aldebaran, will enter into a joint venture agreement with an opportunity to earn up to 80% interest.
Mining Weekly reported that Sibanye states that the arrangement creates a “new, well-capitalised, Argentinean-focused exploration company”.
“This transaction is consistent with our strategy of maintaining our focus and investment on our core mining operations. We believe Aldebaran possesses the vision, skills and experience to unlock the considerable upside potential of the Altar project, in which we will continue to hold a meaningful interest,” commented Sibanye CEO Neal Froneman.
INTERVIEW WITH SANTIAGO SARAVIA FRÍAS AT SARAVIA FRÍAS & CORNEJO ABOGADOS
Please tell me about your involvement in the deal?
I was involved as the local lawyer of Regulus Resources Inc in Argentina. Our work basically consists in advising our client on the implementation of the Joint Venture from an Argentinean law perspective and performing a due diligence on Minera Peregrine S.A. (Sibanye/Stilwater`s Argentinean Subsidiary) and its mining titles in the Altar Project.
Being the mining rights the main assets of Minera Peregrine S.A., the most important aspect of our due diligence was focus on reviewing them to determine its good standing, whether there were encumbrances, private royalties, landowners claims/agreements, overlapping with third parties, agreements with San Juan Province, third parties claims, and the extend of the permits related to exploration activities like the scope of the environmental impact assessments approved, water rights, right of way to access to the project etc.
Why is this a good deal for all involved?
This is a good deal for all involved since with Aldebaran Resources – the operator of the mining projects -, the parties will benefit with all Regulus Resources’ successful past experience and technical knowledge. This will allow to further develop the Altar Project and hopefully carry it out to the exploitation stage. On the other hand, both parties will have interest not only in the Altar project in San Juan Province but also in others exploration projects like “Rio Grande” and “Aguas Calientes” located in Salta and Jujuy Province respectively, which also have the potential to add value to the new company.
What challenges arose? How did you navigate them?
The main challenge was to have the due diligence finished on time. Our client wanted to have a preliminary opinion on the main contingencies and on the good standing of the mining rights in few days, in order to decide whether to enter or not in formal negotiations. To accomplish this, I personally travelled to Mendoza Province where Sibanye-Stilwater’s subsidiary is registered to review the documents at their office and interview the local lawyers and officers. Then I went to San Juan Province and review in situ, most of the documents and files related to the mining rights and permits. Eventually we were able to give this preliminary opinion on time.
Towards the end of July the price of gold steadied after US President Donald Trump who criticized the Federal Reserve's interest rate tightening policy. In more recent events, Trump doubled tariffs on Turkey’s steel and aluminium.
In the US gold prices have hit a 17-month low, falling down to the $1,200 mark and are increasingly trading lower. In other countries the price of gold continues to rise.
Daniel Marburger, Managing Director at Coininvest told Finance Monthly: “Gold prices soar in times of uncertainty, which is why many people expected gold price to fall once Trump was elected.
“Throughout his presidency, Trump has proved to be a controversial character and we’ve seen movement in gold price reflect this.
“He has had a positive impact on the value of the US dollar which usually lowers the gold price, however, current trade wars Trump has started with the EU, Canada and China are offsetting this, slowing the decline.
“High interest rates make gold a less attractive investment, unlike other investments it doesn’t offer interest. It will be interesting to see how the US president’s decisions will impact the value of gold throughout the rest of his presidency – especially as we approach the mid-term elections in November.”
Investors around the world choose commodities as a means of either advancing their trading strategies or hedging against investments in stocks, forex or cryptocurrencies. But which commodities are they choosing?
In this article Finance Monthly discusses five of the best, looking at the current market conditions and how things might change in the near future. But first we’ll discuss why you might want to trade commodities.
Why Choose Commodities?
Commodities usually reflect trends in the world at large, and so are a good vehicle for those with their finger on the pulse of international markets and political conditions. They are also generally inversely correlated to the stocks and shares market, making them a useful means of protection from risk in your other investments.
You could even use them to hedge against forex trades, provided you use a trading platform that gives you fast and reliable access to as many markets as possible.
And when it comes to choosing commodities to trade, these are the five that we believe you should know about in 2018:
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Brent Crude
With tension continuing across the oil-producing world and growth predicated in emerging markets, this commodity is a good choice for the rest of this year. In fact, the Goldman Sachs Group Inc. has given Brent Crude an ‘overweight’ recommendation for the current period, meaning that they believe this is a commodity worth adding to a trading portfolio.
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Natural Gas
High output in countries such as the US and Russia has continued to keep prices lower than they should be for natural gas, but this could change – especially towards the tail end of the year when the Northern Hemisphere moves into winter and demand increases. In fact, demand for natural gas is already outstripping supply in China, and this will surely have repercussions on the price of this commodity worldwide.
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Copper
Disruptions in mining output, coupled with urgent demand from the electric car industry, have caused the prices of copper to soar recently. This trend may not continue with such force, but over the course of 2018 prices are expected to rise 9.7% from 2017 levels. In other words, copper is still a commodity you should definitely know about.
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Palladium
This commodity is used in vehicle catalytic converters, and so enjoys demand from the automotive industry. As the trend of converting from diesel to unleaded petrol and hybrid electric continues, so too should the price of palladium rise. Palladium has even started to reach the price levels of platinum, giving just some indication of how in demand this commodity is.
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Zinc
A top performer in 2016 and 2017, this base metal is beset with supply problems which could see it to another strong year in terms of price growth. Another factor is demand from the Chinese market, which looks set to continue its increase for Zinc and similar commodities.
Of course, there are other commodities to watch in 2018, but these five commodities should provide a good starting point for building a strong investment portfolio.
The year 2017 has been eventful in terms of the various socio-political and economic developments across the world. Here is Mihir Kapadia’s quick summary of the year as it was.
The Year of Elections
After 2016 gave us Brexit and Trump, political and economic analysts across the developed world were wary about the possibility of protectionism spreading across the European continent, especially as 2017 was due series of elections in the region. With The Netherlands, France and Germany, the three big powerhouses of the European Union, going to the polls, there was a real threat of right-wing populist parties gaining prominence and altering the mainstream and liberal values of the western developed economies. The fear was legitimate, as EU sceptics appeared to be inspired by Brexit and Trump and were engaging on similar campaign promises based on nationalism and the closing of borders.
The year delivered relief across the continent, as liberal political parties emerged victorious over right-wing populists; however, the political dynamics and discourse in the region were considerably altered. Eurosceptics including Geert Wilders in The Netherlands, Marine Le Pen in France, and the Alternative for Germany (AfD) party gained mainstream prominence and considerable representation in their respective countries.
Germany is currently in a difficult spot, as none of the parties secured a working majority, Angela Merkel’s CDU has been attempting to negotiate a ‘grand coalition’, in an attempt to break the current political deadlock after coalition talks with the pro-business Free Democrats (FDP) and Greens collapsed. While brokering a grand coalition across parties in the parliament can deliver governance, it is too early to comment how strong the Chancellor’s leadership and authority would be.
Trumping the Stock Markets
While protectionism and populist policy proposals have been part of the 'Make America Great Again' campaign slogans, the larger driver behind the 'Trumponomics' rally has been the hope that President Trump can push through policies to stimulate growth and increase corporate profits. Anticipation of infrastructure expenditures, healthcare reforms and tax cutting legislation helped rally the stock markets to a series of all-time highs. While the stock market has consistently risen strongly since November 2016, despite the fact that many of Trump’s key promises such as infrastructure spending and healthcare reforms are yet to materialise, there are increasing fears that the US stocks are being overvalued. However, these concerns have been there since 2003 when the current long equity rally began.
Meanwhile, the dollar has had a rough year, having lost about 9-10% in 2017, but Trump has probably been happy to see it fall, as it will help boost US exports.
Financial analysts observing the uptrend in the US stock market over the year have cautioned that the markets may already be overpriced. The last time the US economy had a meltdown, it was 2008 and it affected the whole world. The 2008 financial crash occurred because of fragility in the banking system due to poor mortgage lending. The US is currently trending positively on earnings, employment, wage growth, housing and GDP. These indicate no signs of an impending recession; and the Federal Reserve is likely to raise interest rates through 2017 and into 2018. Trump has been indirectly very good for the economy.
Dull year for Gold
The significant threat globally throughout 2017 has been North Korea's aggressive stance against the US and its regional allies - South Korea and Japan. The year-long nuclear ballistic tests and provocative missile launches rattled Asian markets, but net impact was negligible and equities have risen in Asia and elsewhere. Therefore, safe-haven assets, such as Gold, received little support due to these threats.
Globally, the bullish stock market, rising interest rates and a sense of market security proved to be bad news for Gold, US-denominated assets such as Gold are influenced by the movements of the dollar, and its fortunes are also tied to the dollar among other factors. The US dollar has fallen nearly 10% year-to-date (or YTD) in 2017.
Under a bullish Federal Reserve, the commodity had already priced in the factor of interest rate hikes. Only if the actual rate of increase is lesser than expected, gold prices may benefit and see some relief going into 2018. Investors therefore will keenly observe the Fed’s tone when they discuss the interest rates for next year to understand how they would progress into 2018.
Brexit uncertainty remains
Brexit continues to dominate the UK’s political and economic spheres and the year began with the invoking of Article 50 by Prime Minister Theresa May on 29th March 2017. Political discussion around Brexit also led the country into a snap general election in June, resulting in the Conservative Party losing their majority, and further splitting the British parliament.
Since the Brexit referendum of 2016, the pound lost 10% against the Euro and 17% against the Dollar. The fall in the value of the pound in fact worked in favour for the stock markets, with the FTSE100 (which largely comprises of exporting organisations) having reached record highs through the year. While the fall in the value of the currency may have helped British exports, the benefit stops there. Rising inflation and weak wage growth in the UK have directly affected the average British household as the period of uncertainty continues.
While Brexit is inevitable, the financial sector, which considers London to be its capital, is keen on retaining its ‘passporting rights’ - the right for a firm registered in the European Economic Area (EEA) to do business in any other EEA state without needing further authorization in each country. In fact, London has been the major focal point for this very reason – an English language capital city, ideally located between the Americas and Asia and acting as the gateway into Europe. Therefore, any indication of a ‘Hard Brexit’ – one which threatens to pull the UK out of the EU without any deal, is of a major concern for the City of London. The pound and the economy therefore are directly affected over this concern as businesses continue to operate over the period of uncertainty. The UK also faces an upward of £40 Billion Brexit ‘divorce bill’ payable to the EU, which adds another financial liability to the process.
Eurozone recovery at its finest
The European Central Bank’s (ECB) president Mario Draghi has expressed the bank’s confidence over the region’s recovery, noting that the momentum has been robust, as GDP has risen for 18 straight quarters. The central bank attributed the overall success this year to improved employment figures in the single bloc, while noting that inflation cannot be self-sustained at this juncture. Mr Draghi used these comments to express interest and possibility for extending the timeline of the slowdown of its bond-buying program, which is slated to start from January 2018.
While the recovery has been robust, the ECB also recognises that it is vital for member states to continue a stable political and economic structure within, and reinforce each of their fiscal structures in order by focusing on both, keeping a buffer rainy-day fund while also working towards reducing debt. While these are words of wisdom for the future, Mr Draghi would also be thankful for the past year as Eurozone mitigated the rise of far right into leadership, especially in France, Netherlands and Germany – the three key powerhouses in the EU. The economy therefore was well protected this year.
10 Years of the Financial Crash
2017 also marked the 10 years of the great financial crisis of 2008 in October, which had sent the risk assets across global stock markets and economies tumbling. The ten years since the financial crisis of 2007-08 has passed quickly and on a better note than anyone could have expected at that point of time. From the collapse of Lehman brothers in 2008 to the arrests of Irish bankers in 2016, the 2008 depression had brought in a wider understanding of the fragile western economic ecosystems. The crash was a serious wake-up call for governments across the world, thus paving way for bringing in regulatory responses to the banking practices - such as the expansion of government regulation, scrutinised lending practices, and tougher stress tests to make sure they can withstand severe downturns.
The financial crash of 2008 provided a learning opportunity to set things right, and our economic mechanisms today have certainly implemented checks and balances to be more cautious in their functionality. If the crash has taught us anything, it is that complacency can be catastrophic.
It has certainly been an interesting year, and 2018 holds more opportunities for us than ever before to learn and grow.
Ray Dalio, the founder of the largest hedge fund in the world, told Henry Blodget that investors should have 5% to 10% of their portfolio in gold. During that same interview, Dalio called bitcoin a "speculative bubble" and said "bitcoin is not an effective medium exchange by and large" and "it's not easy to buy things with the bitcoin."
Dalio isn't the only one asking these questions about bitcoin. If bitcoin really is a currency, then it is important that you can buy things with it. But this may not be a fair argument. We all seem to accept gold as a storehold of wealth and as an alternative currency even though you really can't make purchases with gold.
So in an effort to fairly compare gold and bitcoin in this vein, we went out into the world to see how easy it was to spend both in everyday transactions. It turns out it isn't easy to spend either. The only person we could find who accepted gold in New York City was Donald Trump in 2011.
Bitcoin is slightly easier to spend. We couldn't use our bitcoin at Subway, which is on a few lists of retailers that accept bitcoin. Le Village, a restaurant in New York's East Village that many have reported accepts bitcoin, was closed down when we tried to eat there. But we did have some luck spending bitcoin.
We found that it was easy to use bitcoin on Overstock.com. Also, my daughter's preschool accepts bitcoin for tuition payments. But if you really want to use bitcoin in everyday transactions, you can get a debit card that allows you to spend bitcoin easily. But maybe we are simply using the wrong words when we talk about bitcoin.
As Adam Ludwin, the founder and CEO of Chain, says in his open letter to Jamie Dimon, "since this isn't about cryptocurrencies vs. fiat currencies let's stop using the word currency." He goes on to say that he prefers to think of them as "crypto assets."
You’re hearing more and more news about bitcoin, the blockchain and cyrptocurrencies, but the big question floating around is whether bitcoin is the new gold, or just a fad. Richard Tall, Partner and Head of Financial Services at DWF, here provides Finance Monthly with an insight into the answers.
Economic history has delivered many assets, which, for seemingly little reason, deliver huge surges in value. Dutch tulips, the South Sea bubble, railway shares and the dot com boom are all examples of these surges, most of them driven by what the objective observer operating with 20/20 vision would categorise, using modern parlance, as "FOMO".
And with the advent of Bitcoin and other cryptocurrencies, many have claimed that the next "FOMO" driven asset surge is already taking place.
Cryptocurrencies arise from the solving of a complex series of arithmetical equations. Mankind has been solving arithmetical equations from the dawn of time, but with the exception of the development of an industrial or commercial purpose, has any intrinsic value been attributed to the simple solution of arithmetical problems? The value of any asset is a matter of perception of a variety of factors; why is gold any more valuable than iron, other than it looks nicer and there is less of it? While gold has been around longer, is it inherently more valuable than bitcoin simply on the basis that it has been around for longer and mined from the ground rather than a machine?
Had one been around for the first gold market, would market conditions have fluctuated more or less than the bitcoin market? In 2017 alone, Bitcoin has seen a rise in value of 700%. Its banning, along with other cryptocurrencies, by one of the world's most significant financial regulators, and a slamming by the CEO of one of the world's largest investment banks, have caused its price to swing significantly too, having touched both $5,000 and $3,000 in the three weeks prior to this article being written. Did gold do that?
Much news was generated by the entrepreneur and Baroness Michelle Mone being linked to a disposal of units in a residential development, where payment would be accepted in bitcoin. Cutting-edge, but had Mone accepted bitcoin at $5,000 per bitcoin two weeks ago, she would be sitting on a loss. As with all of these things, it is possible for parties to agree to trade any asset for any other asset, in ancient times this was simply a barter system, but it still exists in many forms today. The first gold market would have been a barter market, the premise being that gold looks nicer than a sheep, albeit you cannot eat gold. The market would have arisen because a hungry person met a person who fancied a nice necklace. By definition, a number of factors, such as the supply of sheep and the acceptability of bling in the ancient world would have affected the barter price. Gold too (and no doubt sheep) would have had its naysayers.
So what is the future for cryptocurrencies? Or, should the real question be, what is the future for distributable ledger technology? The latter has implications for trade and payment systems which humankind is only beginning to fathom. What we have to come to terms with, is whether the value lies in the instrument which is created when a cryptocurrency is born, or if it lies in the service which it facilitates or delivers. By definition, the value has to be in the service facilitated or delivered, as without those, as has been pointed out by Jamie Dimon, all there is is a currency invented "out of thin air."
So where now for cryptocurrencies? This depends on whether they remain as tools of speculation or the means of delivery for a service. The latter will flatten values, with the value being inherent in the service or the entity controlling the service. The former will maintain the status quo, but with huge volatility being driven by the most unpredictable variable of all; sentiment.
Physical gold sales have increased 68% in the last week at investment firm The Pure Gold Company in the run-up to tomorrow’s election, as the deadline looms.
Chief Executive Josh Saul said: “Some of our clients are concerned that if Jeremy Corbyn wins the election then national security will be threatened which would negatively affect the financial markets including the value of sterling and the stock market. While the polls reflect a May victory, similar polls predicted a Clinton Victory and a Remain vote in the UK Brexit referendum, and our clients remember how that turned out. On June 24th 2016, gold increased 24% over a 12 hour period following the unanticipated Brexit result despite polls reflected otherwise.
"We’ve seen a 64% increase in people investing in gold for the first time, citing fears that a further terrorist attack will add uncertainty to an already volatile market.
"People are preparing for the unexpected. We have seen a 49% increase in financial professionals purchasing physical gold to hedge themselves against the expectation of short-term volatility, counterparty risk and the possibility of sterling dropping in value following a potential Corbyn victory. Moreover, the sale of Banco Popular Espanol SA for 1 Euro has increased contagion worries within the banking sector, which is encouraging clients to purchase more gold.
"The Pure Gold Company have witnessed a 62% increase in retirees purchasing physical gold. Some of them are worried about the threat of cyber-attacks on bank accounts like that of Lloyds bank in January, and following on from the widespread cyber-attacks in May."
(Source: The Pure Gold Company)
